Aligning Finance and Procurement for cash flow optimization and liquidity — Phase 2: Identifying misalignments

We introduced our series on aligning finance and procurement for cash flow optimization and liquidity in this Executive Summary. We then outlined the components of Phase 1: Understanding the Foundations, looking at the differing priorities of finance and procurement and how they might be aligned.  

In Phase 2, we cover common disconnections and suggest possible solutions.

Phase 2: Identifying common cash flow misalignments

Despite the interconnected nature of finance and procurement, differing priorities often lead to operational inefficiencies. While finance focuses on extending days payable outstanding (DPO) and maintaining liquidity buffers, procurement is driven by supplier relationships, cost reductions and efficiency improvements. When these priorities are not harmonized, misalignments emerge that can weaken cash flow management and working capital optimization.

Understanding where these misalignments occur is the first step toward resolution. Below are some common areas where Finance-Procurement misalignment affects cash flow. Though they are not exhaustive, they highlight key challenges that many organizations face.

1. Disconnected approval workflows

Lack of synchronization between finance and procurement in invoice processing and contract approvals often results in delayed payments, missed early payment discounts and increased late penalties.

As noted in this article Identifying Misalignments – Addressing the Gaps, “Disconnected workflows result in delayed approvals for supplier contracts and payments.” This impacts both cash management and financial reporting. Without an integrated process, organizations experience:

• Long invoice processing times, leading to unpredictable cash outflows.
• Lost opportunities for cost savings, as early-payment discounts go unused.
• Increased compliance risks, stemming from poor oversight of supplier agreements.

Possible solutions: Organizations should standardize and integrate procure-to-pay (P2P) workflows to improve cash flow predictability. Establishing automated invoice processing and approval structures can enhance efficiency and reduce payment delays.

2. Conflicting performance metrics

Finance and Procurement often measure success with different — and sometimes even opposing — KPIs, leading to inefficiencies in cash flow management. While finance prioritizes DPO extension to optimize working capital, procurement focuses on supplier relationship management and cost reduction.

As noted also in Identifying Misalignments – Addressing the Gaps, “Procurement and Finance often measure success with different KPIs.” This can lead to:

• Competing priorities, where finance delays payments while procurement seeks early-payment benefits.
• Unclear accountability, making it difficult to align procurement’s cost savings with financial planning.
• Supplier dissatisfaction, as inconsistent payment practices can weaken relationships.

Possible solutions: To bridge this gap, organizations should establish joint KPIs that align finance’s liquidity goals with procurement’s supplier engagement priorities. Metrics, such as Cash Conversion Cycle (CCC), early-payment discount utilization and payment accuracy rates, can provide a balanced perspective on success.

3. Inadequate cash flow visibility

Finance teams often lack real-time insight into procurement expenditures, supplier contracts and upcoming financial obligations, making it difficult to forecast cash flow accurately. Without seamless data integration, organizations face:

• Unexpected cash shortfalls, as finance may not anticipate upcoming supplier payments.
• Inconsistent financial planning, with procurement-led expenses not fully reflected in cash flow projections.
• Budgeting inaccuracies, driven by fragmented procurement-finance collaboration.

As we also noted, “Finance may not have full visibility into supplier costs, contract terms and procurement-driven risks, leading to budgeting inaccuracies and inefficiencies in cash flow management.”

Possible solutions: Organizations should enhance procurement-finance data integration by adopting real-time spend analytics and shared financial dashboards. Improving cash forecasting through procurement insights can lead to more strategic liquidity management.

4. Fragmented supplier payment strategies

A lack of coordination in supplier payment terms reduces working capital efficiency and creates financial inconsistencies. Finance may negotiate longer payment terms for liquidity preservation, while Procurement prioritizes supplier stability and pricing advantages.

As noted, “Procurement can enhance cash flow management by negotiating supplier payment terms that align with finance’s liquidity goals.” However, when these functions operate separately, organizations often experience:

• Missed opportunities for standardization, leading to unpredictable cash outflows.
• Reduced supplier engagement, as inconsistent payment terms impact relationships.
• Lower cost savings potential, since a structured approach to early-payment discounts is missing.

Possible solutions: Establish a cohesive supplier payment strategy that balances finance and procurement goals. Organizations should segment suppliers based on strategic importance and financial impact to determine optimal payment structures that support both liquidity and supplier retention.

5. Insufficient data integration

Many organizations still operate with fragmented systems that do not fully integrate procurement data with financial reporting tools. This misalignment leads to:

• Errors in financial reporting, as procurement expenses are not accurately reflected.
• Limited visibility into procurement’s impact on cash flow.
• Compliance risks, due to discrepancies between procurement and finance records.

As noted, “When procurement data is not fully integrated with financial systems, finance teams struggle to track real-time spending, leading to errors in financial reporting and compliance risks.”

Possible solutions: Organizations should invest in end-to-end source-to-pay technology to unify procurement and finance systems. Implementing AI-driven spend analytics can enhance data accuracy, reduce manual reconciliation efforts and provide real-time financial insights.

Bridging the gaps: Moving toward alignment

These examples illustrate just a few of the misalignments that impact cash flow and liquidity. As noted, “Addressing finance-procurement misalignment requires a combination of early collaboration, workflow integration, shared KPIs and technology adoption.” 

To overcome these challenges, organizations should focus on:

• Early collaboration — Embedding procurement in financial planning and cash forecasting discussions.
• Process integration — Standardizing invoice approvals, supplier payments and financial reporting workflows.
• Shared KPIs — Establishing metrics that align cash flow objectives across both functions.
• Technology adoption — Investing in P2P automation, AI-driven analytics and real-time dashboards for better financial decision making.

By proactively addressing these gaps, businesses can improve cash flow predictability, optimize working capital management and build a stronger, more synchronized finance-procurement relationship.

Next up

Look out next week for: Phase 3: Structuring the collaboration for cash flow optimization

Visit our ‘Aligning Finance and Procurement’ in-depth guide for practical, structured advice on enhancing cash flow visibility, optimizing payment timing, reducing working capital risk and improving liquidity outcomes.