Procurement and Accounts Payable are often viewed as less attractive areas for organizations to focus on improving, compared to an area like marketing. Because of this, a lot of organizations are not achieving the benefits of procurement and AP working together towards a common goal.
As two separate functions working in their own silos, procurement and AP are individually moving the dial in a positive direction when it comes to saving costs and improving process efficiencies. However, these improvements are minimal compared to the opportunities from true alignment.
Benefits of Procurement and Accounts Payable Alignment
Positive Working Capital
At present, one-half of organizations only capture early payment discounts some of the time and 16% never do. Organizations greatly improve their chances of receiving these discounts when their procurement and AP teams are tightly aligned. When negotiating, procurement needs to be informed of a realistic invoice lifecycle time by AP so that the discount is actually achievable. Once a discount has been negotiated, procurement needs to communicate the terms to AP and facilitate them to ensure that they successfully capture the discount.
While sourcing is traditionally a procurement task, there are ways that AP can facilitate and improve the process. AP can fuel negotiations with in-depth insights into the budget that is available for procurement. AP can also provide input into what it is like to work with a suppliers’ finance or accounting team and flag any issues.
CFOs rely on data to fuel better decision-making and accurately forecast their cash flow position. As the people who are responsible for ordering, approving, and making payments, both procurement and AP can help to paint a clearer picture by providing qualitative data about the procure-to-pay process based on their experience. This information will help to elaborate on data that is already available in the ERP or P2P platform.
Supplier Relationship Management
AP and procurement in accounting may have distinct functions, but a supplier views these two departments as a single entity. It is important for both functions to be united while working towards a common goal rather than maintaining a procurement vs accounts payable mentality.
Procurement and AP need to constantly communicate and update each other about their interactions with suppliers. Any potential issues need to be flagged immediately and procurement should be able to discuss any feedback from AP in review meetings.
Tactics to Achieve Procurement and AP Alignment
Now that we realize that procurement-accounts payable alignment is instrumental in realizing an efficient procure-to-pay process, what steps can you take to achieve this synergy within your organization? Below are four tried-and-tested tactics that will help you align accounts payable, procurement, accounting, and other critical pieces of the supply chain.
Traditional procurement metrics include procurement cycle time, cost savings, and supplier quality rating. AP teams work towards goals including invoice approval time, invoice process cost, and discounts received. In the majority of organizations, these two functions strive for their own goals as separate entities.
When crafting their strategy, procurement and AP need to agree on common goals and metrics. Once these have been decided, both functions have a way of identifying opportunities for improvement throughout the entire P2P process.
Once procurement and AP teams have agreed on common goals, the next step is to find a way to work towards the goal and track the progress together. In this situation, many organizations opt for a procure-to-pay automation platform to handle this. These platforms provide full visibility over procurement and AP activities and provide extensive dashboard reporting of KPIs and associated metrics.
Collaboration on data, in particular, helps both functions to gain an insight into savings that have been made and potential opportunities for improvement. Sharing one data source also encourages communication, accountability, and removes the silos these two functions find themselves in.
Many organizations overlook the importance of culture within their organization. Beyond benefits and compensation, there are a number of different factors that can improve employee retention, performance, and attract new procurement and AP talent.
Unfortunately, in many organizations, procurement and AP don’t interact unless there is something wrong. Kelly Barner, Managing Director of Buyers Meeting Point, said that the first time she walked into the AP department as the new lead procurement consultant, she was greeted by heads suspiciously popping up from cubicles. The head of AP came walking out of her office and asked, “Is something wrong?” This represents the status quo in a number of organizations.
Collaboration starts at the top so in this instance Barner asked the head of AP if she wanted to grab dinner. This was the beginning of a strong relationship which would help the organization when dealing with suppliers, aligning data, and measuring performance.
Regardless of the size of your organization, you will realize the benefits of a good company culture. Something as simple as inter-team lunches, celebrations, and gatherings outside of the office can break down the silos and encourage communication between the two functions.
“If everyone is moving forward together, then success takes care of itself.”
It is time for procurement and accounts payable teams to work together instead of independently. If you haven’t started thinking about aligning these two functions then you’re already losing ground on your competitors. A healthy relationship between procurement and AP will lead to a healthy procure-to-pay process, which will result in cost savings and process efficiencies.