Organisation’s have never faced a more difficult period than currently. Increased competition and the pace of technological change are two driving forces making it essential for businesses in all sectors to ensure their processes are as efficient as possible, while not breaking the bank. One area in which this is key for every business is in financial processes and with the correct right Purchase-to-Pay (P2P) system in place, businesses will realise increased efficiency, cost savings, and increased financial visibility.
Legacy technology, increased regulations, high supplier non-compliance, and the increasing speed and complexity of transaction processing are resulting in a more risky environment, making it essential for businesses to protect against payment risks, fraud, and compliance breaches. Relying on traditional controls and audits is no longer sufficient and it’s time to adopt a new holistic view of P2P risk management.
Here are the five key steps to addressing your risk factors and boost the effectiveness of purchase-to-pay operations:
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1. Daily self-auditing
Traditionally, internal and external auditors have been the guardians of risk assessment, supported by three-way matching, other basic controls and reporting to find anomalies. This is no longer sufficient to protect spend in the continuously evolving business world.
The retrospective nature of audits and the fact that most risks are in transactions below the value that audits review means that in many cases, working capital isn’t identified until 12 months after the event, when an audit takes place, if even at all. Alongside this, more payment errors and fraud are being introduced as a result of more ways to receive invoices and to make payments.
In order to combat this, you should empower your teams to self-audit, through technology implementation. Enable them to be proactive in their identification and analysis of irregularities, to remove the reliance on audit teams, and to reduce the lifespan of any issues found to 24 hours.
2. Take actions on your insights
Every system deployed within the finance function will generate its own set of reports and dashboards, so there are typically too many disparate reports being generated by multiple systems and these reports are often too general and don’t highlight the most important P2P specific risks. While most businesses today have access to greater data insights, in many cases the data being generated is actually obscuring the view of what matters most when it comes to identifying unknown risks and provides little in the way of actionable insight. This inevitably makes the P2P process more vulnerable to risks.
Finance departments need to be able to find, understand and then act upon irregularities in the P2P transactions they process. When analysed correctly, this data will provide insight into specific risks and any shortfalls in the P2P process for both immediate and long-term benefit. Using continuous monitoring, deep forensic analysis and artificial intelligence capabilities to find exceptions will provide the specific insight needed to drive process improvements.
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3. Don’t let automation cause oversight
In the rush to automate repetitive P2P processes, companies are now foregoing much of the monitoring that previously came from human involvement and are not replacing it with anything else.
It is estimated that in 75 per cent of cases, a large organisation’s spend is now protected mainly by automated three-way matching, a 40-year-old standard control that can be bypassed in a number of ways and is now wholly inadequate for a modern finance organisation.
Giving finance teams the tools they need to continually analyse automated payments, and interrupt and act on risks before they have any impact is the most powerful control you can implement, and will radically reduce payment errors and associated costs. Automation is essential, but exception handling and the insight to improve processes will provide the efficiency gains and working capital protection that automation alone cannot.
4. Improve fraud prevention
The risk of fraud is growing rapidly in tandem with the complexity in P2P operations and pressure to reduce costs in supply chains. New technologies enable fraudsters to carry out ever more sophisticated scams and automation has removed countless human checks, alongside it, removing opportunities for people to spot anomalies. Organisations are also battling with overall increased complexity of financial operations, inadequate procedures for maintaining the master supplier file and a global supplier base which can expose gaps in control processes.
Against this backdrop, the absence of a coordinated and comprehensive company-wide fraud strategy leaves organisations dangerously exposed. The P2P team must therefore become the cornerstone of an organisation’s fraud risk reduction strategy, generating insight from the P2P data that only they hold. This will identify potential fraud all the way up the supply chain.
Procurement and Accounts payable need to collaborate and act cohesively on insight found by analysing the P2P cycle as a whole, intelligently identifying high-risk suppliers from cross-functional data.
5. Transform the skills within the finance team
As the operating budgets of organisations contract and market pressures intensify, the spotlight inevitably turns to internal “overhead” functions to play a more proactive role in an organisation’s success.
Long seen as a cost centre, back-office functions like Accounts Payable, Purchase-to-Pay and Shared Service Centres now have to generate increasing value through savings, efficiencies and deeper analysis and interpretation of data – not the traditional skills found in transaction processing teams. It’s therefore essential that organisations develop the skills in their teams to adapt to evolving requirements, to use new technologies, and to contribute more towards their organisation’s strategic objectives.
Executives looking to transform the P2P function into a strategic asset can begin by empowering it with the appropriate tools and authority to generate increased value.
With access to best of breed tools, P2P teams can generate the evidence and actionable insights needed to raise performance and benefit the organisation overall.
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Looking to the future
Through supporting your organisation in these five steps to improved effectiveness, you can take the lead in safeguarding your organisation’s supplier spending, driving efficiencies and supporting strategic objectives.
To help you improve P2P effectiveness, look for a company that offers a no-cost, no-obligation risk review to provide an independent analysis of your organisation’s P2P spending risks that highlights areas needing increased controls and the potential value of your risk exposure.
David Griffiths, CEO, FISCAL Technologies (opens in new tab)