02 Aug 2010 Top 5 P2P Mistakes
Purchase to Pay can sometimes be a hard sell. In a highly siloed organization where purchasing and finance see themselves as different species, getting buy in to an end to end holistic approach to purchasing is virtually impossible. But without the holistic approach some serious stuff goes wrong. Below are to top 5 problems that occur when purchase to pay best practice is ignored.
1. Late payment and its consequences
A good buyer becomes a great buyer when they can get a supplier to buy in to their organization’s objectives. It requires great strategic relationship management skills to achieve this and it can all come to nothing if accounts payable doesn’t pay them on time.
When finance doesn’t understand the importance of critical supply chain dependent projects, they become like a loose cannon that can destroy projects unpredictably.
2. Purchasing Doesn’t Understand Finance
They’re not just bean counters. Whether they are seen as a n important strategic function or a necessary evil, Finance plays a critical role in running the organization and even though sometimes it might feel like the lunatics have taken over the asylum, purchasing professionals should learn to respect their finance colleagues.
Take as an example GRNI reports. Goods received not invoiced can create an accounting black hole that will draw the attention of the auditors. This is often cause by a poor receipting process that the purchasing function is responsible for. So if that black hole becomes too big it could be the job of purchasing to fix it.
3. Let Suppliers Divide and Conquer
Suppliers love to take control and the more touch points they have in the buying organisation, the more they can manipulate the relationship to their ends. Avoid taking the holistic purchase to pay approach and you immediately present your suppliers with two separate points of contact.
4. Extend Payment Terms
Sound clever – keeping hold of your cash for as long as possible! But is it? How valuable is that cash to your organisation compared to the value a supplier would place on it?
At a time when interest rates are almost zero and liquidity constrained, an organisation can make a better return by paying early in return for discounts. Failing to see the end to end purchasing to pay process blinds an organization to the benefits of dynamic discounting.
5. Multiple Management Madness
Without a Single View of the Supplier the finance function and purchasing will trip over themselves. Initiatives like electronic invoicing that are of interest to finance and purchasing – for different reasons – need to be managed centrally to avoid duplication of effort and to avoid looking ridiculous in the eyes of your suppliers. But I’m sure that never happens does it?