Procure to pay has to do with getting goods and supplies from suppliers or manufacturers and paying for them. As a company, it is important to run a procure to pay system if you are concerned about managing cash flow, making profits and doing business with reputable suppliers.
In this post, we’ll look at 5 procure to pay risks that the procurement department might not notice.
1. Order Mistakes
The first procure to pay risk the procurement can miss is mistakes in orders. Most companies do handwrite their orders or place them online; whichever way, there is a possibility that they can order the wrong items.
This is very important in a procure to pay system and if it is not corrected, it could affect other processes. One way to prevent this is by carefully going through purchase orders before they are placed or sent to suppliers. More than one person can be assigned with this task, therefore if one person misses an order mistake, the other would not.
If such happens, you should quickly reach out to the supplier company to resolve the mistake. It should not be very difficult for it to be resolved if you maintain a good business relationship with your suppliers.
2. Quick Orders
In a procure to pay system, placing of orders is among the first procedures. There are different risks involved if these orders are placed quickly without careful examination. When placing orders, the company’s budget needs to be considered to ensure that the spends are efficiently managed.
There should be no need for quick orders. The procurement should check each of the suppliers to decide on which one has the best offer. The prices of each supplier should be compared to the other; some suppliers do offer certain discounts which can help the company save money. However, this should be done with quality in mind and should not take up a lot of time.
The procurement should be learned about the company’s budget and how much is set outside for purchasing certain goods and services. All other departments involved in the procure to pay system should be learned about it as well.
3. Damaged Supplies
Damaged supplies are among the procure to pay risks applicable majorly to international suppliers. These suppliers do send in goods and supplies through their ships or that of a shipping company. There is a chance of these goods and supplies getting damaged while being shipped.
In a procure to pay system, payment is made according to how many goods are received into the warehouse. If this procure to pay risk is not checked, the accounting department might end up paying for damaged goods and supplies.
You can always reject goods and supplies if they are damaged; if you are to accept it, the number of damaged goods and supplies must be recorded. This is one of the procure to pay best practices and the supplier will have to replace the damaged items.
4. Supplier Negotiation
This is one of the procure to pay challenges faced by the procurement. If supplier negotiation is not done properly, the company might end up not getting the best products available. This has to do with communicating with a supplier to determine just what and what you are paying for.
There should be proper negotiation between the procurement and a supplier. You want to know if you are paying for shipping or any other handling fees which are usually separated from the cost of the products. Most procurement departments would wave this off and just go with any price given by their chosen supplier. Knowing what you are paying for helps manage the amount budgeted efficiently.
Doing this should not be difficult; a person can be assigned to do the negotiation and relate information to the department. Frequently, there should be re-negotiation to checkmate new pricing.
5. Supplier Master Data
Not having a reliable supplier master data is a procure to pay risk most procurements do not take note of. The final stages of a procure to pay system involves issuing of checks to pay suppliers; if correct information about such suppliers is not available, it would be difficult to do this.
Supplier master data contains all the information about the suppliers a company would need. The procurement department should ensure that they collect all useful information when a new supplier is brought on board. This information should be duly recorded so when payment is to be made, there would be no missing detail.
To make this process easy, there are various Supplier Master Data Management software the procurement can make use of. This is outrightly the best way to go as a supplier master data framework would contain a large amount of data that would be difficult to manage with handwriting.
A Final Thought
Implementing a procure to pay system will be beneficial to any company. It gives reliable insights on how money is spent and provides visibility in a company. Do ensure to invest in a good procure to pay software and watch out for the risks discussed in this article.