Automated Purchasing Drives ‘Single Source of Truth’ vs Patchwork Approach

Automating purchasing functions lead to better strategic decisions.

Ted Contreras, product manager for accounting at Airbase, told PYMNTS that using technology to automate procurement and integrate purchasing functions helps midmarket firms gain some much-needed agility.

Midmarket firms, he said, are typically defined as those enterprises that have between 100 to 500 employees. And in the back offices of those companies, when it comes to purchasing activities, there is a wide range of technological tools used — and siloed by users and by function.

“As these companies grow in size,” he told PYMNTS, “the more tools they have in their tech stack when it comes to managing spend.”

As a result, a patchwork of solutions winds up evolving as employees use everything from email to Slack to Excel and more to initiate spending requests and approvals. When invoices come into the enterprise, they might be funneled into an online repository like Google Drive.

And then when it comes to the end of the month, in getting those invoices paid, employees focused on accounts payable (AP) log into online bank portals to transfer funds, upload batch files … and get multiple vendors paid.

“At the end of the process, all of this information has to go into ERPs [enterprise resource planning] and general ledger applications,” he added. “And it all needs to be done in a timely manner and as accurately as possible.”

The data that’s absorbed, digested, and analyzed winds up being the basis of any company’s performance, noted Contreras, so that aforementioned timeliness and accuracy is critical.

That’s no easy task, he added, because the more applications and software being used in the back office, the more time it takes to manage the purchasing process. Since the applications are not integrated, there’s also the inherent risk that data is manipulated, misinterpreted, or erroneously entered.

See also: 55% of SaaS Firms Now Use Spend Management Technology

“We’re talking thousands of entries monthly,” he said — so there’s significant room for less-than-perfect data to get into the mix. “Remember that these are just purchasing and accounts payable-related entries. When you start considering other areas of the business, such as sales, and account receivables, general financing … the volumes grow exponentially,” Contreras said.

Integrated Data Flows

Having an automated and integrated data flow across procurement and payment functions, right down to the accounting level, takes burdens off the shoulders of the accounting team, he said.

But to get there, a proper integration needs to have a two-way data flow. Apart from being able to push data from the spend management tool to the general ledger application, the integration should also have the capability to fetch all the necessary accounting information from the general ledger such as accounts, departments, classes and location.

This will ensure that all the data maintained within the enterprise’s spend management tool is up to date and will not cause inaccurate accounting postings later on — and eliminates the “swivel chair” approach of maintaining data between two applications.

Read also: Spend Management Headaches Push SaaS Firms to Automated Systems

Automation also removes the need for more decisions to be made “downstream,” Contreras said, centered on how a particular transaction needs to be categorized, which involves logging which expense account the transaction needs to go to, to which department or which business unit the transaction needs to be associated with.

With fewer touch points in the mix, he said, “you get to close the books faster” — which means it’s ultimately easier to manage the firm effectively, with a better, holistic sense of the enterprise-wide spending and cash management.

Asked by PYMNTS about which verticals are automating and streamlining their accounting and spend management activities more fully than others, Contreras noted that software and service firms have been among the early adopters of tech-based platforms and solutions.

The acceptance of spend management tools is easier for businesses within this domain simply because they tend to have simpler procure-to-pay processes. The accounting treatment for their spend requirements usually only uses the core financial capabilities of both the spend management tool and the ERP to which it is integrated.

More recently, there’s been momentum in industries that have had to manage inventory ebbs and flows, where more complex purchasing and procurement activities are among the most basic elements of operations – including retail, manufacturing and construction verticals.

Those businesses not only require core financial and accounting functionalities in a spend management tool but are also looking to incorporate other adjacent process areas such as inventory management, where finance professionals want to be able to track additional dimensions such as items/products and quantity.

At a high level, he said, midmarket firms embracing automation will gain clarity and insight into all functions of a business from a “single source of truth” that he said “brings all information to light to make necessary and timely decisions.”