CPOs Owning Accounts Payable: Does Supply Chain Finance Make it Interesting at Last?

Historically, most CPOs and procurement leaders have not taken a huge amount of interest in the final stage of the end-to-end purchase-to-pay process. The mysterious land of accounts payable (AP) has been out of bounds to many of us in the profession.

But that was, if we’re being honest, how we liked it. In my 10 years as a CPO in three organizations, I never had any desire to expend my empire in that direction. It didn’t look like a “mysterious” place in a good way; it was full of people doing what looked like pretty dull administrative tasks for a start — not what we wanted to be as we tried to build our procurement functions into strategic, business-focused powerhouses. So in the vast majority of organizations, procurement has been happy to let AP stay under the auspices of finance.

That doesn’t preclude good working relationships and arrangements of course, and in many cases the CPO also sat under the CFO, so coordination with finance colleagues across the P2P cycle may not have been too much of a problem. Yet having that organizational separation can often lead to situations where the entire end-to-end process is not considered effectively. That could lead to all sorts of disconnects caused by a less-than-holistic view of the whole procurement transactional space.

Some of the problems I’ve observed over the years included:

• Procurement simply disregarding the cost of the invoicing process, and implementing strategies (disaggregation, delegating low value spend to users without controls) that had a major knock-on effect on AP costs
• AP-led initiatives that were not aligned with the procurement goals or strategies — for example, AP working at some cost to develop automated and efficient invoicing with a major supplier while procurement, unbeknownst to AP, were looking to terminate that supply relationship
• The opposite: AP refusing to cooperate in initiatives that would take cost out of the entire process, but might need some investment for their area
• Strategic relationship development by procurement jeopardized by problems in the payments area. (“You want us to be your strategic partner but you can’t even pay your bills on time”)
• Procurement looking to negotiate prompt payment discounts or similar that could not be implemented accurately or reliably given the systems available to AP, which leads to tension with suppliers. Or procurement abandoning the effort and leaving potential savings on the table

These issues might suggest that CPOs should be knocking at the door of the CFO, demanding that accounts payable come under their control. But CPOs often see that as an unattractive option. Why take on the hassle of the AP function, when frankly there was little scope for reputational or tangible reward in such a back-office area, even if you could rationalize or improve the overall purchase-to-pay transactional process?

Recent advances in both thinking and technology mean that it may be a good time now for CPOs to review their approach. E-invoicing is one part of the equation; it’s always looked like a no-brainer conceptually, but the devil was in the implementation detail.

Now, advances in technology and new innovative suppliers have made the idea more attractive and benefits more easily achievable. So that may address, partly at least, the procurement hesitancy about the likelihood of success. E-invoicing is also getting more integrated with other elements within the overall P2P process. For instance, some providers are in effect driving a new approach to supplier adoption/onboarding via their invoicing platform — another reason for the CPO to take an interest.

The other area where technology and options are developing rapidly is supply chain finance. In my days as a CPO, that meant offering a prompt payment discount on a fairly random basis to certain suppliers — 2% discount for payment in 14 days perhaps, which was quite attractive when interest rates were 10% or more! The problem was that even capable companies struggled to hit the agreed payment dates 100% of the time, and to manage the program generally. And getting visibility of the payables situation across the entire procurement function was not even considered a realistic goal.

This is only intended to be a broad overview of the topic, not a detailed technology analysis. But the basic point I wanted to stress is this. If you are a CPO or senior procurement manager who hasn’t looked at the payables end of the P2P process for a while, it might be worth remedying that. It may be time to consider taking ownership of the end-to-end process to drive the benefits that new technology and options can bring. It might now be a career maker rather than a career breaker!