Oil and gas is big business, with monumental funds at stake when it comes to B2B transactions. And as one of the largest industries impacting the global economy, the oil and gas sector must push through the pressures of high-volume cash management, regulation and even influences from its own labor force.
Needless to say, it is imperative that this vertical gets the source-to-pay process right. ExceleratedS2P, a source-to-pay technology and service provider, understands the ins and outs of the oil and gas procurement process and gave PYMNTS a view of its unique challenges.
“There are a number of unique needs and challenges across the entire source-to-pay process,” the firm’s director, Conor Mullaney, said of the oil and gas industry. “Over the last few years, the oil and gas industry has been subjected to massive changes, with compliance and cost savings being a major driver leading to end-to-end processing being scrutinized for their viability within this highly demanding and fast-paced environment.”
This, Mullaney continues, means scrutiny is sharp when it comes to which suppliers these businesses work with, what product is procured and how it is ultimately used. Any technology that helps oil and gas companies procure must adhere to strict standards — and fast. Oil and gas, the executive said, is a 24/7 industry that spans across the globe.
Lately, players in this vertical have begun seeking out technologies to manage their business processes. One of the most popular, Mullaney said, is SAP ERP and SAP Ariba. Knowing this, ExceleratedS2P recently rolled out its latest SAP Ariba add-on geared specifically for the oil and gas industry. The add-on enables businesses using SAP ERP to access an end-to-end procure-to-pay tool and is built on SAP Ariba software, the company said.
But meeting the demands of such a high-stakes sector involves more than ensuring any software and solutions integrate and support existing tools used by companies in the field.
Managing both onshore and offshore activity is critical for any sourcing tool in the space, Mullaney explained. These tools must also be straightforward. “The labor force out on the rig do not want to be dealing with complex, back-end systems but more simple guiding tools,” he explained.
The global nature of oil and gas also leads to challenges in sourcing and procuring.
“Unlike most other industries, the supply of goods and services are, in many cases, to remote and offshore locations,” Mullaney said. “The whole management of the supply chain and the need to manage the logistics of getting the goods and services to these locations is complex.”
But perhaps one of the biggest challenges for the oil and gas industry when it comes to the source-to-pay process is the actual payment.
For one, Mullaney said, the sheer volume of cash flowing throughout the market makes payment a make-or-break function. “The cost of late payment of invoices can run into the millions if a vessel cannot depart due to late arrival of goods or labor forces refusing to board due to nonpayment of invoices,” the director noted, adding that both upstream and downstream payment processes need to be covered.
Payment rails used in the oil and gas sector may not be much different than other industries; Mullaney said typical payments are done via wire transfer, paper check or the Bacs payment system and other electronic payment rails.
The director said ExceleratedS2P is hoping that will change, however.
“We are encouraging other methods, including purchasing cards, as a way to automate the payment process of approved transactions,” said Mullaney, who added that purchase cards are gaining popularity in the industry as a payment method for purchase orders, especially among U.S.-centric companies.
And while payments speed may not be a critical priority for some industries, oil and gas players face pressure for prompt payment — sometimes, even before an order is fulfilled. It’s a far cry from other industries in which suppliers can be forced to adhere to longer payment terms from their corporate buyers.
“Another typical payment process in this industry is the request of down payments by suppliers before the goods or services are delivered,” the executive stated. “In many cases, this relates to large, project-based procurement.”
He described the need for faster payments as “very critical” in this space due to its high dependence on heavy machinery, like boats for offshore work.
“These suppliers will not release these vessels unless the payment is made, usually with very short payment terms,” Mullaney said. “The need, therefore, for a very efficient accounts payable process, or an army of clerks, is very evident in many oil and gas and utility companies.”
Any industry looking to improve its source-to-pay game needs a responsive, efficient, automated and easy tool. But in oil and gas, the director noted, the complexities of the industry and the scale of the vertical itself make for some challenging demands.
“The unique and fast-paced nature of the oil and gas and utility industry requires robust and agile technologies, backed by strong internal procurement policies for both onshore and offshore activity,” Mullaney added. “Capital projects, complicated structures and time-sensitive requirements drive the need for an integrated, easy-to-use system.”