The global uncertainty that pervades today’s market indicates a very real threat of a deep economic downturn. In response, the CFO’s new “hierarchy of needs” has placed a laser focus on business continuity and the liquidity needed to fund ongoing operations. Let’s examine a few ways that Chief Procurement Officers can support this top priority.
Procurement’s Convergence with Cash Management
Many Chief Procurement Officers reported in our most recent survey that cash management is a defined responsibility for them and their organization, so much so that “impact on cash” is the second most popular metric tracked by CPOs (after savings). This is significant because it is recognition that procurement is well positioned within the enterprise to implement cash management strategies, including:
- demand management
- negotiating payment terms
- ensuring compliance
- driving cost reductions and savings
- managing projects and investments using a total cost of ownership (TCO) analysis
- managing supply holding costs
- driving process efficiencies
As procurement converges with AP-Finance and the two departments begin to align their people, processes, and technologies, better cash management should naturally follow. For instance, procurement will have greater visibility into enterprise spend, and be able to exert its influence using the above strategies. Furthermore, aligning processes with AP-Finance – linking the two departments in the procure-to-pay (P2P) process – will further position procurement to better manage cash for the enterprise.
Aligning people and processes with AP and Finance and instituting a true P2P process will also pave the way for the adoption of technology solutions including ePayables solutions, which can drive invoice processing efficiencies and provide the visibility needed to develop better cash management strategies. Best-in-Class companies are 25% more likely to be using ePayables solutions today but they are nearly three times as likely as All Others to have taken on the primary responsibility for cash management. Other process automation tools, like automated expense management solutions, can also help enterprises better manage cash as they give managers near real-time visibility into their employees’ spending habits, and allow finance teams to invoice customers quickly and accurately, reducing costly errors and securing faster remittance.
Recommendations for Improvement
Procurement’s convergence across the enterprise means that they will increasingly need to manage cash, despite the associated challenges. Thus, we offer some recommendations as to how procurement teams can improve.
- Improve cash management skills: Unfortunately, when it comes to cash management, people are the weakest link in the people, processes, and technologies trifecta. As we outlined in our Skills for the Modern Procurement Pro article on cash management, Chief Procurement Officers (CPOs) and other procurement leaders recently rated their procurement staffs as well below average (akin to a D+) for managing cash. There is a clear skills gap between existing capabilities and needs. As a result, we recommend that procurement teams undertake a crash course in cash management strategies and skills. This is job one for CPOs who’ve got the “urge to converge” with cash management.
- Align AP and Procurement teams and processes: Another move that procurement should already be doing is collaborating with AP and aligning processes and goals. Ardent’s research has seen an increased focus on collaboration between the two functions and greater cash management is just one more reason for them to design and complete a comprehensive P2P process.
- Consider adopting P2P technology solutions: Ardent Partners’ research draws parallels between Best-in-Class procurement teams’ adoption of technology solutions, like an ePayables suite, with higher likelihood of absorbing cash management as a responsibility. This is not surprising, as technology solutions automate business processes and can impact organizational goals. As a result, we recommend exploring full P2P automation which can enable procurement’s urge to converge with AP, treasury, and cash management.
This article by Andrew Bartolini originally appeared on our sister site, cporising.com, on June 8th, 2020
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