Is poor communication between finance and procurement damaging your supplier relationships?

There has long been a disconnect between procurement and finance. Although the two business functions operate independently, the most successful organizations have both teams aligned on their goals and working together to boost business performance. However, great partnerships take a lot of hard work, and if processes that have an impact on both departments don’t function as effectively as they should, it can cause frustration and even lead to financial and reputational business damage.

One key essential process that we often see needing a joint approach from both teams is the successful management of supplier relationships. In most organizations it’s procurement’s job to bring new suppliers onboard, cultivate and maintain strong links with them and ensure they deliver as per their contract. But all too frequently we see these relationships suffer when there’s a delay or problem with their invoice and they don’t get paid on time.

We spoke with Per Åkerberg, CEO of Medius, whose cloud-based software suite is built to simplify spend management, including payments to suppliers.

What are the relationship risks we run through inefficient payments?

“We recently surveyed the views of 200 finance and 200 procurement decision makers to explore the risks to supplier relationships as the purchasing process transitions to the accounts payable team,” he tell us. “Alarmingly, the research shows that payment issues are causing significant damage to these otherwise harmonious agreements between the business and vendor resulting in a loss of almost a quarter of orders.

“These lost sales have in some cases been caused by vendors withholding goods until invoices have been paid or their refusal to continue working with the business. Almost a quarter of respondents reported that they had seen customers cancel orders, while 27% of finance professionals admitted this avoidable damage to the relationship has had an impact on the reputation of their organization.

“Our survey also revealed some of the pent-up frustrations caused by inefficient payments processes, with one respondent telling us, ‘Finance is consistently paying our vendors late which causes problems for procurement,’ while another admitted, ‘Communication between departments isn’t great and our relationships are out of sync.’”

You can download a free copy of that report here: How dysfunctional finance and procurement leads to bad business outcomes.

“When finance and procurement work well together, businesses can benefit from streamlined processes and improved performance. However, miscommunication and poorly defined practices between the two departments is causing real issues when it comes to making timely invoice payments. From the time a vendor starts working for a business through to its transition from purchasing to payment, process inefficiencies can cause real problems.”

How can we avoid process failures through better procurement/finance communication?

“The supplier onboarding process presents the ideal opportunity for finance and procurement to align on their processes and ensure all payment details and contractual criteria are specified from the outset, however, our research reveals that all too frequently this is where invoicing problems typically begin.

“Over half of respondents (53%) claim that their onboarding process is too complex, while 79% of the finance professionals we surveyed admitted they have never reviewed it to check it works effectively for all stakeholders — themselves, procurement and suppliers. Almost half of finance (44%) conceded they need to work more closely with the purchasing team to simplify the onboarding process for everyone.

“Unfortunately, these issues have a habit of rearing their ugly head again once the transactional process reaches its end point — invoicing and payment. Our study shows that half of finance professionals claim that procurement sometimes fails to give them the correct information they need to pay invoices on time, with 47% blaming failure to adequately capture this information at the onboarding stage for these delays.

“Our research also shares some of the other reasons for payment delays including volume of invoices, master data errors preventing automatic invoice matching and missing invoices, either lost in the mail or in the AP system.

“Most of the delays to the payment process are avoidable and unfortunately it looks like it’s procurement who are on the receiving end of the backlash from frustrated suppliers waiting to be paid. 67% reported that they had been chased by vendors on the status of their invoice, while 39% also said that late payments had caused discounts to be reduced or stopped.”

Can we get to a smoother purchasing and payment process?

“The good news for both finance and procurement is that our data tells us that overall, the relationship between them is strong. Both departments acknowledged that many of risks associated with the supplier’s transition from purchasing to accounts can be improved with 43% of both teams agreeing they need to find ways to share information more effectively and increase visibility of each other’s processes. Over three quarters of respondents agreed that they can see the benefit of integrating eProcurement and accounts payable automation to enable smoother purchasing and payment processes, and thereby more timely payments.

“It’s clear that there’s willingness from both departments to make improvements to their working processes, but where manual processes exist and tech platforms don’t speak to one another, any efforts to make significant change is limited.

“The integration of eProcurement and accounts payable automation systems can enable connected insights, clearer visibility on processes and payments information and a more collaborative approach to maintain strong supplier relationships, retain solid business reputations and ultimately, boost organizational performance.”

This Brand Studio post was written with Medius.