Inefficient Purchase-to-Pay Processes Cost Businesses 6,500 Man-Hours Annually
Businesses waste 6,500 hours per year, on average, on inefficient payment practices that cause "friction" in their supply chain, new research by the Tungsten Network suggests. That misspent time—chasing purchase order numbers, processing paper invoices, and responding to supplier inquiries—equates to over $170,000 in losses annually.
Surveyed businesses estimate they spend an average of 55 hours per week doing manual, paper-based processes and checks; 39 hours chasing invoice exceptions, discrepancies, and errors; and 23 hours responding to supplier inquiries. They also spend five hours on compliance-related challenges, such as handling international taxes, and three hours tackling invoice fraud.
“Numerous processes in the financial world remain cumbersome and time consuming when they needn’t be,” notes Rick Hurwitz, Tungsten Network CEO. “Technology means we can do away with the tiresome and menial tasks that clog business work streams and instead boost productivity and efficiency.”
UK-based Tungsten—which operates an e-invoicing, purchase order services, and workflow platform—surveyed finance teams from over 400 firms worldwide, asking them to name the top five supply chain “friction factors” and the impact they have on their business. Respondents—senior financial decision makers and process owners in large, medium-sized, and small business—nominated the following five practices as the top time wasters among their purchase-to-pay (P2P) processes (in descending order of importance):
- High proportion of paper invoices received
- Too many non-purchase order (PO)-based invoices
- High volume of supplier inquiries regarding invoice or payment status
- Lack of automated exceptions
- Lack of automated approval
Based on survey results, P2P friction appears to be correlated with the size of the company, with a higher incidence reported at larger businesses (those with more than 1,000 employees) than at medium or small firms (those with fewer than 100 employees). One reason may be that larger businesses are more likely to work with international suppliers, which may involve dealing with additional tariff and compliance issues. In the absence of automation, such demands add to the burden on accounts payable departments.
The survey further concluded that companies around the world experience P2P friction at roughly the same rate, although U.S. businesses reported a slightly higher frequency than those in the UK and the rest of the world. The result: higher costs, late payment penalties, missed opportunities to capture early-payment discounts, supplier inquiries, and strained supplier relationships.
“If businesses aren’t tied up chasing invoices or receiving phone calls from suppliers doing the same, they have more time to explore opportunities for growth with existing customers and go after new ones," Hurwitz notes. "If all the data from past invoices is easily accessible, opportunities to identify variances that will target inefficiencies are more visible."
And the problem appears to be worsening. Only 31 percent of survey respondents feel their company is in a better place today relative to six months ago in dealing with potential causes of friction in the P2P process.*
Nevertheless, the survey found that there is recognition of this trend, with 36 percent of respondents nominating removing P2P friction as their top priority for 2017. Of those who identified it as a top priority, 71 percent were large companies of over 1,000 employees.
Tungsten Network has developed an online tool, at www.frictionfinder.com, to help companies identify friction in their organization’s accounts payable process and provide recommendations for achieving more efficient processing. The company has also developed a friction index—based on assessments of companies' performance in areas including process, costs, visibility, exceptions, and cycle times—to measure and publicize the persistence of inefficiencies in P2P processes.
*Surveys were carried out in April and May 2016.
