Most finance leaders don’t put enough time into managing and facilitating procurement workflows. But how employees purchase the goods and services they need affects the day-to-day operations of the finance team, as well as the entire company. From tracking spend, to payment operations, and planning ahead, every aspect of the procurement flow is directly tied to company costs and therefore to the business’ bottom line. There are a lot of reasons finance leaders should be paying close attention, and a lot of risks that follow if they don’t. Let’s break it all down.
The dangers of overlooking procurement:
Losing control of costs
In most cases, the finance team only becomes aware of the company’s purchases at the end of the month when it’s time to pay, and that might be too late. This is usually the result of business departments using their own credit cards without a standardized approval process or someone from the finance team involved. Possible outcomes are lost discounts that could have been earned by paying suppliers early, and off-budget purchases that would not be approved if someone from finance had been in the loop. It’s easy to see how costs can get out of control fast without the right processes and tools in place.
Wasting precious time chasing information
Handling the procurement process involves staying on top of a lot of information among various stakeholders, and tracking down this information can be very time-consuming. For example, before a PO is issued, the financial approver requires specific information about the need, the budget item, and the supplier in order to approve the request. Another common example is when it’s time to pay, the function who handles invoices will have to go on a quest to find, match, and verify data from three different documents (the purchase order, the vendor invoice, and the goods received report), across multiple systems. These actions usually involve sending many emails and searching through different documents and spreadsheets. Each task is a huge and unnecessary waste of time, making a finance team’s work needlessly frustrating.
Planning without visibility into spending
Nearly all financial planning decisions depend on accurate data, yet most of the time finance teams are left in the dark. They usually review spending data during specific events like the monthly close or an important management meeting, while the rest of the month goes unchecked. Finance teams are used to relying on historical payment information to make predictions and decisions, but without access to real-time data, ad-hoc decision making suffers. For example, approving a purchase request without knowing which other purchases are waiting for approval or what has already been approved but is still yet to be paid, could lead to overspending. Financial planning and decision-making without having all of the relevant information in front of you is just not worth the risk.
Slowing down business operations
Business teams want to keep operations moving fast and finance procedures shouldn’t be what’s holding them back. But when purchase requests get lost in inboxes, approvals get delayed due to lengthy email threads, or approvers are waiting for more required information to be gathered, the business is slowed down. This obviously hurts the operational efficiency and the agility of the entire company.
How finance teams could end up here:
Procurement is a multi-participant, multi-stage process that involves a lot of interaction and data transfer between stakeholders, most of which are performed manually. At the beginning of the process, much of the request information is collected and approved via email and direct messages. Once a purchase is approved, that data is manually typed into the financial system of record (usually the company’s ERP). This back and forth with emails and manual data entry is very time consuming and quite error prone, as well as repetitive and boring for the finance team.
Financial operations in general, and procurement specifically, are conducted over a slew of systems, making information highly fragmented and siloed. Think about the journey of a purchase request which is submitted via email or Google form, and the approval is returned via a Slack message, while the budget is viewed in an Excel file and the PO is generated in the ERP – no wonder it’s hard to access and utilize data. This prevents stakeholders from using important decision-supporting information, leading to poor planning and unnecessary risk taking.
A clunky purchasing experience
Because using ad-hoc emails, tickets or messages to submit and track purchase requests is a bad experience for requesters, it’s common that they skip it altogether and go the maverick route. Especially when the alternative is as easy as using a manager’s credit card. For the finance team, this means the requesters bypass all the formal processes and policies designed to control spending and maintain visibility. In today’s reality, users demand a seamless user experience, and trying to implement a company-wide process without it will likely fail.
Regaining control can be simple
Though it’s often not part of their day-to-day, procurement operations and the many processes involved are areas finance leaders can’t afford to overlook. A new generation of solutions meant to bridge the finance and procurement gap is designed to help finance teams stay in control of procurement operations at every stage. To learn more about how we do it at Approve.com, check out our website and get a free demo today!