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How To Encourage Collaboration Between Accounts Payable And Procurement

The key roles of procurement and finance departments are changing, morphing into a new, more integrated process. Not everybody is happy about the merging functions, but I think it’s strange that procurement — the people who order goods and services — and accounts payable — the people who pay the bills and keep the book — have traditionally operated separately. Through technology, the company I founded helps businesses foster collaboration between the two departments. In my experience, the benefits of collaboration include cost savings, more informed planning and a better understanding of vendors. Working together, these key departments can also optimize payables, minimize maverick spend and free up working capital to fuel growth.

So, how do you foster collaboration? More than a stop-gap measure to ensure invoices are processed efficiently, the accounts payable team, the purchasing or procurement departments and senior management should work together to create a top-down working capital culture that permeates the company.

Steps To AP And Procurement Collaboration

Some companies may need to redesign their finance organization from procure to pay. Here’s how:

1. Adopt a centralization plan. Your plan should set spending protocols and establish chain of command, so you have rules governing planned and discretionary spending. Initiate reporting across the organization through a collaborative shared environment. By establishing universal standards and practices, team members can improve efficiency and reduce errors with the hope of ultimately reducing overall costs.

2. Go digital and paperless. Ardent Partners’ 2019 State of ePayables report (registration required) found that major challenges for AP departments are still rooted in lack of automation. High percentage of exceptions ranked highest at 62%, with invoice and payment approvals, too much paper, lack of budgeting for automation and poor visibility rounding out the set of issues. And 49% reported lack of respect for the company, a situation that arises from all of the aforementioned issues. In my experience, all of these major issues can be resolved by procure-to-pay automation.

3. Assess your finance structure, and perform a spend analysis. Gain insight into company spend, staffing, hierarchy, technology and productivity to identify weaknesses and leaky spending. Implement robust oversight to strengthen internal protocols for payables processing and contract review.

4. Establish management workflows. This will help to streamline processes and resolve approval bottlenecks for more efficient order processing.

5. Examine sourcing. Determine whether you have complete and comprehensive information about vendors and partners. Assess past performance metrics, and create a preferred vendor database.

6. Create autonomous supplier portals. Through these portals, suppliers should be able to track order status, delivery schedules and payment processing. In turn, this should cut customer service hours spent on looking up information and answering vendor inquiries, reduce manual input errors and improve order accuracy.

7. Look to the future. Using the knowledge gleaned to create strategies to address future business needs, schedule deliveries at strategic times for optimal cash flow and make better-informed business decisions. Most importantly:

• Plan for the future, not the past.

• Reduce or eliminate low-value services and goods. Allocate funds to goods and services that deliver higher business value.

• Set realistic goals and benchmarks to manage expectations.

How To Avoid Finance Transformation Failure

According to Gartner, 85% of finance teams today are in the midst of a finance transformation initiative, and 70% of those will fail to deliver on their forecast outcomes or cost objectives.

Organizations struggle with financial transformation for a number of reasons:

1. There’s a lack of strategic alignment. Your finance transformation initiatives must align with your business strategy. The strategic goals of your finance department should focus on the areas that will eliminate problems and improve operations. It cannot have a singular focus — for example, “cost-cutting” — that undermines other company goals, such as a commitment to quality.

2. There’s a lack of training. As the finance and procurement structure changes, your staff must be able and willing to adapt. Invest in ongoing training, and evaluate skills and capabilities. You may need to transition people who can’t adapt to new roles and hire talent with the skills your departments lack.

3. You’ve chosen the wrong technology. To be the right fit, the system you choose must have all the features you need to address your specific problems, and it must be intuitive, well documented and easy to learn.

4. Office politics hinder buy-in. Upper management must be fully on board. If you don’t achieve buy-in, reluctant department heads can undermine the entire process, create back-channel costs and workarounds and ensure system-wide failure.

Gaining cooperation may simply be a matter of building a financial case. Gartner research found that the average amount of time wasted on rework is 25,000 hours per year. In turn, that can cost an organization with 40 full-time accounting employees $878,000 annually.

It’s not easy to break tradition and adapt to new rules. You may encounter pushback from all levels of the team. Department heads may view centralization as a challenge to their autonomy. At the same time, team members can feel overworked and overwhelmed, especially long-time employees. To get them on board from the beginning, explain the benefits of a new system and how it will relieve them of repetitive tasks and reduce errors. Innovation takes vision and courage.

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