Are unnecessary purchases eating into your profits?
Do you ever wonder what is eating up your company’s money? Your net sales are good, and you have been cutting costs, but somehow your profits just seem to disappear. I can tell you that you’re not alone. Many companies have an inadequate grasp of the details, like who makes the purchases, what are they purchasing and where are they purchasing from, or whether or not a product or service is always bought from the same place at the same price.
Sometimes it seems as if the purchasing department and the financial department are completely isolated from each another, too busy focusing on their own special expertise. The purchasing department often holds the key to making the financial department’s processes more efficient, but there is no shared goal. The purchase-to-payment process is not developed comprehensively, from end to end. This often results from practical inadequacies and shortcomings in management. Or perhaps the world simply looks different from different ends of the process?
The financial department will nevertheless usually be persistent in requiring cost-centre codes, posting references and electronic invoices from all purchase suppliers. At the same time, the purchasing department may find itself struggling to find proper reports on indirect purchases if each department or subsidiary makes purchases independently, and these purchases may end up in several invoice circulation systems and purchases ledgers. In addition, no one seems to be aware of the big picture in terms of costs. I hope this is not the case for your company.
I have also heard of cases where purchases are made seemingly at random, with little attention to the purchasing department’s regular supplier agreements made on favorable terms. This is either because other departments are not aware of such agreements or because the procurement system is considered too inflexible or bureaucratic. Instead of using what may be seen as the company’s outdated system, the more adventurous staff members may make their purchases at a nearby store or from a modern online shop, where the shopping experience is on an entirely different level. The company’s system may perhaps not include the required product, the prices may no longer be accurate, the number of items in a pack may be too low or too high, or comparison of products may be too difficult to make.
Having the local store invoice purchases might work nicely for the employee making the purchase, but the financial department might not be equally thrilled. They may need to enter a new supplier in the register and search the organization for information to determine who will approve the purchase and what the appropriate cost centre is for the exceptional invoice. I hope this is not the case for your company.
Have you ever wondered what you should do about your purchase-to-payment process? Or does your company have separate purchasing, invoice approval, accounts payable and payment transaction processes – with little in common, except that everyone is processing the same data, separately and from different perspectives, trying to optimize their share of the process?
As head of P2P business operations, I have challenged financial departments in many companies to evaluate their purchase-to-payment process, genuinely, from end to end. This is the only way to gain real benefits from automating financial management routines. At the same time, job satisfaction will increase across the organization, as purchases can be made smoothly and invoice approval routines become a thing of the past, best left to the 1990s. And the best thing is that you will be able to see how and where your company is spending and which parts of the process will bring the highest benefits the soonest if they are made more efficient. Interested? Read more.