Anoek van der Riet
Compliance plays a major role in the purchase to pay process. From requesting purchase orders to paying invoices; one must comply not only with laws and regulations, but also with internal procedures and policies. How does a compliant purchase to pay process look like? And how can automation help be compliant?
Compliance means that a company abides by both the law and internal rules and (ethical) standards. If a company does not do this, it is in non-compliance. This can have quite negative consequences.
Know your customer and supplier
It is important for companies that all parts of the purchase-to-pay process are compliant. This starts on the purchase side, that is, when making a purchase. The first step is selecting a supplier. "Besides know your customer, know your supplier is a crucial part of compliance," FMO's Procurement Officer Annemarie van den Hout says. "It's not a matter of 'I need something and this party supplies it, so we'll enter into a contract.' No, there are ground rules for that. You have to think carefully in advance about who you are going to partner with."
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READING TIP
On the one hand, this is because of imposed laws and regulations. This is because it lays down a number of requirements about entering into relationships with suppliers. The requirements depend on the industry in which your organization operates. Especially for financial institutions, such as FMO, the law imposes many requirements on suppliers. But a company itself can also set requirements for suppliers. For example, to work only with suppliers that align with its vision and goals of sustainability and inclusiveness. Or to work only with suppliers who offer purchasing advantages.
The procurement process is compliant if all those requirements, both of the law and of one's own organization, are met. In short; if purchases are made only from the right suppliers. For this, you depend on the behavior of all employees. After all, it is not inconceivable for a mechanic to quickly cycle to the hardware store to get a spare part. Or that an office worker drives to a Media Market for a new printer because the old one just broke down. Maybe convenient, but it's not compliant.
Automated procurement process is compliant
"Of course complete control of orders placed with different suppliers is a utopia, but there is a difference between giving employees complete freedom of choice and regulating this as best as possible," says Mees Walhof, Manager Procurement at TU Delft.
"It is important to optimize the ordering process and make it as simple as possible for employees. In other words, don't give them an ocean with thousands of fish, but a pond with the fish you have chosen as an organization." He continues: "I notice that the user wants a kind of Bol.com experience while searching for products: one big database in which you can easily filter."
People simply choose the easiest route. So make sure the desired, compliant behavior is achieved through that easiest route. Make it easy to be compliant. Give employees such a Bol.com experience, or whatever experience they desire. Because if it's too complicated to be compliant, the temptation becomes too great to throw this overboard and get on a quick bike anyway.
An accessible, intuitive purchasing portal can help in this case. This makes it easy for employees to order products correctly themselves. They can make their purchases only from preferred suppliers selected by your organization, who are sure to meet all requirements. Because the portal is easy to use and connects to the way of working that employees like, it becomes more attractive to actually use it.
Compliance by design
Being compliant is also important in other parts of the purchase-to-pay process. Once a vendor is selected, it's time for the next step: ordering.
Chances are that your organization has agreed that the request must first be approved by approver X, before the order is actually placed. Employees can often, consciously or unconsciously, easily deviate from this and proceed with the purchase anyway. While that is exactly what you want to prevent.
Here, too, automation can provide a solution. This is because automation makes it more difficult to deviate from the desired procedures; everything is predetermined and the processes are set up accordingly. If it is determined in advance that approver X must approve a purchase order, then the automated process is (if all goes well) set up in such a way that the purchase order cannot proceed until approver X has actually approved that purchase order. There is compliance by design.An employee is already compliant as a matter of course because there can be no deviation.
Faster payments thanks to automation
Once the products or services are ordered and delivered, it is time to pay. Even at this stage of the purchase-to-pay process, a company must be compliant. In addition to having a legal payment term, companies often agree on this among themselves. This is what you have to abide by.
Nevertheless, research by DirectResearch among more than 200 finance and procurement professionals found that as many as one in seven corporate companies pay the majority of invoices late. The main cause? The approval process takes too long. This approval of invoices is still done manually at a large proportion of corporates. Less than half of the surveyed financials already have an automatic approval process.
Making entire purchase-to-pay process compliant
Automation can not only speed up this approval process, but can improve the compliance of the entire purchase-to-pay process. How? Ideally, this starts with a centralized purchasing system, such as the purchasing portal described earlier.
If products and services are offered in such a central purchasing system, employees can make an order request here. The moment they make such a request, an electronic purchase order is automatically created. This is automatically submitted to the relevant budget holder for approval. Only when he or she has given his or her approval is the order actually placed with the supplier. The invoice that follows is automatically validated, linked to the corresponding purchase order and possibly compared with the goods received; the so-called matching process. Accounts Payable merely follows up on the outage.
Because the entire purchase-to-pay process runs automatically through preset steps, every purchase order and every invoice is created correctly. Without exceptions, according to both external and internal rules. No ghost invoices, no employees who ignore the rules and no more unpleasant surprises for the Finance department.
READ ALSO: Compliance: a must or game changer?
Increase auditability
An additional benefit is that this improves auditability. Auditability refers to the degree of ease with which an external auditor, such as an accountant, can examine whether a company is compliant. For example, can they easily find the path of a particular purchase invoice? Who made the order request, who approved it, and then how did the purchase come about? And can it then be demonstrated that the order was actually received?
High auditability requires transparent processes in which every step is clearly recorded. So that there is no ambiguity about how or by whom and so that afterwards it is easy to find out how the process went.
By automating the purchase-to-pay process, all this information is captured and stored by default. Each step in the purchasing decision tree is transparent, making it always easy to retrieve who made which purchase and who gave permission for it.
So on the front end, compliance is ensured by making it clear to all employees and managers how to handle purchasing and invoice processing and who is responsible for what. After all, the automated process guides them through all the steps correctly. In addition, it becomes easier to prove afterwards that the process was indeed carried out according to both external and internal rules, because each step with timestamp is recorded in an audit trail.
Want to learn more about compliance? Read the free whitepaper
Would you like to know more about compliance? For example, why it is actually so important to be compliant? Which challenges you may face? And how to get the whole organization on board?
Then read the free white paper Compliance anno 2023: opportunities and challenges.
Anoek
van der Riet
Contents Specialist
Anoek writes daily about purchase to pay, order to cash and Robotic Process Automation. She enjoys diving into topics such as e-invoicing, working capital and hyperautomation.