10 June 2010 | Lindsay Clark
Finance and procurement departments need to work more closely together to benefit from investments in technology such as electronic invoicing and e-procurement, a research analyst has said.
The credit crunch and resulting global recession have created a focus on cash management, said Nigel Rayner, a research vice-president at analyst firm Gartner. As a result, finance departments are seeking longer payment terms for invoices, but this should only be negotiated by working with procurement more closely to understand which suppliers are of strategic importance and which are in a vulnerable cash position themselves, he said.
“It’s about taking a more nuanced view,” said Rayner, speaking from the Revolutionizing Business Commerce conference in Amsterdam this week, hosted by spend management software firm Ariba. “Procurement says, ‘If you do not pay within six weeks, it will disrupt [supplier] relationships’, while finance looks at what the notice due for payment is. But how important is the supplier in the next three months? This is where procurement and finance need to work together.”
By linking electronic procurement and invoicing systems with accounting systems, it’s possible to understand your own cash position and negotiate “dynamic discounts” with suppliers that require cash in the short-term. Over the payment cycle, this saved the buyer money, repaying investment in new systems, Rayner said.
“Finance does not ‘get’ supplier relationship management, but when you start talking about the benefits, then they start to get it,” he said.
“In most organisations there is tension between procurement, which thinks about e-procurement, and finance, which thinks about enterprise resource planning [software]. It’s when finance and procurement work together that they are much more effective.”