In most companies, Accounts Payable (AP) and procurement teams work independently from one another for most of their respective tasks. The departments perform their business under different policies and have separate strategies for operating efficiently. Thus, a lot of companies are not realizing the benefits of AP and procurement working together towards a common goal. The two teams have more in common than is often agreed, as they both eventually work to improve the strength of their company’s cash flow and bottom line.
Tips for Aligning AP and Procurement
Set Common Business Goals
Generally, AP teams work towards goals including invoice approval time, process cost, and discounts received. Purchasing metrics include procurement cycle time, cost savings, and vendor quality rating. In most companies, these two functions work towards their own goals as separate units.
When creating a business policy, AP and procurement need to set common goals and metrics. Once these have been decided, both teams have a way of finding improvements throughout the entire procure-to-pay process.
Once the AP and procurement teams have agreed on common goals, the next step is to work towards the goal and track progress. Here, you need automated systems to handle this. Online platforms like accounts payable and procurement systems provide full visibility into purchasing and accounts payable activities.
Integrated data helps both functions to gain an insight into savings that have been made and possible improvements. Centralized data encourages communication, accountability and helps remove the silos that these two functions find themselves in.
Create Better Culture/Teams
Most companies neglect the importance of culture within their organization. Beyond benefits & compensation the various factors that can boost employee retention, performance and attract new AP and Procurement talent.
Unfortunately, in many companies, AP and procurement don’t interact unless there is something wrong. Collaboration should start initially; for instance, AP and procurement teams need to conduct regular meetings about the prospects. This can be the start of a healthy relationship that helps the business deal with suppliers, align data, and measure performance.
Regardless of the size of your business, you will appreciate the benefits of good company culture. Something as simple as inter-team lunches and celebrations can break down the silos and encourage communication between the two functions.
Benefits of Accounts Payable and Procurement Integration
Procurement is responsible for sourcing, contract negotiation; spend analysis, and supplier relationship management. All of these activities can be enhanced by data exchange with AP.
Productive Working Capital
At present, a few companies capture early payment discounts some of the time and most businesses never do. Companies can significantly enhance their chances of receiving these discounts when their AP and purchase teams are tightly integrated. When negotiating, the purchasing team needs to be informed of a realistic invoice lifecycle time by AP so that the discount is attainable. Once the deal has been discussed, the purchasing team can communicate the terms to AP and help them to ensure that they successfully capture the discount.
While purchasing is traditionally a procurement task, there are ways that AP can facilitate and improve the process. AP can enhance negotiations with in-depth insights into the budget that is available for procurement. AP team can also provide input into what it is like to work with a vendor’s accounting department and flag any problems.
Advanced Spend Analytics
Finance managers depend on data to fuel better decision-making and accurately forecasting their cash flow position. As the teams that are responsible for requesting, approving, and making payments, both procurement and AP can help make strategic decisions by providing real-time data about the procurement and payables based on their experience. This data also helps analyze the information that is already available in the ERP systems.
Supplier Performance and Relationship Management
Every supplier treats both AP and procurement as a single entity. It is crucial that both of these functions are united and working towards a common goal. Both teams can regularly communicate and update each other about their interactions with vendors. Any potential concerns can be raised immediately so that both departments can discuss and give feedback in supplier review meetings.
In the highly competitive business world, AP and procurement should always work together instead of independently. If you have not integrated these two functions, then you are already losing ground on your competitors. A healthy relationship between AP and procurement leads to a healthy business process, which will result in cost savings and process efficiencies.