In a perfect business spend management scenario, all spend is digitised. You know what your organisation has committed to spend before a single dollar goes out the door…
In a perfect business spend management scenario, all spend is digitised. You know what your organisation has committed to spend before a single dollar goes out the door. Pre-approved spend is a critical facet of a digital business spend management strategy because when spending is pre-approved, it means employees are buying from contracted vendors, realising negotiated savings, and complying with internal controls. With high percentages of pre-approved spend, everyone has visibility into spending against budgets and the organisation reduces risk and fraud.
So, what does this look like? In practice, the pre-approved spend process starts when employees submit a requisition and get an approved purchase order for anything they spend money on (besides recurring items such as utilities and leases). Downstream, when an electronic invoice comes in, it matches up with the PO automatically and goes into the queue for payment without anyone having to touch it.
It’s a totally digital process, which should be the ultimate goal of any company’s technology transformation. That’s why pre-approved spend is one of the key metrics we track in the Coupa Benchmark Report, our annual report that looks at performance metrics based on aggregated, anonymised data from our business spend management platform. Our 2019 findings indicate that in top-performing customer companies, 99.8 per cent of spend is pre-approved.
The long-term, positive impact of hitting that key metric goes beyond process efficiency.
It changes the way people can spend their time. Buyers can shift to managing vendors and commodities, not transactions. Accounts Payable can spend time on more strategic activities than chasing invoices. Finance has real-time visibility and control. Compliance is automated. In summary, your company can grow, without adding people to handle paper.
Eventually, your goal is get to a point where every invoice that comes in is backed by a purchase order. It’s a long-term maturity goal, and you need a plan to get both employees and suppliers on board. Here’s what that usually looks like.
1.Corralling “mavericks” by making it easy to follow the rules
Employees don’t necessarily want to be “maverick” spenders. They just want to get what they need quickly and get back to their job. If they search your system and find the right catalog and item, or they can easily find the policy that tells them where to go and what process to follow, they’ll follow the rules. It’s when they can’t find what they need, or the approval process takes too long, that they go outside the process and non-PO backed invoices start showing up.
So, the first thing you need to do is set up your system so that it’s easy for employees to follow the rules. To lay the groundwork for that easy employee experience, you’ll need to consolidate your suppliers and figure out which ones you’ll offer as preferred providers. Since some companies can have tens of thousands of suppliers, most organisations approach this project in tiers, focusing on suppliers with the highest numbers of transactions in the most common spending categories.
Next, you have to configure your policies in the system and set up your contracts and your catalogs. Catalogs go a long way toward providing a consumer-like e-commerce experience that makes it easy for people to find what they want and requisition it.
Finally, make sure that getting a requisition approved and turned into an PO is quick. This cycle time is critical to employee satisfaction and adoption of the system, which is why we also have a benchmark for requisition to PO time: 14.8 hours for best in class companies. Long approval chains are one of the biggest reasons for delays, so as you automate, take a look at your approval chains. Automation helps you increase visibility.
2. Encourage suppliers to adopt your new system
Once employees are reliably going through the purchase order process, you can shift your focus to getting more of your suppliers to submit their invoices electronically. Their participation is critical, because the more suppliers you have enabled, the closer you are to fully automating the invoice process.
Your major suppliers should be enabled in the system when you launch, but over time you will want to review the long tail of the supplier base, working through it in categories and starting with those that are submitting the most invoices in each. How deep into the supplier base you can go is usually a matter of resources. As we grow the Coupa Supplier Network and improve our Community Intelligence capabilities, our supplier enablement team is increasingly able to speed that effort by matching your current suppliers with suppliers already transacting with other Coupa customers via cXML or portal.
It’s pretty fast to set a supplier up; what really takes time is reaching out, following up, and providing any training that your hundreds or thousands of suppliers need. This change management piece is essential to obtaining supplier buy-in. You may want to bring in a partner to help you develop a communication plan around what you’re doing and why.
Explain the options your suppliers have for submitting their invoices, whether that’s by cXML or EDI, supplier portal, or supplier actionable email notification. Also make sure they understand the benefits, which are usually faster payment cycles and the ability to track the invoice status in your system without having to call anyone.
3. Benefits of Pre-Approved Spend Go Beyond AP
There’s a lot of benefit to AP from getting suppliers on board and spend pre-approved, but the best way to look at your digitisation effort is as an interconnected process that benefits procurement, finance, and the rest of the business.
You have to give users to right environment to be able to follow the policy. If the content is not there, and the system is too hard to use, you’re still going to have the same difficulty with people going around the systems, POs going to the wrong suppliers and cycle times remaining lengthy. Invoices still have to be coded and routed by AP, and you don’t get visibility into spending until after the fact.
If you get all of your employees going through the pre-approval process but you don’t have suppliers on board to submit invoices electronically, you’re still going to have a lot of manual work in AP.
When you can pull it all together from both sides, you can institute a “No PO, No Pay” policy. This is the best practice, the ultimate goal, and the reason you’re investing in an automated system in the first place. It’s a process transformation that takes time, but once it is complete it has the power to transform the way the whole company does business.
Learn more about how you can increase pre-approved spend and other KPIs you should be tracking in the 2019 Coupa Benchmark Report.