There are a number of issues that affect the ability of companies to gain control over their indirect spend, but automating P2P processes can help address those issues.
This blog first appeared on the AmeriQuest Business Services blog site.
There is a wide range of challenges and obstacles that companies experience while trying to gain and maintain control over their indirect spend. A PayStream Advisors report, “2016 P2P for Indirect Spend Report” details just how far companies have gone to achieve that control.
According to the report, 66% of the respondents surveyed in this report are not automating their procurement functions, depending instead on paper and manual processes. This is especially a problem for indirect spend which is often decentralized and lacks the kind of oversight given to direct spend categories. The lack of visibility inherent in indirect spend makes it extremely difficult, if not impossible, to have a truly accurate picture of a company’s cash flow.
So what are the six major obstacles that keep companies from better management over their indirect spend?
- Decentralization – Although not all businesses experience this problem, for industries like healthcare and higher education, where multiple people in multiple locations purchase those staple products and services that enable businesses to operate, this is an issue. Products like office supplies, janitorial supplies, safety supplies, etc. These smaller ticket items are often purchased independently and may, in fact, be purchased from suppliers not on the preferred supplier list developed by Procurement.
- Supplier Management – Routinely, the supplier list for indirect spend is much larger than the list for direct spend. That’s due not only to the overall decentralized nature of indirect, but also due to the fact that so many products and services fall under that category and the costs are much smaller per transaction. Without automation, the responsibility falls to multiple individuals within the organization to keep records updated and guarantee that suppliers are compliant with and federal, state, or local regulations, if mandated.
- Competitive Pricing, Contract Compliance, and Budgeting – Suppliers’ information can change throughout the course of a contract, whether it’s something as simple as contact info or something as serious as financial modifications. Keeping track of those types of changes manually can be a daunting task when indirect spend suppliers make up so much of the overall supplier base. When it comes to budgeting, contract compliance, and pricing comparisons, oversight regarding capital equipment items purchased through a limited number of vendors is likely to be much stricter than oversight regarding small ticket items purchased from a wide array of suppliers.
- Process Synchronization – Nothing speaks more to the need for end-to-end automation of the P2P process than this element. In many companies, procurement and AP are still separate silos; however, when it comes to any spend, but especially indirect, the communication lines must always be open and the processes need to follow suit. That recommendation makes it essential that procurement create a consistent PO policy regarding indirect spend and that AP have the means to easily and automatically match an invoice to that PO and the receipt of goods documentation. In a decentralized situation that relies upon paper documents and manual handling, finding the documentation to match the invoice becomes incredibly difficult and time-consuming.
- Payment Control and Efficiency – The PayStream Advisors report notes that the leading causes of missed early payment discounts (which go directly to a company’s bottom line) are lengthy approval cycles (62%) and manual routing of invoices. Automating the P2P process not only speeds up the payment process, enabling the discount capture; it also ensures the accuracy of those payments as far as pricing and contract compliance.
- Auditing – Proper documentation of all transaction activity, from PO to payment, is necessary to show compliance with all accounting and legal standards. That issue can be extremely disruptive with staff spending precious time searching for paper documents and any pertinent backup required by the auditors. Missed steps or errors in this process can lead to unnecessary and steep legal fines that would no longer be an issue were the entire transaction process to be automated, end-to-end.
Automating the P2P process mitigates and in many cases, eliminates these concerns. But as can be seen in the opening of this blog, too many companies are still depending on paper and manual processes that continue to cause inefficiencies and result in high processing costs.
Download the full report to discover how to get control of your indirect spend.