Purchase Order Management for Accounts Payables

White Paper

September 4, 2018

TABLE OF CONTENTS

Introduction

The Procure-to-Pay (P2P) process includes the requisitioning, purchasing, receiving, paying, and accounting of indirect goods and services. Instrumental to this process is purchase order (PO) management, which entails the creation of purchase requisitions, approval workflows, and PO submissions.

In the best-case scenario, the PO management process is conducted by a well-staffed and efficient procurement department that oversees all indirect goods and services purchasing with an advanced electronic procurement (eProcurement) tool. The benefits of having a well-managed, automated procurement process include streamlined supplier management, configurable exception handling, control over budgets, auditable document trails, real-time order insight, and a healthier supply chain. However, not all companies have a formal procurement department, as some small and mid-sized organizations do not have the resources, purchasing volume, or infrastructure to accommodate a separate procurement team—much less implement an eProcurement solution. Instead, for many organizations the task of PO management falls to the accounts payable (AP) team, impacting their ability to properly manage the existing payment-related activities.

Whether or not a company has a formal procurement department should not impact its ability to achieve the benefits of automated, efficient PO management. For organizations without formal procurement departments, an AP management solution with a built in PO management tool can provide significant value. These solutions are built for AP teams that manage some procurement processes in addition to their own invoice processing tasks. The software offers a PO management tool that is integrated with AP automation technology, providing a holistic platform for both of these functions with simple implementation requirements. Adopting an AP-oriented PO management tool is also a valuable first step towards full P2P automation for organizations lacking the resources to fully automate their back-office processes.

This whitepaper is intended for organizations or companies without formal procurement departments, with the goal of empowering AP departments to handle key procurement processes. It identifies potential pain points in PO management processes and the benefits that can be reaped through an AP- focused PO management solution.

The Challenges of Manual PO Management

Levvel Research’s survey results show that the majority of organizations, regardless of revenue, have centralized procurement processes, see Figure 1. However, smaller organizations are more likely to have no procurement department at all. This is partly because smaller organizations typically lack the budgets or indirect spend to warrant a formal procurement department.

Figure 1

SMEs and Lower Middle Market Organizations Are Most Likely to Have No Formal Procurement Department

“How would you best describe your current procurement process structure?” & “What is your organization’s annual revenue in the most recent 12-month reporting period?”

In the absence of a dedicated procurement team, companies may designate certain individuals—typically personnel from finance (AP) or operations—to process incoming orders. However, small companies often lack sufficient staffing levels to manage both processes efficiently. Managing procurement processes within AP can grow even more challenging when companies are experiencing periods of growth in PO volume, either from expansion-based spend or cyclical fluctuations. Businesses may also need to manage purchasing complexities related to global trade, such as tax regulatory requirements, which puts further strain on an overburdened AP team.

The most difficult scenario for managing PO lifecycles within AP is when the procurement process is fully manual. Research shows that most organizations are not using effective tools for ordering goods and communicating with suppliers. Among organizations that do not have an eProcurement solution, most companies send POs to suppliers through email, see Figure 2.

Figure 2

Utilities Procurement Is More Decentralized Than in Other Industries

“How would you best describe your procurement process structure?”

When POs are sent via email, rather than through a secure eProcurement tool that helps control data, companies are more likely to experience inefficiencies that arise from inaccurate information. For example, if a PO contains an incorrect supplier name, there can be significant problems with payment verification and reporting down the line. Manual PO management leads to many other problems, such as lengthy approval times and higher amounts of maverick spend due to a lack of proper approval controls. Additionally, when editing or matching invoices to POs, the lack of an automated workflow and central repository for documents makes these tasks tedious and time-consuming.

Survey results show that organizations with neither a formal procurement department nor a procurement automation solution have slightly different challenges than others when it comes to managing suppliers. For example, these companies are more likely to have trouble resolving disputes with suppliers and slower response times to vendor queries, see Figure 3.

Figure 3

Organizations Without a Formal Procurement Department are Most Concerned About Poor Supplier Dispute Resolution and Query Response Times

“What is the pain that causes the most damage to your organization’s supplier relationships?” & “How would you best describe your current procurement process structure?”

Organizations with formal procurement processes in place are relatively more concerned about poor contract compliance and issues resulting from poor supplier data management. This may be a reflection of more long-term, strategic goals (e.g., contract compliance, data management) that formal procurement departments can focus on when they have enough staff to manage day-to- day procurement activity. On the other hand, organizations without formal procurement departments often have back-office staff juggling many aspects of supplier management, and they cannot always keep up with more tactical requirements, such as answering frequent supplier calls or emails.

eProcurement solutions are the best way to improve indirect spend management. However, many companies still hesitate to adopt these tools. Levvel Research’s research indicates that the most common barrier to procurement automation varies depending on an organization’s annual revenue and whether it has a procurement department. Although the top barrier to adoption—the belief that current processes work—is the same for all companies, the next highest barrier for companies without formal procurement departments is a lack of budget, see Figure 4. These companies are also more likely to list the barriers of the belief there will be no ROI and difficulties around business process re- engineering.

Figure 4

Organizations Without Formal Procurement Are More Likely to Indicate Lack of Budget as Their Main Barriers to Adoption

“What is the greatest barrier to procurement automation implementation in your organization?” & “How would you best describe your current procurement process structure?”

Similar trends are seen across revenue segments, see Figure 5. Smaller organizations are more likely to cite their primary barriers to adoption as lack of budget, no ROI, and business process re-engineering than enterprise companies.

Figure 5

The Majority of Enterprise Organizations Believe Current Procurement Processes Work

“What is the greatest barrier to procurement automation implementation in your organization?” & “What is your organization’s annual revenue in the most recent 12-month reporting period?”

The absence of formal procurement or the lack of resources to support automation should not prohibit companies from optimizing the back office. Rather, these companies can focus on achieving multiple objectives with only one tool by implementing AP automation software with built-in PO management tools. This approach to automating P2P processes is both holistic and economical, and it is the perfect option for companies with tight budgets, low indirect purchasing, and/or unique back office structures. These solutions also allow teams managing both AP and procurement to take a strategic approach to indirect spend management. The following section provides an overview of AP software with built-in PO management capabilities.

The Value of an AP-Focused PO Management Tool

AP solutions with integrated procurement-focused tools should offer the following features, attributes, and values.

Improved Efficiency

A PO management system streamlines all aspects of purchasing until fulfillment, from the approval of purchase requisitions to the submission of POs to suppliers. It also improves the AP process downstream. Integrated AP and PO management helps prevent duplicate invoices and decreases the chances of missed or late payment fees; these items can be flagged for notification within the system before any issues emerge. Moreover, automating and digitizing the process reduces the errors resulting from manual data entry or high volumes of paper. An additional efficiency gain is in employee time; a PO management solution can minimize the time AP needs to spend attending to manual, low-value purchasing processes.

Control Over Speed

Without a formal procurement team, it can be difficult to police maverick or out- of-policy spend internally, or monitor contract, fulfillment, or pricing compliance from suppliers externally. With a PO management solution, the AP department can leverage configurable purchasing controls to improve control over spend. These solutions also help relieve some of the AP team’s burden of controlling spend by allowing other departments and strategic leaders to use the solution to monitor their own spend and budgets.

Electronic POs allow purchasers to communicate with the supplier about products or services and pricing requirements in a controlled and documented electronic environment. Standardized, electronic POs also provide a formal reference in the event that orders or services are not delivered as expected. Once a PO has been sent and accepted by the supplier, it can serve as evidence in dispute resolution between the two parties, as in questions surrounding outstanding payments, withheld goods, or fulfillment of services.

Document Management

A PO management tool enables employees to request various types of POs, which then automatically enter an approval workflow. The workflows can be tailored to a company’s specific policies, and can help manage intricacies related to global purchasing (e.g., tax and compliance issues). With a PO management tool in place, all purchasing documents are stored in a single location. This means that the entire document library is accessible online. Companies can also gain efficiency in the ability to quickly reference any purchase details. AP staff have better insight into supplier contracts and PO fulfillments, decreasing the likelihood of late, missed, or duplicate payments.

Beyond improved document management, companies that implement a PO management-focused AP solution also reap the benefits of having a comprehensive record of all purchased goods and services, creating a seamless audit trail. Having this source of information available in one location also improves visibility and protection against fraud.

Strategic Spend Data

With a formal PO management tool integrated with AP invoice automation, companies can make decisions based on past data points and current spend, inventory metrics, and service fulfillment. With a clearer, more holistic view of their financial data, companies can improve their budget forecasting potential and ultimately enhance their decision-making capabilities. Additional benefits of improved visibility into spend data include the ability to identify preferred vendors, as well as encouraging employee accountability by providing notifications when a new purchase requisition is over-budget or intended for a non-preferred supplier.

Improved Supplier Relationships

A platform for managing both AP and procurement allows AP staff to quickly address supplier queries by simply referencing the PO in the system. Further, some AP-focused PO management tools offer portals where suppliers can view contract details for each PO, as well as contact information and the status of POs and payments. These features address the key concern of supplier dispute resolution and unsatisfactory query response times among organizations without a formal procurement department, as seen in Figure 2 above. In all, improved responsiveness from the purchaser enables suppliers to better manage their own supply chain, and creates the foundation for a healthy purchaser-supplier relatonship.

Conclusion

Organizations of all sizes and types can reap significant benefits from greater insight into and control over their purchasing decisions without greatly disrupting their back-office structure, hiring more labor, or stretching their budgets. Overall, an AP solution with a built-in PO management tool allows companies to streamline some of their most important processes, and empowers AP departments to manage and oversee the entire P2P process.

About the Sponsor

Accrualify offers mid- and enterprise-level companies cloud-based automation solutions to better manage their Procure-to-Pay and accounts payable processes. Accrualify’s products enable more efficient and automated management of purchase orders, accruals, invoices, payments, vendor management, and budgeting. Their mission is to leverage artificial intelligence (AI) and machine learning to address the many pain points corporate finance organizations face on a daily basis. It was this principle that led Accrualify to develop a process that automates month-end accrual processes. To learn more about Accrualify’s P2P and AP automation tools, visit www.accrualify.com

About Levvel Research

Levvel Research, formerly PayStream Advisors, is a research and advisory firm that operates within the IT consulting company, Levvel. Levvel Research is focused on many areas of innovative technology, including business process automation, DevOps, emerging payment technologies, full-stack software development, mobile application development, cloud infrastructure, and content publishing automation. Levvel Research’s team of experts provide targeted research content to address the changing technology and business process needs of competitive organizations across a range of verticals. In short, Levvel Research is dedicated to maximizing returns and minimizing risks associated with technology investment. Levvel Research’s reports, white papers, webinars, and tools are available free of charge at www.levvel.io

Disclaimer

All Research Reports produced by Levvel Research are a collection of Levvel Research’s professional opinions and are based on Levvel Research’s reasonable efforts to compile and analyze, in Levvel Research’s sole professional opinion, the best sources reasonably available to Levvel Research at any given time. Any opinions reflect Levvel Research’s judgment at the time and are subject to change. Anyone using this report assumes sole responsibility for the selection and / or use of any and all content, research, publications, materials, work product or other item contained herein. As such Levvel Research does not make any warranties, express or implied, with respect to the content of this Report, including, without limitation, those of merchantability or fitness for a particular purpose. Levvel Research shall not be liable under any circumstances or under any theory of law for any direct, indirect, special, consequential or incidental damages, including without limitation, damages for lost profits, business failure or loss, arising out of use of the content of the Report, whether or not Levvel Research has been advised of the possibility of such damages and shall not be liable for any damages incurred arising as a result of reliance upon the content or any claim attributable to errors, omissions or other inaccuracies in the content or interpretations thereof.

Authored By

Anna Barnett

Research Senior Manager

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Meet our Experts

Anna Barnett
Research Senior Manager

Anna Barnett is a Research Senior Manager for Levvel Research. She manages Levvel's team of analysts and all research content delivery, and helps lead research development strategy for the firm's many technology focus areas. Anna joined Levvel through the acquisition of PayStream Advisors, and for the past several years has served as an expert in several facets of business process automation software. She also covers digital transformation trends and technology, including around DevOps strategy, design systems, application development, and cloud migration. Anna has extensive experience in research-based analytical writing and editing, as well as sales and marketing content creation.

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