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Purchase order process pain for finance

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4th Mar 2015
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Finance professionals are unhappy with their current purchase ordering process and are tied up in unnecessary admin as a result.

According to document management solutions provider Invu, half of finance workers responding to its Redshift Research survey said they were unhappy with current processes. Of those that weren’t happy, 47% believed corrective action was a priority.

Ian Smith, FD and general manager at Invu, told AccountingWEB the results were revealing and that he would have thought a higher percentage would still be sitting on the fence when it came to purchase order processing.

“What is clear from the research is that financial personnel can accomplish a significant increase in efficiencies by automating their purchase order processing systems.

“Time pressure is a massive concern for SMEs who are primarily focused on business growth. Streamlining the purchase order process is one step SMEs can take to help alleviate pressures on finance workers and ensure their time is spent more effectively,” Smith said.

A lack of visibility in the purchase requisitioning process resulted in finance workers spending on average eight hours per month dealing with employees contacting them to ask whether or not a purchase requisition had been approved.

Another key finding from the report was the fact that nearly three quarters of finance workers were not using dedicated software as part of the purchase order process. Instead survey respondents opted for a manual process (16%); using Excel or similar (26%); or a hybrid approach (22%).

Participants using a blend of purchase requisition to order systems - such as paper based, Excel or a hybrid - had limited visibility of the purchase process.

When it came to delivering purchase orders to suppliers, email was the clear winner with around a third preferring email as the sole method for delivering purchase orders.

The survey also found organisations that offered a flexible approach to POP using a combination of email, paper and Excel, spent 20% less time dealing with purchase orders than those organisations that solely used a paper based request.

On how technology was generally affecting the role of finance professionals in business, FD Ian Smith said technology was now enabling FDs to see much more visibility.

“If you adopt things like document management you can see details that previously would have involved an awful lot of leg work to see. In terms of efficiency - because there’s pressure on finance directors to reduce costs - technology is now enabling them to significantly reduce costs in the accounts payable area.”

Smith added that the cloud was also having an impact on how FDs work:

“We’ve used cloud CRM which I think helps with our forecasting because the challenge has always been people who are good at selling aren’t always good at admin. CRM and its mobile capabilities these days means that people get information into the system quicker so you’re more likely to capture more information, which is more visibility.

But he added that there was still reluctance from some people to put their documents in the cloud. “That’s reducing,” he said. “But when the cloud was first mentioned a few years ago, everybody thought people would rush to the cloud, but document management is probably one of the things that has taken longer to get there.”

Invu is set to publish its full research report later this month.

For the report Redshift Research asked 200 UK finance workers including heads of finance, finance administrators and other finance decision makers across SME businesses on behalf of Invu.

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Replies (6)

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By mrme89
04th Mar 2015 14:15

Personally, I think software can overcomplicate some systems. That’s not to say software is a massive help in lots of other ways!!

 

I’m currently contracting in a global firm and their invoice approval process is abysmal:

Invoice hits AP mailbox.Invoice is printed.Invoice is put on system.Invoice is flagged to the approver.The approver then has to search the mailbox for the invoice to check that it correct. This sounds simple but is very time consuming. For example, you could be looking for invoice X, but there is nothing in the body of the email or attachment to identify the invoice number. For example, a search for approx. 70 invoices can take one day to complete.Once the invoice is found it is printed again.It is then put on the approval spreadsheet which pulls data from other sources in order to validate the invoice.You then have to manually validate in the system (tick box).AP can finally pay the invoice.

So back to software overcooking the situation, for steps 2-6 a simple in and out tray in the office would suffice and save lots of time. Hard copies of the invoices would still be backed up from when it first hits the AP inbox.

 

I questioned this because I asked someone to pull me an invoice and it was taking a while. I now know why!

 

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Chris M
By mr. mischief
05th Mar 2015 05:52

It's not software!

The software did not design that 9-step drivel, some twit did!  About 8 years ago as part of a software implementation in a business I was finance manager in - turnover circa £80m - we used the new software as an opportunity to remove silly steps.  Clearly any process which includes printing an invoice twice has at least one silly step in it, for example.

It really helped us to reduce stress levels throughout the organisation, not just in finance.

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By mrme89
05th Mar 2015 10:45

My point was that twits can try and use software where it is not needed.

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By Ian_Smith_Invu
05th Mar 2015 14:05

RE: Personally, I think software

It is interesting that mrme89 suggests that software makes things complex, then describes a manual process, which occasionally uses software.

The example covers only invoice processing, which can be addressed by invoice processing software, like Invu accounts payable. This captures (either after scanning a paper form or directly from an email attachment) the accounts payable invoice detail required in the creditors ledger. Then using a workflow allocates the invoice to an approver for coding and approval. Manual intervention is only required if there are exceptions during capture where the OCR cannot read a particular detail or there is an invoice discrepancy during the approval process. Using software in this way means that manual intervention is minimal and most invoices would pass from steps 1-9 without manual intervention at all as approved invoices are posted and coded automatically to the ledgers.

The survey goes beyond the invoice processing process and looks at the purchasing process from purchase request to payment. The dissatisfaction expressed in the survey is consistent with the points raised by mrme89, but he is identifying only one of the symptoms the problem in invoice processing. An end-to-end solution like Invu Purchasing moves the point of control, approval and coding, to the purchasing request and would (where the purchase invoices matches the purchase order) reduce the invoice processing to the capture step mrme89 identified.

I would suggest that software can be very relevant in addressing the issues raised by the survey and in particular the scenario presented by mrme89.

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Chris M
By mr. mischief
05th Mar 2015 16:22

It can be deliberate!

A major company I worked for - £1bn sales - proudly stated 15 days average supplier payment time in its annual report.  Yet suppliers were so distressed about slow payment that some large ones complained to some major customers of ours.  How can it be that they moaned about 15 days?

The answer lies in the system.  Our average time to settle invoices was 15 days from the date the invoice went on the system, given that the system was set up to settle via autopay at each month end.

But it was typically 70 days from the RECEIPT of the invoice for that invoice to get on the system!  So honestly measured supplier days were 85 not 15.  This is because there was a service entry number (SEN) system in operation.  If an invoice came in with the SEN on the invoice matching the number keyed in by the demander of the service, it automatically went for payment.  Roughly 5% of invoices matched up right away.

Some of the delay was just the usual muck-ups you get in a large organisation.  Some of it was deliberate and cynical slow pay policy coming right from the main board, hiding behind slowing up the issue of SENs to mask the fact that this was board policy.

Of course when the major customers got on to him, no one was more shocked than the Group FD to hear about this!  People at my level in Finance had to be very careful not to let slip that it was the Group FD who'd instigated the whole racket!

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By NHGlos
12th Mar 2015 12:22

Workflow

Some good points have been raised about how software can help, but it's also about how it's used and configured. I think too many businesses look at the capability of software (particularly ERP systems) and think it's all about the software itself, not the entire system, process and data management. In addition, those that implement and/or configure the system aren't those who actually operate it. Ian hit on the key term of "workflow".

I've been involved with small businesses that use manual authorisation, which can work fine with a small team where there is plenty of visibility of what's going on. I've also worked for small businesses that use the POP system simply as a log of purchases and a way of printing purchase orders - not connected to inventory or purchase ledger (other than a source to review when checking an invoice)!

The best system I worked with was for a medium sized manufacturing/engineering company:

POs would be raised by the purchasing team, who would select a purchase category that was connected to a nominal code (pre defined by finance) or an individual job, as relevant.When the goods or service was delivered/completed, goods inward would update the PO which in turn debited or credited the relevant accounts (including goods received not invoiced and the cost record of the individual job if relevant)When the invoice was received, it would be matched to the PO (since most details were held on the PO, the data entry at this stage was minimal) any invoices outside of cost tolerance would be reviewed.

Also, the system was configured with good "drill down" capabilities so an invoice could be traced to PO, PO to invoice, stock booking to PO and/or invoice, nominal entry to PO/invoice etc., etc.

There was the issue of who could raise a purchase requisition, this authority was delegated to mangers with relevant responsibility (e.g. budget holder) or (particularly with materials and sub-contract costs) was predefined when the item was designed and signed off for production. This meant that those who rally knew what was wanted/needed could really define what was purchased and when.

I've worked under a system whereby purchasing ordering is made "efficient" by having predetermined suppliers and/or definitions of "compliance". This was meant well, but in some instances had a major stifling affect on the ability of the buyer to make savings and be flexible to genuine business needs.

I think problems arise when business don't consider the impact the purchasing function has on other operations and view as administrative/back-office.

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