Behind every stable business is an efficient finance function, deftly managing cash flow and maintaining the supply chain with timely payments – so that vital sources of supporting products and services never dry up. All too often, however, businesses underestimate what a fragile situation they would be without tight cash flow management and become victims of their own success. The more business they do, the more complicated and inefficient the purchase management process can become.
Respected observers including IBM, Gartner and Aberdeen Group estimate that 75-80% of invoices are still processed manually involving paper. This is not only extremely time-consuming but also eats a significant hole into a business’s bottom line. Seen as a back-office/administrative function and therefore a cost centre, finance is commonly taken for granted – until something goes wrong. And at that point the results could be catastrophic, even culminating in a business’s demise if cash flow and lines of credit falter.
The key to achieving purchase-to-pay efficiency is to implement an integrated and flexible end-to-end solution that can seamlessly process requisition entry and approvals, good/transactions acknowledgement and receipt through to the electronic authorisation of invoices. The more advanced systems on the market can significantly shorten this traditionally labour intensive process – in some cases to just minutes. Tailored and automated workflows eliminate the need to manage a paper trail, significantly minimising the cost, time and margin for error associated with it.
Inefficient accounts payable processes have a significant effect on businesses. Processing a purchase order can cost between £25 and £40 when taking into account material costs such as stationary and printing, not to mention an employee’s time spent generating, printing and sending purchase orders then manually matching those orders to invoices once goods are received.
By implementing an integrated procurement management system, this expense can be reduced by up to 80%. For the average organisation making 2,000 purchases a year, this can mean cost savings of between £40,000 and £64,000 per year. You do the maths.
Poor processes also leave the door open to fraud – be it those unscrupulous organisations sending in speculative invoices hoping to be paid or more worryingly, in the number of recent high profile press cases, staff who have posted invoices and made payments to themselves amassing millions over the course of months and years adding small payments here and there.
It is all too easy for a business to neglect its finance department when looking for savings and transformation through IT. Yet companies that do this could be undermining the profits coming into the business, not to mention their future leverage when it comes to preparing for investing in new growth. With the recession showing no signs of abating, and banks’ lending terms allowing little room for manoeuvre, businesses that continue to neglect their finance department do so at their peril.
The good news is that the latest end-to-end procurement software solutions are easy and cost effective to deploy – and offer tangible cost and time benefits beyond those associated with the automation of manual processes. For the sake of the company’s reputation alone, organisations should be looking to dispense with inefficient paper processes and clamp down on maverick spending which restrict businesses ability to maintain tight financial control over their cash. Their survival and future prospects may depend on it.