The next step in procure-to-pay
It's not enough for payment systems to do the basics. Buyers want more capabilities and broader interoperability.
By Maria Varmazis -- Purchasing, 9/11/2008 2:00:00 AM
A few years ago, the big push in procure-to-pay technology was getting paper under control. Software vendors got religion about gathering accounts payable data and funneling it through automated sorting systems in order to bypass or eliminate paper processes entirely.
But that was then. Now the world of procure-to-pay software has become more sophisticated, and buyers have basics down pat. No one needs to tell buyers anymore that using paper in a procure-to-pay workflow slows things down, costs more money and contributes to user error—they know it. That's what's driving procure-to-pay software vendors to take the next step and roll out new functions in their products, says Redwood City, Calif.-based Oracle's senior director of procurement and supply chain management, David Hope-Ross. Oracle E-Business Suite includes procure-to-pay capabilities.
"The object early on was to get the data into the procure-to-pay system, get rid of procurement papers, get people to use preferred suppliers and give them extra time to negotiate," he says. "Now the emphasis is that we need that next step and we need to automate the second half—the 'to pay' process, which is a lot less about efficiency and more about visibility and control."
Procure-to-pay vendors are branching out to new areas, including ERP integration and more complex payment type support, blurring the boundaries between tools. It's not so clear anymore where a procure-to-pay system ends and a logistics management tool begins, for example, as more logistics tools integrate procure-to-pay capabilities. One example is the software from Holland, Mich.-based LeanLogistics, which is typically classified as a transportation management system (TMS) but also includes procure-to-pay capabilities specifically for buying freight. Gregg Bostick, vice president of transportation at Pinnacle Foods in Mountain Lakes, N.J., says this logistics tool is also the "best financial tool we have."
The integration of freight management with procure-to-pay was a no-brainer to Bostick. Visibility into freight payments means greater control over payment options as well as delivery modes. "Software like this allows us to look at our numbers and say which carriers are getting paid directly from us, which let us control our capacity and relationships," he says. "Any company over $100 million has to have a TMS today, there's just no other way, and if you don't use the payable piece of it, you're not using the whole system."
LeanLogistics features a component called WebSettle that allows for what it terms "self-billing," meaning automated payment when a carrier accepts shipment rates and the load closes. This isn't just a feature of convenience—it means greater control over payment dates, too. "When we went to self-invoicing we extended our payable time line and were able to hold on to the money for another 27 days," Bostick says. He directly credits the ability to self-invoice for this level of control over freight payment timelines.
This isn't unusual, says Hope-Ross, as he sees many customers across industries trying to push their procure-to-pay applications in new directions. "Oracle is seeing a lot of technology traction in customers trying to have strategic sourcing and contract management integrated with procure-to-pay," he says. "There's a strong push among users for better communications between applications."
Not only do buyers want the applications to go beyond basic requisition-purchase order-invoice workflow and handle the myriad exceptions that come along the way, but buyers want these applications to work well with other systems already in place.
Vendors are listening
Shari Krikorian, vice president and senior business leader of advanced payments at Mastercard in Purchase, N.Y., says it's customer demand that drove her company to release Mastercard's Payment Gateway late last year. Though Mastercard's first customers are banks, their software is subsequently distributed through the banks to its own customers, i.e. buyers. And what Mastercard was hearing from buyers and banks alike is that they didn't want to have to log in to multiple systems and learn several different processes and workflows just to get a payment from one place to another. This is a shift that reflects how financing has reorganized and changed as well, she says. "In the last few decades in banks, the p-card, treasury service and trade finance guys might report to different individuals in a way that competed in the marketplace, but in the last few years there's been a lot of reorganization where all these groups come together under one head to provide customers services that compliment each other."
Hope-Ross says the "crown jewel" for Oracle's E-Business Suite was its "unified work center for all procurement responsibility," a centralized place for buyers to log on and handle all their payments, requisitions, exceptions and agreements at once. "There's a notion of consolidated self service in procure-to-pay and requisitioning...we see procurement groups interested in consolidating the self-service interfaces to make it easier for them to deliver services to employees," Hope-Ross says. "We're also seeing that with suppliers as well, as opposed to seeing 10 user IDs and log ons, they just want to show one face."
The Payment Gateway that Mastercard created is designed to be a single, centralized location for all payment information. "Instead of having to maintain four to five different interfaces with different payment times, buyers can now bundle all payments into one file, one place, one entity and then distribute all of that information for processing," says Krikorian. Of course, this means the most to buyers if it saves them money, and vendors believe that they do. "End users are skeptical of words like 'efficiency' and 'streamline,'—these solutions need a direct effect on the bottom line and need to demonstrate real cost savings," Krikorian notes. Her argument is that consolidation of one solution allows faster data flow for more efficient and money-smart payment options. "Getting the data they need lets the supplier know what the payments are and reconciling payments more quickly in the accounts receivable system optimizes working capital," she says.
There was also a move by Mastercard to support as many other payment systems aside from their own. And instead of trying to insist that buyers shift to proprietary solutions, Krikorian says the Payment Gateway can adapt to whatever invoicing system the buyer prefers and will work to process and normalize the data it provides. "We recognize that buyers can use various applications; however a purchase happened, when it comes time to pay, we're now able to support payments that have gone through a system," she says. "Our objective is to allow the buyer to choose their vendor, we're not imposing an electronic invoicing system—it's whatever they choose."
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