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Joining Forces: The Need to Sync Procurement and Accounts Payable

Batman and Robin, peanut butter and jelly, Tom and Jerry, Bert and Ernie. These are some famous pairings... However, some people may not realize that Procurement and Accounts Payable (AP) can be just as effective a pairing.

Robert Lynch, P2P Insights Analyst
Published on August 9, 2024

In today’s fast-paced business world, you need to streamline your operations to stay competitive. One area that often gets overlooked is the relationship between procurement and accounts payable. By aligning these two crucial functions, you can unlock significant benefits for your organization. From cost reduction to improved cash flow management, the synchronization of procurement and accounts payable has a profound impact on your bottom line.

As you delve into this topic, you’ll discover the current disconnect between these departments and the advantages of bringing them together. You’ll learn practical strategies to sync procurement and accounts payable, as well as how to overcome common challenges in the process. What’s more, you’ll see how modern p2p and ap automation software can play a key role in this alignment, revolutionizing your supplier relationships and overall financial management. By the end, you’ll have a clear roadmap to enhance your procurement and finance operations for better business outcomes.

 

The Current Disconnect Between Procurement and Accounts Payable

 

In many organizations, procurement and accounts payable (AP) operate as separate entities, leading to inefficiencies and missed opportunities. This disconnect has a significant impact on your company’s financial health and supplier relationships. Let’s explore the key areas where this misalignment occurs.

 

Siloed Operations

You might find that your procurement and AP departments function independently, each with its own centralized processes and separate solutions.

This siloed approach can result in:

  1. Lack of transparency and communication between departments
  1. Delayed invoice processing and supplier disputes
  1. Increased likelihood of errors and fraud
  1. Difficulty in scaling operations as your business grows

The absence of a unified system makes it challenging to have a comprehensive view of your financial processes, hindering your ability to make informed decisions.

 

Differing Goals and KPIs

Your procurement and AP teams often work towards different objectives, which can lead to conflicting priorities. For instance:

  • Procurement typically focuses on metrics like procurement cycle time, cost savings, and supplier quality rating.
  • AP teams aim to improve invoice approval time, reduce invoice process costs, and maximize discounts received.

This misalignment in goals can result in suboptimal outcomes for your organization. Without a shared vision, you might miss opportunities to leverage the strengths of both departments for better financial management.

 

Lack of Visibility

The separation between procurement and AP can lead to a significant lack of visibility across your financial and supplier data. Even when teams have open relationships, the use of separate legacy systems can create information silos.

This lack of visibility has several consequences:

  1. Difficulty in tracking and realizing savings
  1. Challenges in maintaining accurate cash flow management
  1. Increased risk of duplicate payments and fraud
  1. Inefficient supplier relationship management

To address these issues, you need to consider implementing integrated financial systems that connect AP with other departments. This integration ensures real-time information exchange and reduces duplication of efforts.

By recognizing these disconnects, you can take steps to align your procurement and AP functions, leading to more efficient operations and better financial outcomes for your organization.

 

Benefits of Aligning Procurement and AP

Improved Cash Flow Management

When you align procurement and accounts payable (AP), you can significantly enhance your cash flow management. This synchronization allows you to take a strategic approach to financial processes, which has a substantial impact on your company’s financial health. By integrating AP payments within your Enterprise Resource Planning (ERP) system, you gain real-time visibility into transactions, enabling you to monitor and control cash flow more effectively.

Procurement budget management plays a key role in tracking and validating cost savings, as well as forecasting cash outflows. This proactive approach permits you to review and control spending before purchases occur, preventing budget overruns and updating cash flow forecasts when necessary. Additionally, you can maximize cash flow by extending payment terms with suppliers or negotiating early payment discounts.

 

Enhanced Supplier Relationships

Aligning procurement and AP leads to improved supplier relationships. When these departments work together seamlessly, you can deliver outstanding communications and service to your suppliers. This collaboration ensures that all invoice processing is accurately matched with corresponding purchase orders, vendor details, pricing, and payment information.

P2P and AP automation software can play a crucial role in this alignment. By harnessing the power of AP automation, you can send regular supplier notifications with status updates on outstanding invoices. This keeps suppliers informed without the need for them to chase your AP team for updates. Moreover, timely payments show respect and can encourage vendors to offer discounts for early payment.

Reduced Errors and Fraud

The integration of procurement and AP significantly reduces errors and fraud risks. By implementing AP automation and integrating AP payments within your ERP system, you can:

  1. Automate invoice matching and approval workflows, eliminating duplicate payments and reducing manual data entry errors.
  1. Implement advanced analytics and fraud detection algorithms to flag suspicious activities.
  1. Create a comprehensive audit trail for easy tracing of payment history.
  1. Enforce segregation of duties, reducing the potential for insider collusion.

This alignment also improves the overall quality of financial data, ensuring that all information related to invoices, purchase orders, vendors, and payments is accurate, consistent, and up to date. As a result, you can minimize exceptions, reduce the need for rework, and experience lower invoice processing costs of up to 89%.

By aligning procurement and AP, you can have a significant impact on your organization’s financial health, supplier relationships, and operational efficiency.

Strategies for Synchronizing Procurement and AP

Implementing Integrated Systems

To improve the coordination between purchasing and accounts payable departments, consider adopting unified technological solutions. An all-encompassing Procure-to-Pay software suite can digitize and automate both procurement and AP operations, leading to a more fluid and effective integration. This strategy consolidates various processes into a single digital ecosystem, facilitating smoother collaboration among diverse teams across different locations within an organization.

P2P software offers built-in controls and advanced technical integration capabilities, simplifying data sharing across different roles. This eliminates the need for professionals to track down information housed in separate places, as access to data becomes available to anyone with proper authority. The result is improved visibility into the entire payment process, from invoice matching to payment processing, helping you identify bottlenecks and areas for improvement.

Establishing Shared KPIs

To align procurement and AP effectively, it’s crucial to establish shared Key Performance Indicators (KPIs). By tracking procure-to-pay KPIs, you can achieve both cost savings and efficiency improvements. Some benefits of shared KPIs include:

  1. Shortening your purchase order cycle
  1. Reducing or eliminating maverick spend
  1. Providing real-time data insights for improved forecasting and reporting
  1. Improved invoice processing times

These shared metrics contribute to greater efficiency in the entire procurement process and directly impact your company’s bottom line. Moreover, they help in building better relationships with vendors by identifying areas for improvement and collaboration.

Fostering Cross-Functional Collaboration

Fostering synergy between procurement and accounts payable (AP) departments is crucial for achieving organizational success. To cultivate this interdepartmental cooperation:

  1. Embrace inclusivity by involving team members from all levels in discussions, ensuring diverse perspectives are considered.
  1. Conduct training sessions to demonstrate how integrated processes can enhance job satisfaction and efficiency across departments.
  1. Adapt operational procedures, leadership strategies, and inter-team communication methods to nurture a collaborative environment.
  1. Implement robust systems and protocols for monitoring and quantifying cost reductions and savings.
  1. Harness cutting-edge technology and automation solutions to optimize workflows and enhance data transparency.

By implementing these strategies, you can overcome collaboration challenges and create an environment where teamwork is encouraged. This approach will empower your AP and Procurement departments, leading to greater success and efficiency in your organization’s financial operations.

Conclusion

Aligning procurement and accounts payable has a significant impact on your business operations. By breaking down silos, establishing shared goals, and improving visibility, you can enhance cash flow management, build stronger supplier relationships, and reduce errors and fraud. The implementation of integrated systems, shared KPIs, and cross-functional collaboration are key strategies to achieve this synchronization, leading to more efficient and cost-effective processes.

To make the most of this alignment, it’s crucial to address challenges like resistance to change, technology adoption, and data standardization. P2P and AP automation software play a vital role in streamlining these processes, providing real-time access to supplier and payment data, and identifying opportunities to save money. To learn more about our P2P and AP automation solutions, check out our offerings. By embracing these changes, you can position your organization for greater success in today’s competitive business landscape.

 


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