4 Gaps Between Finance and Procurement And How Budget to Pay Helps Close Them
- Procurement’s processes should align with finance’s – but often don’t
- Getting the two on the same page with Budget to Pay opens major savings opportunities
- Budget to Pay depends upon collaboration and effective change management
Finance and procurement often exist in silos – they operate on different schedules, use different metrics to track performance, and have historically occupied different rungs in the organizational chart.
But in today’s volatile business climate, such a relationship is no longer effective for enterprises in driving cost savings and maintaining budget discipline.
Finance and procurement need a common framework within which to operate. Beyond the procure-to-pay process, Budget to Pay™ (B2P) integrates procurement into finance’s budgeting process, leading to greater efficiency, agility and measurable impact on the bottom line.
When looking at the divide between finance and procurement, there are four common root problems enterprises face today:
Finance and procurement tend to exist in their separate worlds within the organization. As such, there is no clear pipeline of reporting between the budget-setting state and the consumption of that budget allocation. Without visibility on both sides for the whole process, finance and procurement find themselves speaking different languages.
2. Uncategorized spend
Internal spending such as payroll is lumped in with external supplier spending. Budgeting is not done according to spend category, supplier, contract or project. As a result, spend is not benchmarked and managed.
3. Organizational inertia
Many finance organizations operate under a use-it-or-lose-it model, which disincentivizes savings. There is little appetite to change processes to the more advanced Budget to Pay model that uses a zero-based budgeting to coordinate and optimize spend management.
4. Complex system of approval
Budget owners need to get approval to spend against budgets only to then have to deal with procurement for authorization to contract. When procurement is not involved up front in the budgeting process, there can be frustration and inefficiency.
So how does B2P resolve these problems?
The efficiency that the Budget to Pay process brings to procurement isn’t just technological – it’s about establishing collaboration and visibility, acquiring resources and gaining commitment from stakeholders.
It’s also about making sure finance and procurement are working with a unified taxonomy for spend categories and levels.
Having clear processes and workflows to guide approval in compliance with available budget helps to minimize frustration and promote buy-in.
Another piece of the puzzle that facilitates visibility and collaboration is a control tower to track spend. Similar to how a supply chain control tower tracks the flow of supply and enables action and collaboration with partners on problem areas, a spend control tower monitors spending levels across the organization.
Spend control towers enable real-time budget tracking, reporting, and forecasting and allows for procurement’s cost savings targets to be linked to finance’s key performance indicators.
In 2021, businesses will continue looking to optimize payments and cash flows to survive and thrive. By connecting finance and procurement functions, B2P helps enterprises optimize their spend processes to stay resilient and agile.
To learn how GEP’s Budget to Pay solution helps organizations manage spend, download this white paper: What’s Budget To Pay And Why You Need It Now: New Finance Capability for Next-Level Budget and Spend Control