3 Reasons why a procurement-first approach to procure to pay automation is a mistake

It seems like everyone is on some journey of automating their end-to-end source-to-pay process, and just as common is pursuing a suite deployment as a means to an end. Procurement departments have set ambitious targets of digitizing their S2P processes by 72% by 2025, meaning businesses are actively searching for how to best invest in digital transformation.  

But even with a suite approach to digitization, it’s nearly impossible to do the deployment in one “big bang” deployment – you have to pick your battles and roll out a suite over many months (or likely years, depending on the scope). This begs the question, where should you start?  

A lot of businesses start with the processes they think will give them the most immediate results. This is often sourcing (for big wins on supplier rationalization and negotiated savings) or eProcurement (for big wins on contract compliance and better control over maverick spending). However, even though these seem like the obvious starting places, that doesn’t make them the best. In fact, many deployments that start this way still find themselves battling problems down the line, including late payments, supplier relationship issues, poor spend visibility, and exposure to fraud and errors.  

So what’s the best way to prevent these issues? Look at the desired end-state you’re hoping to achieve and work backwards from that point. For example, starting a suite implementation with AP automation first before building up to a unified source-to-pay system can deliver a more successful overall implementation. It creates a firm foundation for invoice to pay, which has a direct impact on supplier relationships and downstream workflows – like compliance to negotiated prices and service delivery/performance monitoring.  

Procure to pay automation basics 

What is P2P automation? 

Purchase to pay, also known as procure to pay software, is an integrated system that fully automates a business's purchasing process. The system earned its name as it handles all aspects of acquisition, from the purchase of goods to the vendor's payment. 

What are the stages of P2P automation? 

The procure to pay automation consists of three major steps: requisition, purchase, and payment. Though there are steps in between these three major areas, it essentially covers the process from when a company places an order for goods or services they need to operate their business effectively. The process continues through when the goods/services are received and billed for, at which point accounts payable processes and pays the invoice.  

What is a procure to pay process? 

The P2P supply chain starts with a buyer establishing his/her needs for goods or services. The request is then validated with available suppliers, which they will then provide the buyer with the pricing and terms. The buyer can then raise requisitions with the selected supplier. 

Depending on the structure of the organization, some requisitions may need approval, or budget authorized before raising a Purchase Order (PO). Once approved, the PO will then be sent to the supplier, and they will fulfill the order and deliver the goods or services required. 

Typically, the buyer receipts successful delivery of the order to the supplier and then the supplier raises an invoice quoting the PO number issued previously. And when a 3-way match is validated, the buyer issues the payment to the supplier.

What is the difference between S2P and P2P? 

Whereas procure to pay usually begins at the requisition, or purchasing stage, source to pay brings in an earlier step that happens before a purchase is ever made. The sourcing process involves researching and vetting potential vendors that you might make a purchase from, and often employs strategies to select a vendor that offers you the goods or services you’re looking for at the right price, and that the vendor themselves aligns with your company’s standards and policies. 

What’s at stake with delaying accounts payable in a source to pay implementation? 

1. Last-minute invoice and payment approvals 

Those who work in accounts payable already know that the invoice process takes too long – 47% of finance professionals list long invoice approvals as their top challenge in 2022. Dealing with too many exceptions or time-consuming manual processes drag the invoice approval time out over days – sometimes weeks.  

Already at a disadvantage from the lengthy invoice processing time, Finance teams also may not have the proper collaboration or procedures set in place to approve payments on time and may lose the opportunity to offer early payments to suppliers in return for discounts, or worse yet fall victim to late payment fees. In addition, without proper organization, certain members of an organization may lack visibility and control into approvals, when they should in fact have access to invoice approval workflows.  

2. Costly, frustrating manual processes  

Manual invoice processing is a serious problem in accounts payable. These monotonous and usually repetitive tasks leads to delays in the invoice process, including inaccurate accruals. And manual data entry leads to errors including incorrect information on an invoice, wrong supplier details, wrong accounting codes and incorrect approvers. Slow, inaccurate processes mean the organization has no real insight into liabilities. This also leads to lack of internal compliance and control, as well as fragmented data handling, and thus discord among incompatible systems. 

The emotional toll is also not to be forgotten and can be just as problematic for the overall business. Only three in ten (37%) of financial decision makers would say they and their colleagues are satisfied with their role. 24% say their finance department is so busy that they are concerned colleagues are on the cusp of leaving. Without the help of technology, a manual invoice process, it’s going to be a real challenge to obtain and keep talent in the AP department. 

3. Procurement based on negotiated terms 

If buyers do not follow their contracted terms in relation to their payments, it can result in serious consequences for the business. Failing to pay suppliers on time or at all damages relationships and could spell disaster if they decide to withhold the goods you were supposed to pay them for. A report by McKinsey stated “A single prolonged shock to production could wipe out 30-50% of one year’s earnings before interest, taxes, and depreciation.” These potential ramifications can lead to the inability to meet much needed cost savings goals for the organization, or sometimes worse. 

Benefits of a “finance first” approach to source-to-pay automation 

Putting AP at the forefront of an organization allows organizations to concentrate on other business functions, and directly impacts the effectiveness of various upstream parts of the source-to-pay process, specifically management of risk, spend, and compliance. Thus, organizations will realize hard ROI benefits through payments processing savings, and soft ROI through creation of a basis for streamlined operations within the rest of the S2P process.   

Automating processes creates fewer errors and duplicates in the invoicing process. This ultimately leads to less fraud and risk, which saves organizations time by identifying risk early on in the sourcing cycle and plays an important role in risk management. It’s also the base for overall true spend management because other parts of the source-to-pay process, such as financial analytics, procurement, sourcing and contract management, rely on accurate and effective invoicing and payments to capture and analyze spend data. This further creates a strong ROI for organizations because properly extracting and evaluating invoice data directly affects how CPOs/CFOs make spend decisions. And AP automation also enforces compliance in accordance with supplier regulations and policies. 

Here at Medius, we know that businesses are looking for ways to get beyond basic automation and really drive value from an automated source-to-pay process – but they’re also faced with a lot of noise and options in a crowded market. We’ve been focused on AP automation for more than 20 years, because we know the benefits it can bring not just finance, but the business overall. Read more about taking a finance first approach to source-to-pay in this report from Spend Matters.