POs, Accruals Missing Out On The eProcurement Automation Trend

Procure-to-pay tools have embraced the cloud, landing the enterprise with an automated solution to track spend. The purpose of automation, largely, is to boost visibility into where corporate dollars are going.

But with all of those eInvoicing and spend analytics tools out there, a few things are missing.

Purchase order modules and accrual management tools are rare breeds in the procure-to-pay automation services space, according to Ben Portusach, CEO of Accrualify. And according to Portusach, POs and accruals have some of the deepest impacts on corporate cash and spend management.

The CEO discussed with PYMNTS how a lack of these solutions in the procure-to-pay process can threaten the enterprise and argued that the industry needs to step up its game to innovate in this space.

Accrual Agony

Accruals have the potential to offer another layer of visibility into corporate spend. But Portusach said the accrual process — which requires that companies contact vendors to gain an estimate of how much they’ve spent on vendor services without having been billed yet – is so manual that some of the largest companies are stuck in Excel sheets.

Companies the size of Google — yes, Google — will have to send thousands of emails to thousands of vendors asking for estimates on services they’ve incurred but haven’t been invoiced for yet. If a vendor even responds, that estimate is then entered into an Excel sheet then uploaded into an ERP system.

It’s a sloth-like process riddled with errors, Portusach explained.

“It’s a nightmare,” he said. “If you talk to any controller or CFO, the accrual process is probably one of the most daunting. It’s extremely manual. There hasn’t been any innovation, and ERP companies have turned a blind eye to it.”

It’s a nightmare for suppliers, too — that need to provide a guess as to the worth of the services they’ve provided to their corporate clients at a particular time. A lack of technology behind the process also makes for angry corporate buyers when they realize that those estimates aren’t what they’re actually billed for.

“The actual invoice — nine times out of 10 — is different than what you told your customer,” Portusach explained of vendors trying, and failing, to be as accurate as possible.

Overall, manual accrual efforts strain the relationship between buyer and supplier and mean companies don’t have an accurate idea of how much they’re spending as they’re accruing services. “It’s a communication issue,” the executive added. “It’s a transparency issue. It’s a nightmare for both parties involved.”

The CEO said that, ahead of launching Accrualify, he spoke with his industry peers to get a feel for what their biggest pain points were. Accruals often came up. “Very well-known companies here in Silicon Valley came back and told me that,” he said.

Portusach said certain industries feel the pain of accruals particularly strongly. Life sciences corporations, even those as large as Pfizer, depend largely on vendor service providers. That means the costs that are piling on aren’t based on physical products that are more easily calculated.

Not to mention, he said, accruals are one area auditors love to focus in on.

Portusach said he’s taking Accrualify as a way to put some technology and automation behind the estimation process and connect those estimates into ERP systems to help companies understand what they’re spending as they spend it.

But that’s not the only area Portusach said the procure-to-pay process is lagging in terms of providing visibility into corporate expenses.

The Point Of POs

The purchase order, Portusach admitted, is a pretty basic concept. It outlines what a company buys, and then, they’re invoiced by a seller for it. But not everybody uses a PO module.

Despite its seemingly basic service, purchase order systems can be exponentially important to a company, he said.

“POs help the company preemptively manage spend and expense,” he explained.

“First of all, it streamlines the approval process.” Simple enough: If a company wants to procure a service or good, they generate a purchase order, ensure that the correct department seeks that request and then send it to a vendor. Those POs are then matched to an invoice to ensure that transactions are for the accurate amount.

When companies don’t have this in place, Portusach said chaos can ensue.

“If you don’t have a PO in place, it’s just all over the place,” he said. “It’s like the wild, wild west — spending like crazy.”

Businesses are being reactive with their spend, he explained, making decisions in response to money that has already left the treasury. Corporations may not be using preferred vendors, or they may be opening up their businesses to fraud (Portusach said he’s seen an instance in which an invoice for a $100,000 watch was approved because there wasn’t a purchase order to inform the company of what they were actually buying).

“We’ve had situations where a company doesn’t know what they’re spending on, and they’re paying all these invoices — in some cases, the invoices that are coming in are not kosher,” he explained.

Purchase order solutions also help businesses understand supplier habits and compare how vendors provide bids and estimates of their goods and services to a company versus what they actually bill for. For growing businesses, Portusach said, this enables firms to get a tighter grip on their own spending habits — a feat that is often the purpose of adopting an automated, cloud-based procure-to-pay solution in the first place.

Accrualify has only recently entered the space of purchase order management, announcing just last week that it created a PO Manager tool for one of its clients. But Portusach said the procure-to-pay SaaS should be paying closer attention to purchase order and accrual services if they want to actually provide the spend visibility and control they’re aiming for with existing eInvoicing and data analytics tools.