Your organisation may have good purchase authorisation and payment controls in place today, but at what cost?
- How much time and effort does the current process take?
- How much manpower is really involved in a typical purchase transaction?
- How much time does it take an employee to buy something in order to do their job?
- How much time do managers spend reviewing and authorising requests while trying to make sure they stay on budget?
- How much time do professional buyers spend on purchases that don’t really need their expertise?
- How much time do Accounts Payable (AP) clerks spend every day tracking down information to verify the accuracy of invoices?
The purchase-to-pay (P2P) cycle is the ultimate case of a business process with a delicate balance between the need for controls and the time required to follow them. When the effort to comply becomes too great, it’s amazing how inventive people can become in finding ways to work around the process. Once that starts happening, an organisation has the worst of all worlds.
Why it’s Important
- Organisation-wide productivity: No matter what business you’re in, high productivity throughout your organisation is key to success. If employees take a lot of time to get the goods and services they need to do their jobs – e.g. find the right source, create a request, chase their manager for approval, respond to AP to authorise invoice payment – that takes time away from their real job. If line employees spend even a small percentage of their time in such non-value-adding activities, that can be a lot of lost productivity. No organisation can afford that.
- Cost of compliance: Another way to look at the same issue is the cost of each purchase transaction. The more time it takes away from employees and managers, the higher the transaction cost that is really being added to the direct cost of each purchase.
- Cost of AP: Payment controls are essential, but the cost of the AP function deducts directly from your organisation’s bottom line. A people-intensive, paper-intensive AP process is almost certainly costing your organisation more than it needs to.
- Cost of inconsistent compliance: If the “proper” buying process is cumbersome and time-consuming, some employees will skip it entirely and go around the controls you’ve worked so hard to put in place. That, of course, leads to all the problems discussed in the previous questions.
