Tag Archives: accounts payable

What Happens When Best Practice Is Ignored?

Most organisations know that they should be aiming towards best practice processes – but what does it really mean – and can something as diverse as accounts payable ever be constrained to a simple set of rules across all organisations?

Ignore Best Practice

This article was originally published on PPN.

If we’re talking about specifics, the answer is probably no. But the general framework and methods of working can be aligned in a way that can be translated across AP departments regardless of size, and to some extent industry and internal culture.

The opposition can come from those who decide to carry on working in a manner which they feel has served them well enough in the past. Others may simply not have sufficient resources to implement the practices which management are asking them to do.

Three results of Bad Practice

Ignoring best practice in any environment, but especially in AP, can have catastrophic consequences for the organisation. There are three very tangible results from an organisation where the operation is overly flexible and unstructured.

The most obvious one is that inefficient organisations cost more to run. Financially crippling as this may be in the long run, often this area should be the least of your worries.

An operation where internal controls are lax is leaving itself open to fraud. An enterprising individual can take advantage of such an organisation with relative ease, and as long as they’re not too greedy, their fraudulent activity can go unnoticed for a very long time – perhaps forever.

None of us like to think that any of our colleagues would behave in a duplicitous fashion, but the sad truth is that, in all probability, some of us already have.

Lastly, the third most tangible effect of not adhering to a code of best practice is the existence of duplicate payments within the accounting system. The Institute of Internal Auditors have found that duplicate payments make up between 0.05 and 0.1 per cent of annual invoice payments.

This may not sound like a lot, but if your organisation makes £50 million in annual invoice payments, you are likely to be paying out £50,000 or more in duplicate payments every year. Unfortunately many people assume that if a vendor receives payment twice for the same service or product, then he will simply return the payment. However this is seldom the case.

Quick Solutions to Common Failures

Current Practice: Many people can input invoice numbers and can make changes to the Master Vendor File.
Best Practice: Restrict this to just one or two key personnel – preferably those who do not approve invoices.

Current Practice: Invoices arrive, are approved and paid in a variety of locations.
Best Practice: All are dealt with in one centralised area, preferably by specified employees.

Current Practice: Issuing travel and entertainment reimbursement cheques.
Best Practice: Include payment along with monthly salary.

Current Practice: Petty cash box which anybody can access.
Best Practice: Don’t have one.

Current Practice: Urgent cheque request.
Best Practice: Don’t allow rush cheques.

Current Practice: A long winded paper trail of invoices and reconciliations.
Best Practice: Automate the 3 way match.

Current Practice: Time consuming duplicate payment retrieval.
Best Practice: Implement duplicate payment prevention technology.

Current Practice: Long processing and approval times – no early payment discount capture.
Best Practice: Implement AP automation solutions, including automated dynamic discounting.

Even if your organisation is unable to implement some of the more costly changes, by changing even just a few of the more minor ones, your organisation will see both a rise in productivity and, over time, this will generate an increase to the bottom line.

However, it’s good to bear in mind that best practice should be something which is constantly evolving. It’s no good to slavishly adhere to outmoded working methods. Ultimately, departmental success will depend on the ability to work within given boundaries, while keeping an open mind, receptive to change.

Purchase to Pay Network® (PPN) is a trusted information base with direct access to 14,000 key decision makers in the finance sector across a variety of different industries. 

Unifying Procure to Pay: A Leadership Challenge for the CPO

It might seem obvious, but removing silos in the procure to pay process can ensure spend optimisation. But it’s people, not technology, that hold the key.

Silos Procure to Pay

Imagine you were just elected mayor of your city, with a mandate from the voters based on an ambitious agenda that includes cutting costs. You’ve promised to streamline programs, increase transparency and work to a set of measurable success criteria which you laid out in your campaign.

You know there will be challenges. But, when you roll up your sleeves and get to work, you start to have some rude awakenings.

You realise there’s a section in the city that has its own budget and runs its own services, because it’s in a special tax jurisdiction. And there’s a powerful labour union that dictates wages, job duties and hiring across the city.

You also find you can’t get accurate reports because data resides in separate systems that don’t talk to each other – and neither do the people who run them. You realise that, more than anything, the bureaucracy and the politics that have grown up around it are what shape how business is done.

The success of your initiatives, and the city as a whole, are your responsibility, and you’ll be held accountable. But you don’t have full visibility into, or control over, what happens. Accomplishing your goals under these circumstances is going to be a real leadership challenge.

Mayor of Spend Management

That’s what it’s like being the head of a procurement organisation today. You lead the official buying organisation, but the employees in your organisation will buy based on the easiest process available to them. If there’s a contract in place and you make it easy, they’ll buy against the contracts you’ve negotiated. If not, they’ll buy what they need on their p-card or credit card, and expense it. Or they’ll go out and make deals on their own and an invoice will just show up.

But spending is spending, no matter how it happens. It all ends up in accounts payable (AP) and the bills get paid. When it comes in through the front door, you have the opportunity to manage and optimise for cost and compliance. But there are also side doors – multiple independent buying processes – for things to get bought and paid for without you knowing it in advance.

This is also a leadership challenge, and one that most procurement leaders face. There’s no one who is accountable for all of the company’s spending. Everything goes through AP, but by the time it gets to them, the money’s already been spent, so they’re just focused on effectively managing the payment process.

The whole spend management process – invoicing, expenses and procurement – should be united under one leader responsible for optimising all of the company’s spending. This head of procure to pay, or chief spend officer, would manage the spend management organisation to a shared set of KPIs.

The Missing P: People

This is not a new idea and it makes sense to most of us. We now have the tools – modern, easy to use spend management suites – to streamline the process from end to end and enable data sharing to make each part more efficient. For example, everybody’s expensing the new iPad? Procurement gets an alert: Hey, maybe you should source that.

What has made this such a tall mountain to climb isn’t the lack of technology to support a unified process. It’s that most organisations don’t have alignment of their people. Even the best technology won’t fix everything if procurement and AP aren’t working together and aligned to the same goals.

Bringing the people together is a perfect leadership challenge for procurement to take on.

Think about it. Over the past few decades, the profile of the procurement profession has been rising. The average level of education and certification has been rising. The amount of spending that they’re managing is increasing. Procurement departments took centre stage during the great recession—not just cutting costs, but leading new strategic initiatives for their companies.

There’s a feeling in procurement that the profession hasn’t yet achieved the status it deserves. There’s still a lot of talk about striving to be seen as strategic, and to have a seat at the table with top leadership. Striving to ascend, as Tim Cook did at Apple, from procurement to CEO.

Executive Level Challenge

Here is your chance. We know there’s huge business value that companies can achieve from uniting procurement and AP in the procure to pay process – value far greater than the sum of automating each separately.

The world is changing faster than ever, and becoming more connected. In the consumer world, we have visibility and data everywhere; in the business world, not so much. You can see your Uber approaching on your smartphone but you can’t see where your invoice is in the payment cycle.

Your watch or wristband can tell you how many steps you’ve taken today, but you can’t tell how many orders have been placed against a contract. Your dishwasher can order its own soap from Amazon, but employees in many companies can’t even figure out the best way to buy a stapler.

Businesses need to achieve the same levels of visibility, efficiency and control in every area of their business in order to meet rising expectations and to stay competitive. A unified, automated spend management operation does that for spending.

If procurement wants to ascend to the heights it aspires, it can show leadership by spearheading the effort to tear down the silos between buying and paying so that someone, a chief spend officer, a head of procure to pay, a head of business services – it really doesn’t matter what you call them – can finally be responsible and accountable for making sure all of spend is optimised. Someone can finally be mayor of spend city.

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