The coronavirus continues to wreak havoc on markets and businesses across the world, hitting especially hard on those organizations in the mid-market. While it’s impossible to project its total economic impact – and how long it will last – one thing is certain: over the next few months, sales will get tougher.
In the short-term, top-line revenue growth will likely slow down. The smart financial response is to refocus your efforts and resources on bottom-line value. Procurement holds the cards for making this happen. The most effective procurement programs:
- Reduce the costs of goods and services you need to buy
- Secure favorable payment terms to aid cashflow, including negotiated discounts
- Use automated workflows to implement pre-spend, purchasing and payment approvals across all operations
- Analyze company-wide spending to unlock new opportunities for savings
- Proactively manage budgets with checks and approvals during the purchase requisition process
- Manage vendor invoices electronically to reduce back-office staff costs, avoid overspending, and mitigate errors and redundancies
- Reduce rogue spending and maverick buying
- Establish goods receipts and 3-way match to ensure you are paying only for what you ordered and what you received
- Eliminate manual and tactical processes that drain resources and waste cash
Where should financial and procurement leaders begin?
To start, implement a procure-to-pay system that digitizes suppliers for catalogs, orders and receipt of goods. Enact digital invoice management and receipt of electronic vendor invoices directly from your vendors. Lastly, establish digital payments, reducing check cost and realizing rebates. The ROI will be clear as you execute your spend analysis. With everything now centralized, you will have clear visibility around where you are spending money, how much and with what suppliers. This insight will aid you in making proactive and strategic decisions about where you can cut costs and negotiate better rates and terms.
Today, most mid-market companies are flying blind when it comes to spend management and spend visibility. Once you have the proper spending insight, you can start making informed decisions. Can you negotiate new payment terms and discounts with both strategic and non-strategic suppliers to improve cashflow? Are you using multiple suppliers for the same goods – and could you get lower rates by aggregating that spend? Operationally, where are you wasting time and labor costs? Automating tactical work – like writing checks, manually reviewing vendor invoices, and creating and approving purchase orders – lowers costs, for both you and your suppliers.
For example, paper invoices typically cost a company $15 per invoice to process by hand. Electronic invoices are less than $1.50. Paper checks can be $8.00 per check while fully loaded cost and digital payments can be $1 – $1.25. Every dollar adds up – especially for companies with heavy invoice and payment loads.
Leveraging technology is key. Depending on your size, it’s likely you have hundreds of thousands to millions of dollars in unmanaged spend, and hundreds to thousands of suppliers. While many of those partners and a lot of that spend are essential to your business, procurement has proven time and again that there are ample opportunities to reduce costs, improve contract terms and drive profitability.
For a deeper dive on managing spend during uncertain times, check out our next post: Increase profits to combat economic uncertainty.