P2P transformation: Beyond the transaction - 4 P2P drivers to support your business case

At Proactis, we place a high value on simplifying the business of procurement and cutting through the “noise” created by consultancies in the Source-to-Pay space. This means helping an organization assess their current performance using our four-step methodology, comprised of benchmarks and a comprehensive diagnostic approach. We focus on metrics that matter in the move towards true optimization.

Our four categories of Purchase-to-Pay (P2P) drivers - Efficiency, Connectivity, Cash Management, and Compliance - align directly to help organizations develop a compelling business case that a CFO will gladly approve. Individual organizations have to choose the optimization drivers that reflect their strategy and direction. Our experience has shown that, more often than not, organizations should take a serious look at the following metrics as a foundation for building a transformational business case:

1. Efficiency
  • Cost per invoice – this metric probably seems like an obvious choice, but it’s not always on management’s radar. In the end, having clear visibility into your “all in” transactional cost will help you answer many questions (and help you ask better questions going forward). For reference, a standard baseline in this area is $15 to $25 per manually processed invoice.  In an automated world, this transaction cost can be reduced to less than $2.
  • Straight-through invoice processing – if optimization is your goal, then understanding exactly how many of your invoices can be processed without intervention is a key metric. After all, increasing this metric will allow your team to reduce the number of problematic invoices. Bauer Media achieves straight-through invoice processing and payment with Proactis.
2. Connectivity
  • Percentage of electronic transactions – this metric isn’t always defined the same way. For example, one key to this driver is an intentional and documented strategy for enabling suppliers. While there is no silver bullet – it takes time and, in some cases, requires the convincing of suppliers to embrace the B2B e-commerce marketplace (most companies have not fully enabled even 40% of their supply base), there are solutions that can help.
  • Percentage of payments made via check/ACH/card/wire – you simply can’t make a serious move toward touchless invoicing until you understand this area. Believe it or not, recent studies show 40-45% of payments are still made by paper checks.
3. Cash Management
In our view, the specific metrics here aren’t quite as important as having a thorough understanding of the process. In practice, cash management is a lagging benefit. To take advantage of cash management opportunities (extending terms, accepting discounts - static or on a sliding scale, P-Card or Supply Chain Finance) the P2P process must be optimized. Until you have processed transactions so they are ready to pay within days of receipt, benefits in this area are hard to come by.

When you get there though, the benefits are compelling. Unlike savings realized on a contract, which only occur once, benefits achieved through cash management are compounded on each transaction. We’ve helped companies recover millions of dollars via discounts, rebates, and treasury-based cash management.

4. Compliance
  • Purchase order compliance – the process starts here…the commitment, the cost assignment, the approval and (importantly) the tracking. Without purchase order (PO) compliance everything that follows unravels. Many companies are starting to follow this simple phrase, “No PO = No Payment”. Read how Proactis helped City of Wolverhampton Council with its transformation to ‘No PO, No Pay.’
  • Contract compliance – there are two distinct metrics related to contract compliance: supplier compliance and price compliance. In total, we have observed benchmarks range from 1.4 to 2.8% for each dollar that is transacted through a P2P tool. This benchmark includes and allows for compliant spend that may already exist. Right supplier, right price = contract compliance.
While there is rarely a one-size-fits-all metric, these are valuable practices that can help you and the leadership team tune out the “noise” and focus on what matters. If you would like to find out more, speak to one of our experts today.