The world of finance

From the June 2016 print edition

It’s time to take a closer look at how you operate your global financial supply chain.

Helen Tueffel is senior vice-president of APEX Analytix
Helen Tueffel is senior vice-president of APEX Analytix

Often through a combination of imperfect procure-to-pay (P2P) practices and the complications of global deployment through a financial shared services model, money is lost. Fraud and error are resulting in lost profits. Cash discount management is under utilized. And working capital is no longer working quite so hard on your behalf. Let’s change that.
More than one supply chain
When referring to supply chains, most people’s minds turn to manufacturing. Perhaps it’s an automotive company acquiring the parts necessary to send to the assembly line, or a company creating a finished good for its customers, such as transforming crude oil to petroleum. Regardless, at its core, a supply chain brings together a system of resources (people, departments, et cetera) to move a product from a supplier to the end consumer. What might be involved in this process? Common sense tells us that a company looks to procure goods of the appropriate quality, delivered in the most efficient manner and suitable for the finished product, all at the right price.
A financial supply chain mirrors this process. Only, instead of a part or service that’s being ordered, tracked and evaluated, the company is tracking and evaluating purchase orders or invoices that are based on contracts (that are, in turn, based on negotiations) with suppliers as they move through the financial supply chain toward payment. Like the traditional supply chain, AP departments want to process these invoices at the right price, in a timely and efficient manner.
Managing cash and working capital throughout this process is, ideally, a seamless process. Unfortunately, there are certain points in the financial P2P process that too often serve as the weak points where money leaks out. Let’s look at the big buckets in the global financial supply chain and wherein lie the opportunities to shore up weaknesses.
SOURCE: From a global supply chain standpoint, sourcing involves contract terms capture, such as defining 2/10 net 30 terms or defining opportunities for early payment discounts. If terms aren’t clearly laid out, opportunities for cash management capture at a later point are diminished.
BUY: Here, we see everything from vendor vetting and setup to ongoing supplier data management, deal capture, report processing and invoice pre-processing, and invoice verification/approval. Millions are lost daily to companies due to vendor master lists that contain duplicate or fraudulent vendors, as well as non-real time audits and reports that fail to capture fraud and errors as they occur.
PAY: During the pay process, buyers can present early payment offers for discounts, check for duplicate payments and do continuous monitoring for fraud, as well as perform contract compliance reviews. Neglecting any of these opens the door for overpayments, errors and fraudulent activity.
Challenges of going global
Another layer of complexity is how the global financial supply chain plays in. In addition to the normal complexities of managing procurement orders and invoices, you throw in curveballs that may include multiple currencies, different duplicated vendor bases and varied regulatory environments that govern how financial P2P process happens, from the way transactions occur to how POs are issued to the payment process itself. Companies in Asia and Latin America, for example, often rely more heavily on paper versus electronic invoices and payments. The point is, even though it’s a plus that businesses are growing globally and that there is some consistency in how global financial P2P takes place, there are still many points where fraud and error are creating lost profit.
AP managers need to evaluate how an organization operates globally to see where it may be exposed in terms of errors and overpayments. Is your vendor master clean and scrubbed continuously? Do you receive daily alerts for changes in existing vendor status? Does your system alert you when the opportunity arises for dynamic discounting or, even better, can your suppliers initiate a request for early payment from you in return for price reductions?
Your goal is to optimize your global financial supply chain to ensure you’re not leaking profits from the P2P process and that you’re properly taking advantage of cash management strategies around the world. The best way to do this is with full insight into your current processes, contracts and financial commitments, as well as an end-to-end audit of software, processes and cash management strategies.
Returning to our example, if a car part fails to ship to the assembly line, it causes a supply chain disruption where time and money is lost when spent trying to recover the part. Similarly, if there is a disruption in the process of finding, confirming and paying invoices, efficiency and money is lost—as is the opportunity to keep money in-house, working for you.