If your company wants to transform its procure-to-pay (P2P) process from a cost center into a profit center, analyzing the costs and resources required by your current P2P systems is the best way to start. Capturing real-time data and identifying misalignments between finance and procurement teams are crucial steps in the benchmarking process, as is detecting “dark purchasing” — under-the-radar purchases through one-off deals with unapproved vendors and no contract management oversight.
Procurement efficiency can have a significant effect on the operation and sustainability of the entire payment lifecycle. Metrics, such as your total number of suppliers, number of vendors per category, return on indirect procurement investment, and procurement costs as a percentage of total indirect spend, are key indicators of how your purchasing function is performing.
How many vendors are supplying you with the same or similar items? Reducing your vendor pool, concentrating your purchasing among preferred suppliers, and coordinating purchasing power among divisions and offices can help reduce costs, increase your buying power and reduce average shipping costs.
How many vendor negotiations do you base strictly on price? If you do not address terms such as discounts for early payments, you may be missing an opportunity to generate working capital.
Accounts payable and vendor management metrics, such as total cost of processing an invoice, procurement cost as a percent of total indirect spend, total contract renewal rates, and volume rebates captured, will provide insights on potential economies of scale.
How long does it take your company to process invoices? More importantly, how are those invoices processed? Manually processing invoices naturally takes more time and increases costs. An automated, streamlined system between you and your vendors not only improves the efficiency of the payment cycle, it can help to maintain a good working relationship with your suppliers. You should also optimize the balance between capturing discounts for early payments and not reducing working capital by paying too early.
Payment metrics, such as the number of invoices being processed electronically, median transaction costs for each type of payment, the cost of checks versus electronic payments, and the ability to capture early-payment discounts, will identify targets for streamlining your process and improving supplier relationships.
How many payments do you process per full-time employee each month, and what payment method do you use? These details will help you identify ways to process more payments with the same number of people. Shifting the bulk of your payments from check to ACH can improve efficiency, improve security, and give you greater control over the timing of payments.
Streamlining your P2P process through automation is essential to business success. Automating the process can take a heavy burden off your finance team and let them dedicate their time and talent to value-added activities, such as identifying areas for growth and performing in-depth analysis. Benchmarking your company’s current P2P process is the first step in helping you develop a plan to make your P2P process faster, more accurate, and less costly.
Matt Clark is the President & COO for Corcentric (corcentric.com), a procurement and finance company that helps companies reduce expenses and improve working capital by optimizing how they purchase, pay, and get paid. Matt can be reached at email@example.com