How Close Collaboration Between Finance and Procurement Can Improve the Bottom Line

Monitoring costs continues to be a key priority for businesses amid growing economic uncertainty. Yet despite focused efforts, enterprises are failing to fully deliver on cost-saving initiatives and realize potential savings.

Chief finance officers (CFOs) in many enterprises have a robust plan to rapidly cut down costs. Often, these plans do not materialize and make no real impact on the balance sheet.

Where do they go wrong?

In many cases, it’s the lack of collaboration with procurement that is the underlying cause.

Misalignment between procurement and finance often results in uncontrolled spend, budget overruns, compliance issues as well as delays. Such misalignment stems from a lack of visibility into real-time data, with both teams working on different data sets and disjointed systems.

Functional silos, manual processes, limited resources and incorrect invoices shared by suppliers put increasing pressure on procurement and finance teams and hamper their ability to bring more spend under management.

Additionally, the two teams do not have the digital tools to analyze spend and derive useful insights and actionable information. All this hampers decision-making and results in maverick buying and missed savings opportunities.

How can they access the right data at the right time to make informed decisions?

From Source-to-Pay to Budget-to-Pay

Procurement has increasingly adopted source-to-pay (S2P) to oversee the entire buying lifecycle that begins with strategic sourcing.

However, as organizations continue to push for more visibility and control, there has been a further evolution of the unified procurement strategy – budget-to-pay (B2P).

This has necessitated a need to link the end-to-end process, starting from budgeting all the way through invoicing and payment.

With B2P, the finance master data is aligned with procurement data. Enterprises can connect disparate data sets and put organizational data from multiple systems and functions into perspective.

Extending the S2P process to B2P helps procurement and finance teams to work closely together. It allows both teams to leverage their respective data and jointly develop cost-control measures.

With a B2P solution, organizations can track every purchasing request against budget lines and make an informed decision. They can differentiate between good and bad costs with precision.

Additionally, with the right technology and standardized processes, both teams can do more with less and handle a large volume of work with ease.

How B2P Works

B2P enables better data visibility across finance and business processes, leading to greater accuracy between budgets, purchase orders and payables. Procurement works with finance during the annual budget-setting process to establish control towers that set targets for each budget control area.

Once the cost reduction targets are aligned, every purchase request is tracked against the set budget for that control tower. The control tower gets locked when it is out of budget and no further purchase requests are approved until additional funds are available.

As all data is consolidated in one place, procurement can report on savings directly from finance reporting systems.

How B2P Creates a Win-Win Situation for Procurement and Finance

B2P enables procurement and finance to work in close collaboration to achieve their respective goals.

A new GEP white paper, Conquering Costs How High-Growth Enterprise CFOs Can Gain Real Cost Control with Real-Time Data, lists the following benefits of deploying a B2P solution. It allows procurement and finance to:

• Get better cost visibility by streamlining the chart of accounts and establishing cost controls with finance
• Have granular, item-level visibility across the enterprise to reduce maverick spending and procurement costs
• Set informed targets and revise them, if needed to align procurement savings with the budget
• Distribute budget across various budget owners and set alerts and notifications
• Have a single source of truth by setting up one system of record for capturing and reporting budgets, actuals, accruals, open commitments and other provisions
• Leverage tools and processes to effectively manage supplier risk, performance and relationships
• Set up an intervention mechanism for each purchasing request and flex budgets as needed to reinvest in other areas

With a B2P collaboration, enterprises have an opportunity to implement a long-overdue integration of the organization’s massive master data systems. In this process, they can take the traditional partnership between procurement and finance to the next level and achieve agility as well as impactful cost reduction.

Know more about budget-to-pay.