Many businesses rely on controls over expenditure at the point of receipt of a supplier invoice, making it difficult to produce timely and reliable management accounts.
This results in a lack of visibility of commitments that have been previously made, leading to surprises. When supplier invoices arrive, spending may have been higher than expected.
Moving the controls over expenditure up to the front of the process is a compelling reason for improving the purchasing process.
So why don’t businesses do it?
The status quo
Nobody likes change, even those who say they do.
It’s easier to change processes that are concentrated amongst a few people than it is to change processes that impact the whole company.
Most employees are directly impacted by the purchasing process and so change falls into the ‘too hard’ bucket.
- The purchasing process is often resource hungry.
A manual process involves many human touchpoints.
Requisitions are raised, orders are placed, goods and services are received, supplier invoices arrive, the invoice order and receiver are matched, the invoice is coded and approved and it gets posted to the payables ledger ready for payment.
- It is often difficult to control.
Any resource hungry process invites shortcuts. These shortcuts often have unintended consequences that make the process even more resource hungry.
Cutting out the requisitioning and ordering process and just contacting a supplier directly may save time at the front end, but can increase the time spent in invoice processing when a supplier invoice arrives without any internal references to track.
- It is often a blind spot.
Manual, paper based, processes often suffer from processing delays while invoices sit in in-trays waiting to be authorised.
Management accounts are delayed while the purchase ledger is held open awaiting invoices, or excessive time has to be spent identifying goods and services received, not invoiced.
How to change
Application of a manual process could work when managers have the persuasive skills and time to carry busy employees with them and apply the rigour required to consistently apply invoice approval and coding practices. This process is inevitably resource hungry.
Alternatively the process can be significantly improved by introducing some automation:
- Software can present the current status of commitments against budget by account code with much less effort than the research required to do this manually.
- Software carries, key data like account code, through a workflow that will significantly reduce the number of touchpoints. A manual process requires continual referral to other documents.
- Software can make “receiving” the last human touchpoint in the process if the supplier invoice is captured using OCR and existing finance system data to match the invoice to the receipt and purchase order.
- Software focusses staff efforts on dealing with exceptions, while in a manual process the exceptions get in the way of processing transactions that would easily match.
- Software provides a full audit trail, staff know where an invoice is in the process and can respond to queries immediately, rather than having to spend time investigating each query.
Overcoming the barrier to change
Staff will generally accept change where the new process is easier to use than the old process and they can see a real benefit in adopting it.
Automation can help with employee engagement in a change process where the user experience is closer to their own everyday experience with processes like online shopping.
We’ve designed our Invu purchasing software with this in mind.
Is it worth it?
Jigsaw Homes Group chose to implement automated purchase order processing and in their case study they explain why it has been worth it for them.
This article also appeared on smallbusiness.co.uk