8 Reasons to Kill Off Purchase Invoices

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RIP Purchase Invoices
RIP Purchase Invoices

Isn’t it astonishing that the biggest problems in accounts payables occurs before the purchase invoice even arrives with the AP team. But the resultant invoice can tie the team up in knots, trying to enter the details into accounting software, accurately setting the ledger codes, setting up new suppliers, securing approvals to pay the invoice and a host of other time wasting issues.

According to the IOFM Benchmark Report 2019: Measuring Your AP Performance, accounts payables biggest challenges are inefficiencies which occur upstream in the business. So why do businesses persist with poor, highly manual processes for raising, approving and issuing purchase orders? 

The report highlights that automating manual processes is paramount for an efficient AP process and removing the burden of chasing approvals is critical. The benefits of automating more of the purchasing process are clear.

  1. Improved Efficiencies
  2. Paying more suppliers on time
  3. Reducing paper and wastage
  4. Improved motivation of AP team - less staff turnover
  5. Freeing the AP to deliver more value to the business
  6. Cost savings

Whilst businesses continue to invest in accounts software, data capture/OCR, cashflow management tools and automating supplier payments they are simply only part of the solution.

The most critical investment businesses can make to improve the entire purchase to pay cycle, is in Budget Management and PO Approvals software.

The reasons are clear.

  1. By setting, managing and sharing budgets across the business, managers and even employees are much more aware of spend limits and therefore can take more ownership of adhering to departmental, project or category spending.
  2. With effective organisational budgets disseminated to business units, departments, branches and projects, budget managers can segment their budget into time periods such as yearly, quarterly or monthly timescales. A smaller time frame makes budgets easier to adopt.
  3. With a clear visual representation of total budget, budget commitments, budgets spent, managers and their teams know when to rein in their horns or have the freedom to make purchases. Not only that, the right budget management software gives senior managers a ‘rolled up’ view of the overall budget, with the ability to drill down to line item detail. 
  4. With this level of visibility, managers can finally put in place the controls necessary to enforce budgetary disciplines. They can set hard limits (when its gone its gone), or allow budgetary over-spends within pre-defined limits. The senior team can keep a tight grip on the purse strings one month, or open the cheque when its appropriate to do so. 
  5. The senior team also has the ability to adjust budgets during the time period of the budget, with instant updates for everyone involved. For businesses where a sudden increase or decrease in revenues can impact their ability to deliver products or services, such as increased recruitment to fulfil a contract - this flexibility in budgeting is essential.
  6. Line item approvals are also a vital step in the process. For ad hoc spending, or where a transaction requires an over spend, managers can define complex, multi-level workflows for specific product categories or departments. This allows managers to set a low approval threshold for one department where there are many small transactions, but a higher limit where there is capital expenditure or big ticket items being procured.
  7. Managing suppliers and any pre-negotiated pricing with suppliers in the purchase to pay software can transform a company's purchasing over night. Instead of relying on spot buying by phone, email or online, employees can be restricted to purchase approved products, at pre-negotiated prices and only from approved suppliers. This eliminates maverick buying, enables managers to aggregate spends to get lower prices and drives more volume into a managed supplier roster. As a result, there’s fewer suppliers to manage and prices can come down.
  8. Another key factor in controlling costs is ensuring that Budgets, Purchase Requisitions, Purchase Orders, Goods Receipts and Purchase Invoices are part of a single joined up process. How many times have you seen a purchase invoice arrive with the AP team, who have no idea who raised the PO, who approved it or who the supplier is. Crazy but it happens on a daily basis.

With the right purchase to pay platform in place, the down-stream processes of matching, reconciling and approving purchase invoices is redundant at best, or at least, highly efficient. The benefits of putting the rigour and discipline of approving the purchase before the order is placed with the supplier is obvious - but not what the vast majority of businesses do.

Get the purchasing process right and your AP will never have to manually key in a supplier invoice, chase round the company to find out who approved the order and be freed up to deliver more value to the company.

In fact, with the right purchasing processes in place, why do you need a supplier invoice? It's a redundant document and an outdated process. 

If you’d like to fix your Purchasing, take a look at Zahara.