Moderated by Srishti, Digital Transformation Consultant at Hyperbots
Srishti: Hello, everyone! My name is Srishti Rashvier, and I’m a digital transformation consultant at Hyperbots today. I’m delighted to have Shaun Walker as my guest. Thank you so much for taking the time, Shaun.
Shaun Walker: Absolutely, thanks for having me.
Srishti: Of course, here’s a little bit about Shaun. So he is the Sox compliance manager at Norfolk, Southern, and today we will be discussing exploring various types of payment terms. So whenever you’re ready, we can get started.
Shaun Walker: Alright! Let’s go.
Srishti: Begin with, how does net 60 compare to net 30 payment terms? And in what scenarios might one be more favorable than the other? To buy Ops.
Shaun Walker: Sure. So net 60 extends the payment period to 60 days, whereas net 30, the payment has to be done within 30 days. So a favorable scenario for net 60 is when a company needs more time to allocate funds effectively to enhance their liquidity without immediate cash outflow. So net 60 benefits buyers needing extended payment periods.
Srishti: Makes sense. Can you compare net 30 payment terms with cash on delivery terms and explain why each might be more advantageous for buyers?
Shaun Walker: Yeah. So net 30 allows the buyer to pay within 30 days, whereas cash on delivery requires immediate payment upon the receipt of goods. So in nearly all cases, net 30 benefits most buyers compared to COD, as it helps in cash conversion.
Srishti: I see. And how does net 30 compare to cash in advance terms, and under what circumstances might each term be preferable for buyers?
Shaun Walker: So, yeah, so net 30 is a 30-day payment period, whereas cash in advance requires the buyer to pay before the goods are shipped or services are rendered. Therefore, net 30 is ideal in most cases because it helps to conserve the cash.
Srishti: Understood, and what are early payment discounts such as 2/10, net 30? And can you provide examples of when they are beneficial or detrimental for buyers?
Shaun Walker: Yeah. So an early payment discount like 2/10 net 30 offers a 2% discount if an invoice is paid within 30 days; otherwise, the full amount is due. So essentially, the later you pay with a discount, the later you pay without a discount is more favorable, related to terms leading to early payments.
Srishti: Understood. And can you explain installment payment terms and provide examples of both favorable and unfavorable increments for buyers?
Shaun Walker: So installment payment terms allow the buyer to pay the total amount due in smaller scheduled payments over a set period. A favorable example is an agreement that offers flexible payment schedules without interest, enabling the buyer to manage the expenses more effectively. For instance, paying in 3 equal installments over 3 months can help maintain steady cash flow.
Srishti: That makes sense. How do different payment methods, such as electronic transfers versus checks, impact payment terms? And can you please provide favorable and not favorable examples for buyers?
Shaun Walker: Yeah, payment methods have a significant impact. So electronic transfers are generally faster and more secure, allowing companies to take advantage of early payment discounts more easily. A favorable example would be using ACH or wire transfers to promptly pay invoices, enabling the company to secure a discount, like the 2/10, net 30 that was mentioned before, which enhances savings. A non-favorable example would be relying on paper checks that can be slower and more prone to errors or delays, making it difficult to meet payment deadlines and miss out on available discounts.
Srishti: That’s really interesting. The right? That’s right.
Srishti: Yeah, sorry, go ahead.
Shaun Walker: I was just saying that choosing the right payment method aligns with the company’s operational efficiency and financial strategy.
Srishti: Absolutely, that makes sense. Can you explain the role of late payment penalties in payment terms and provide examples of both favorable and not favorable implementations for buyers?
Shaun Walker: Yeah. So a reasonable penalty, such as a one-and-a-half percent monthly late fee after the due date, encourages timely payments without over-stressing the buyer. A non-favorable implementation would be excessively high fees, such as a flat fee that’s disproportionate to the invoice amount or escalating penalties, which can create financial strain for the buyer, making it difficult to manage cash flow effectively and potentially leading to budgetary issues.
Srishti: I see. And can you explain what are payment upon receipt terms? And when are they considered favorable or unfavorable for buyers?
Shaun Walker: Yeah. So payment upon receipt, also known as PUR, requires the buyer to pay for goods and services immediately upon delivery. PUR is favorable when the buyer has strong liquidity, and it’s non-favorable if a buyer has limited cash flow or they need time to verify the quality and quantity of goods before making the payment.
Srishti: That’s fair. And how do milestone-based payment terms work? And can you provide examples of their favorable and not favorable use for buyers?
Shaun Walker: Yeah. So milestone-based payment terms tie payments to the completion of specific project stages or deliverables. In a software development contract, payments are made upon reaching key milestones, such as completing the initial design, development, and testing phases. A non-favorable example will be when milestones are poorly defined or subject to subjective interpretation; it can lead to disputes and delays in payments.
Srishti: Understood. Can you describe letters of credit as a payment term and provide examples of when they are advantageous or disadvantageous for buyers?
Shaun Walker: So letters of credit, also known as LC, are financial instruments issued by a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. A favorable example in international trade, an LC reduces the risk for a buyer by ensuring that the payment is only made once the seller fulfills the contract terms, therefore providing security and facilitating trust between trading partners. A non-favorable example would be for smaller transactions or domestic deals. The complexity and associated costs, such as bank fees and stringent documentation requirements, can make LCs disadvantageous, potentially outweighing their benefits.
Srishti: That makes sense? What are open account payment terms, and when might they be favorable or unfavorable for buyers?
Shaun Walker: So an open account term involves goods being shipped and delivered before payment is due, typically within 30, 60, or 90 days. A favorable example for buyers is that open account terms improve cash flow and reduce the need for upfront capital, whereas a non-favorable example would be if the buyer faces unforeseen financial difficulties. Open account terms can lead to cash flow strain due to the extended payment period, making it challenging to meet financial obligations on time.
Srishti: Understood. And that brings me to my last question: how does Hyperbot’s payment AI co-pilot play a role in identifying and optimizing various payment terms across your vendor base?
Shaun Walker: Sure. So Hyperbot’s payment AI co-pilot is instrumental in managing and optimizing our payment terms. It leverages advanced machine learning algorithms to analyze payment data in real time, identifying patterns and opportunities for more favorable terms. The AI co-pilot also compares our current payment terms against industry benchmarks and similar vendors. It highlights areas where we can negotiate improvements; it provides actionable insights and recommendations, such as suggesting optimal payment schedules or identifying opportunities for early payment discounts. Also, the AI co-pilot generates comprehensive analytics reports. It enables our finance and procurement teams to make data-driven decisions that enhance cash flow and maximize cost efficiencies. So in conclusion, by automating the analysis and negotiation process, Hyperbots ensures that we consistently secure the best possible payment terms, supporting our overall financial strategy.
Srishti: Understood. This is really helpful, and with that, we have come to an end for today’s discussion. Thank you so much for joining us and sharing your insights; also, big thanks to our viewers. So I’ll see you around. Have a good one. Goodbye.
Moderated by Kate, Financial Technology Advisor at Hyperbots
Kate: Hello, everyone. My name is Kate, and I’m a financial technology advisor here at Hyperbots. Today I’m absolutely thrilled to have the amazing Claudia Mejia with us. Hello, Claudia! How are you doing today?
Claudia Mejia: Hi Kate, nice to see you again.
Kate: Yeah, nice to meet you. It’s so wonderful to have you here. For those tuning in, Claudia is the managing director at Ikigai Edge Consulting. Today we are diving into a crucial topic, handling overcharged sales tax invoices. Let’s get started. So, Claudia, let me ask you the first question. What should a company’s first step be if a vendor has overcharged sales tax on an invoice?
Claudia Mejia: Well, the first step is to contact the vendor. Obviously, we want to have a really good relationship with vendors and ensure they have proper tax controls and follow tax regulations. That said, you contact the vendor, ask for a new invoice, and ensure the correct tax amount is applied. It’s essential that the taxes align with state and local regulations. You never want to underpay or overpay; you just want to pay what is right according to the state regulations. If you’ve been overcharged by whatever percentage, you simply request a reissued invoice.
Kate: That makes sense. Moving on, why is it best to ask the vendor to issue a corrected invoice rather than paying the overcharged tax amount?
Claudia Mejia: Well, you never want to overpay tax, right? It also creates a lot of administrative burden when trying to get a refund from the state or cleaning up those transactions. The cleaner way is to have accurate books on both sides, ensuring there’s no unnecessary cash flow leaving the company. It’s just important to have accurate records and follow regulations.
Kate: I completely agree with you on this. So, if the vendor is unable or unwilling to issue a corrected invoice, what options does the company have?
Claudia Mejia: The company can pay the invoice and then file a refund or credit with the state tax authority. Obviously, that’s not ideal. It involves administrative work and a lot of follow-ups to get the credit. You can get a refund if the state permits, but it’s a process you’d ideally want to avoid.
Kate: Understood. Coming to the next question, could you explain why overcharged sales tax might require state-level intervention if the vendor doesn’t correct the invoice?
Claudia Mejia: The state has the authority to issue a response. If the vendor doesn’t issue a new invoice, the buyer can request a refund directly from the state. The state can also intervene and respond to the vendor if needed. For the state to process refunds, documentation must be very well-presented, showing evidence of the overcharge.
Kate: That was very insightful. So, Claudia, why is it important to keep records of communication with the vendor and any refund requests made to the state?
Claudia Mejia: Well, as we’ve discussed before, it’s crucial to maintain clean records and transactions for audit and compliance purposes. Ideally, you’re proactive about addressing overcharges or undercharges. Documentation is key to making a case with the state if the issue isn’t resolved through the vendor. Having thorough records makes it much easier during audits, showing that you’ve been proactive in handling these processes.
Kate: I understand. We’ve reached almost the end of our discussion today. The last question is: What is the best long-term approach if overcharging becomes a recurring issue with a vendor?
Claudia Mejia: You always want to maintain a good relationship with your vendors. Communication is key. If a vendor has overcharged you multiple times, you need to understand what’s happening. Are their tax rates not updated in their systems? What controls do they have in place? You can have an honest and constructive conversation to address the issue. However, if the problem persists and solutions aren’t forthcoming, as a buyer, you may need to consider switching vendors. Recurring issues create administrative burdens, so it’s essential that vendors follow tax regulations and compliance requirements.
Kate: That’s a very interesting point. I agree with you on that. Thank you so much, Claudia, for joining us and sharing your insights, and a big thanks to all our listeners. I’ll see you soon. Have a great day ahead.
Claudia Mejia: Thank you, Kate. Nice to see you.
Kate: Nice to see you.
Moderated by Riya, Digital Transformation Consultant at Hyperbots
Riya: Hi, everyone! I’m Riya from Hyperbots, and I’m very excited to have Mike Vaishnav join us on the call today. Mike is a CFO consultant and strategic advisor to many privately held organizations. The topic of discussion is PR-PO processes. Let’s jump right in. To start off, please explain the difference between PR and PO processes, Mike.
Mike Vaishnav: Nice to be here. The PR and PO processes are extremely critical for any procurement function. Just to make sure the company has the proper control authorities and how the goods or services have been ordered. Let me start with the PR. PR is a purchase request, an internal document prepared by internal management to ensure that any goods or services ordered have the proper approvals. There’s a workflow for PR approval with the appropriate hierarchy and limits, making sure that only what’s required is approved, to avoid over-inventory or excessive services. The PR involves collaboration between multiple levels or cross-functional teams for approvals. Once a PR is approved, it’s essentially saying what is needed, ensuring the budget is in place, and detailing the requirements. Once all that is set, the PR is converted into a PO. On the other hand, a PO is an external document, essentially a commitment from the company to purchase certain items, either goods or services. It’s like a confirmation of the order. The PO document is sent to the vendor and serves as a legally binding agreement, indicating what needs to be shipped or serviced. The PO outlines everything from the quantity to the price, ensuring no confusion about what’s ordered. So, to summarize, PR is the initiation of a purchase, while PO is the confirmation of the purchase.
Riya: Right. So, how do the distinct PR-PO processes help in maintaining compliance and risk management within the procurement function?
Mike Vaishnav: PR and PO processes create structured, controlled, and transparent environments that help with compliance and risk management. From a compliance standpoint, PR provides authorization and approval, ensuring that any purchase is pre-approved and within budget. It enforces segregation of duties, meaning that no single person has full authority to make large purchases, which helps prevent the misuse of funds. Documentation and audit trails are also key to compliance, showing what was approved, by whom, and why. On the PO side, it’s all about contractual compliance. The PO serves as a legally binding agreement between the company and the vendor, confirming what has been ordered and at what cost. This ensures enforcement of procurement policies and adherence to local regulations if necessary. The PO also allows for tracking and reporting, ensuring that all transactions are transparent and verifiable. In terms of risk management, PR mitigates the risk of over-ordering or over-commitment. The approval process ensures budgetary control and verifies demand, reducing the likelihood of unnecessary purchases. PO mitigates risks related to vendor performance, ensuring that the supplier delivers what was agreed upon without deviating from the contract terms.
Riya: That’s very interesting. Thank you for elaborating. So, can you explain how PR-PO processes improve efficiency and speed in procurement operations?
Mike Vaishnav: Absolutely. On the PR side, automation of approval workflows improves efficiency. The system routes requests based on hierarchy, speeding up the approval process and reducing the need for manual interventions. PR also helps with standardization, making it easier to manage budget controls and keeping centralized information accessible for everyone involved. This cuts down on the risk of over-ordering and ensures cross-functional validation of orders. On the PO side, operational efficiency is improved through standardized processes and external collaboration with vendors. By having a PO ready, the speed of ordering increases since there’s no need for additional approval. It also helps with order tracking, inventory management, and vendor performance monitoring. Additionally, the PO process makes accruals easier, especially for services, by ensuring that all orders are tracked and accounted for.
Riya: Right. So for better understanding, Mike, would you like to highlight? What are the key challenges faced by organizations that implement PR-PO processes? And how can that be mitigated?
Mike Vaishnav: So PR and PO processes can introduce several challenges with the proper planning implementation of the technology and process optimization. This could be mitigated. So actually, let me give you some examples of that. So one of the biggest challenges is the process and approach to dealing with rigid workflow. How the process has been created. Some companies have a pretty rigid workflow. Some companies have a long process flow, so that can create a delay in converting PR into the PO, and also sending it to the vendor. So what are the things you can do that can streamline the process like streamline, the workflow? Whether what type of approval is required when there is a critical approval or critical inventory you want to order, you may require multiple approvals. When you have a certain threshold, you may require multiple approvals, but every time you don’t have to go through multiple channels for the approvals. You need to have flexibility on the approval there also. Another challenge you can have with that is people’s dependency. So if somebody is approved, and that person is on vacation or traveling, you cannot get the approval done faster, and that will delay the operations. In that way, your process workflow should be more flexible, and make sure that if that person is out, either they can give the authority to somebody else, or the process flow can be changed after proper approvals. So that’s one of the challenges. The second one I can think of is the complexity of the implementation. The implementation in the sense of the process and the system. There are quite a few times when there are multiple systems. There are quite a few times people will use external solutions for the PR and PO, which may not be integrated with the ERP system. In that way, it would be very difficult to integrate with the system. That could create the challenge of data integrity as well as delay in the process. The things we can mitigate this are simplified automation communication, proper training, PR-POs, and making sure that systems have the proper integration of the systems. As I said, there’s also integration of the system that can be mitigated with how the ERP is working. Whether your ERP can integrate with that, if not, then you need to create certain processes, then make sure that this system has been integrated. There are quite a few other challenges when you send it out to the vendor. The PO vendor may not have the capability of accepting the PO online, so that can create the delay. So we need to make sure the vendor has a proper system setup, or whether we have proper API to handle the documentation. In that way, it creates more efficiency. The other option would be, like in the current environment, AI is another good option where you can implement the AI, which can mitigate some system issues as long as the AI solution has been integrated with your ERP systems. The other challenge is compliance and enforcement with the internal and external policy. The internal policy needs to ensure that when people approve the PR, they are following the policy based on the hierarchy, approval limits, and key requirements. The next-level policy needs to focus on local regulation, government requirements, and so on. These challenges can be mitigated by enforcement of compliance, proper risk management, training, communication, and monitoring of all those policies, ensuring that people are doing proper compliance. Another thing is scalability. If the company has a solution and is growing fast, but the solution cannot grow with the company, that could be a big challenge. So the system should be flexible and agile to accommodate the company’s growth without introducing complexity.
Riya: Absolutely. Can you tell us what are the key challenges your organization faces with the current procurement process and approval? How do these challenges impact operational efficiency and project timelines?
Mike Vaishnav: There are always challenges in the approval process, and I can give you some examples of that. Sometimes it’s based on the workflow. How it’s created can lead to lengthy approval times, with multiple layers of approval. This can impact critical timelines when goods or services are urgently required. The lack of transparency requires a lot of collaboration between cross-functional departments to confirm priorities and timelines. Without good collaboration, that’s another challenge. If the company lacks a good system and relies on manual processes, that can also delay the overall process. Budgetary constraints and compliance can also create inefficiencies. If you exceed the budget or order without sufficient approval, it can lead to cost overruns. Supplier management is key. We need to ensure that suppliers are well-equipped, maintain good communication, and have sufficient inventory to meet our requirements on time. Even with a good PR-PO process, timely communication with suppliers is critical. These are just high-level examples of challenges. Focusing on efficiency impacts operational timelines, particularly inventory procurement. If inventory isn’t received on time, it can delay production, impacting customer relationships and revenue. In terms of project timelines, not meeting deadlines due to procurement issues can affect new product introductions or existing manufacturing timelines. Rush orders due to delays can also incur extra costs, like expedited shipping and supplier penalties. Finally, collaboration is key—both internally and externally. If there’s no good communication between internal departments and suppliers, operational efficiency will suffer.
Riya: Thank you for sharing your insights today, Mike. It’s been a pleasure discussing the crucial aspects of the PR-PO processes with you, and I’m sure the viewers agree with me. Have a great day.
Mike Vaishnav: Thank you. Nice to be here.
Moderated by Mayank, Marketing Manager at Hyperbots
Mayank: Hi, everyone I am Mayank, the marketing manager at Hyperbots. I am pleased to have Claudia Mejia on the call. Claudia is the managing director at Ikigai Edge. Thank you for joining us today. We are here to discuss the level of visibility companies should provide to the vendors during the invoice processing workflow. Let’s start with the basics. So why is vendor visibility in the invoice processing workflow important for a company’s financial operations?
Claudia Mejia: Hi, Mayank, thank you for having me. Well, it’s very important, because it impacts vendor relationships in any company. We want to make sure that our vendors are content, and for that, we need to provide efficient processes and make sure that processes align with the terms set with the vendors. So we just need to make sure that the process remains smooth and timely.
Mayank: Awesome. So basically, there are two primary approaches to vendor visibility: full transparency versus high-level updates. Could you explain these two approaches?
Claudia Mejia: Full transparency means you communicate to the vendor the stages of the invoice process, from the moment it’s received, through reviews, approvals, and finally payment. The vendor knows exactly where they are in that process. However, high-level status is more about giving them key updates, like “We’re in the review stage” or “You’ll be paid on this date.” It doesn’t delve into all the details, just gives them a sense of when they can expect payment. Ultimately, vendors want to know when they’re going to get paid.
Mayank: Awesome. So, what do you see as the primary advantage of providing full transparency to the vendors?
Claudia Mejia: It’s about trust at the end of the day. Transparency builds trust, and that’s crucial in any organisation, especially in vendor relationships. When you’re transparent, it reduces the number of inquiries you might receive from vendors. If you have a system in place to provide that information, it also saves time for the team processing invoices since they deal with fewer inquiries.
Mayank: Got it. So, what are the potential risks or downsides of this full transparency approach?
Claudia Mejia: Well, there’s always a balance. Full transparency can lead to information overload, exposing processes to vendors that might not need to be shared. This could reveal vulnerabilities in your systems or processes. Sometimes it’s just unnecessary to show all the details. There’s always a balance between what the vendor needs and what they don’t need to know.
Mayank: Got it. Conversely, what are the benefits of sticking to high-level updates?
Claudia Mejia: It minimises the effort required from the team to process the invoices. The key is to communicate around important milestones. As long as you fulfil the terms of the contract, that’s what matters most.
Mayank: Got it. Do you think there’s a risk of vendors feeling dissatisfied with high-level updates due to a perceived lack of transparency?
Claudia Mejia: Honestly, I haven’t seen that in my experience. As long as communication is clear and expectations regarding terms and payments are laid out, most vendors are satisfied. Issues tend to arise when you go beyond those terms and fail to explain a delay in payment. Being proactive when you can’t meet the terms is key. Otherwise, I’ve found that vendors generally understand the process as long as it’s efficient.
Mayank: Got it. So, in terms of communication and collaboration, what methods do you recommend to ensure effective interaction with vendors regarding invoice status?
Claudia Mejia: One effective method is having a vendor portal. Through the portal, vendors can view their invoices and where they are in the process. Of course, this requires a system that tracks those stages. Alternatively, providing key milestones, making sure you meet the terms of the contract, and offering clear lines of communication—such as a contact person, phone number, or email address—are essential. Vendors should always have someone to reach out to for inquiries and like I said, be proactive. If there’s an issue with payment, let them know in advance.
Mayank: Got it. Finally, how can AI play a role in making the invoice processing workflow more efficient for both companies and vendors?
Claudia Mejia: AI can automate many tasks that are currently done manually. AI can automatically send notifications and, through predictive analytics, anticipate certain events. AI can handle standard inquiries via chatbots, providing information that doesn’t necessarily require human intervention. Ultimately, it’s about making sure vendors have the information they need, whether through AI or by speaking to a person when necessary. AI can streamline processes significantly, but there will always be situations where human interaction is needed. AI won’t solve all our problems, but it can definitely make processes more efficient.
Mayank: Totally agree with you, Claudia. Thank you for sharing your insights. It’s clear that balancing transparency with efficiency is key to maintaining strong vendor relations while protecting the company’s interests. Thank you so much, Claudia, for your time. It was really insightful.
Claudia Mejia: No, thank you very much. Thanks for having me.
Mayank: Thank you.
Moderated by Riya, Digital Transformation Consultant at Hyperbots
Riya: Hi, everyone! I am Riya, and I’m very excited to have Mike Vaishnav join us on call today. Mike is a CFO consultant and strategic advisor to many privately held organizations. The topic of discussion for today is flexibility versus financial control and how to achieve the balance in procurement. So let’s get started, Mike, to start off. How do you balance the need for strict control and compliance with the need for flexibility speed and procurement?
Mike Vaishnav: Thank you, Riya, so balancing the speed and flexibility in the procurement process along with strict control, is a very critical function for the procurement, because control and compliance is in every part of the business like control and compliance is a key factor and procurement. When we are acquiring some of the product props. Things are going. Cash flow is going out. We are acquiring certain products. Control and compliance is the key. But at the same time, we need to maintain the flexibility. So I will give you some examples. What are the flexibility along with the control and compliance? The 1st one would be the clear guidelines and the policy. The company should have proper guidelines and procurement policy. What needs to be followed? What are the things? What is the approval level? What kind of procurement do they need to focus on, whether critical or non-critical? That’s one of the key functions. Another thing would be a risk-based approach. So organizations need to focus on what is the risk associated with the different types of procurement like low-risk transactions versus high-risk transactions generally on the lowest transaction. You don’t need to have significant control, because those are more recurring and automated recurring and low-value transactions versus high-risk transactions are some of the critical transactions where you need multiple layer control and at the same time flexibility is also required because the high critical procurement sometimes requires very quick procurement. So, if you have to go through a detailed long process sometimes you will miss the market opportunities. Also, there’s an exception. Approval is another one which we need to focus on. So what is the exceptional approval? So there are quite a few times. The company has a process workflow on a workflow company will go who has the specific approval one by one. So let’s say they had 3 approvals or 4 approvals based on certain criteria or thresholds. But sometimes you need to have a way to gain market access to access the market immediately, or sometimes some of the critical products which you may not get. You need to create some exceptions, and for that, you need to create the exception rule that has the authority to bind the company into the contract and how this authority can work within exception approval. So that’s exceptional approval. Workflow needs to be balanced and needs to be incorporated in the if we are using the technology and how you can override the technology. But that’s only for the very critical purchases, and for the very handful of people who can make that exception in that way. Those people are very responsible authorities in the company, and they can maintain control and compliance the other one, you create some of the automation of some of the tools. You can use it where you can have proper control and compliance, but the tools can expedite the process faster. Training and empowerment of the employees are also critical because, without training, the people won’t know what process they’re following. Then there is always they don’t. Either they do not know what the company’s policy or procedure would be, or what they are going to approve. So that’s also very critical. At the same time, a company needs to continuously focus on what the process should be with the growth, with the changes in the business environment, how that process needs to be flexible, and making changes on those. And then, last, but not least the real-time monitoring. So all those when you, when you’re ordering or procuring any goods or services, and monitoring of those processes feedback. Those are the very critical functions to maintain this control and compliance at the same time to balance the flexibility also.
Riya: Great perspective. So just to make things a little more clear, can you explain any specific instances where a highly flexible procurement approach led to significant benefits or challenges for your organization?
Mike Vaishnav: So that’s like, when you say that the control could not be compromised with the flexibility of any, procure any procurement process. And that’s the reason there are always those that go with the challenges and benefits. Also, Let me give you some examples of the benefits. If the process is flexible, one of the things is like a speed you can. You can order very fast because you have the speed, and you can with the speed. You don’t have to go through those bureaucratic channels on the approval, you can do the quick procurement on that. You can gain the market ex-market, and get market access a lot faster. Because when you say some specific need, you have it. You can control the market faster. You can maintain an adequate supply, or when you have a critical supply, you can order faster. Also the decentralized function, like when you are the most beneficial would be if you decentralize your organization. And if you are global or in a different geography, you can gain access to the local market and local geography with the local expertise and experience versus having a centralized function over here, and then you can manage the supply chain very well. At the same time, you can maintain a good and long-term relationship with the vendor, and then create a like, they get better, pricing, and pricing benefits from the vendor. Also, some of the flexibility has benefits. But at the same time, there are some challenges. Also, the biggest challenge is what I would say. Flexibility sometimes creates an inefficient process because there’s no specific process specific. Channels of the approval, specific ways of how the company has been doing the process, and trying to be more flexible, may create an inefficient process. Another issue would be more on the collaboration side from the employees because all the departments. So when the cross-functional departments are involved, and if we have flexibility and given somebody’s authority, that person will not involve the other department, and there’s a collaboration would be a bigger problem. Sometimes it happens like we are like, some of the vendors may get preferential treatment because of somebody flexible due to flexibility. Somebody can give preferential treatment to the vendor. Also, there’s another issue that would be the biggest thing. People will resist using the technology because flexibility sometimes will not allow a lot more flexibility. So people will say, okay, I do not want to use the technology. And I’m happy with the processes. At the same time, if you have a decentralized procurement function, it has those benefits. What I explained to you, is that it has a disadvantage also because people cannot keep track of who’s ordering what without adequate technology or tools or data, so that creates the challenges also. So this is all pros and cons. So companies decide what type of facts and circumstances are, and based on those facts and circumstances, they need to decide what kind of how they want to implement the procurement process which has the flexibility as well as the adequate control and compliance.
Riya: That’s an interesting case. So how does your organization ensure vendor quality and reliability while maintaining a degree of flexibility in vendor selection?
Mike Vaishnav: So vendor selection is a very key process, because when you create the vendor, you just do not go out and say, I want to do the business with that, so I would give you some of the key vendor selection would be so. One of the things is that you have to have a very intensive or very detailed vendor qualification process. So what does that require? That? How? What’s the vendor’s financial stability? What are the vendors? If you have production, plan how the vendor has access to the market to obtain the raw material or if it’s a service thing, then what’s the qualification of their employees? How qualified they are, what type of service they are going to provide, and how they’re going to help us. The other thing would be a site with it. The company needs to do the site, visit and check their manufacturing plant, and see whether it’s adequate for the company. What we are procuring from them is coming properly, or they have like they can meet our demand, or how long it will take to meet the demand because sometimes some of the critical orders you have to have immediate orders, and if they cannot meet the demand, or if they don’t have good access of the market that can create the operational inefficiencies. Also, the other thing would be strategic versus non-strategic routine, or technical supplies. So if there’s a strategic supply you need to have, like, very go to the detail called critical supplies. You need to go through a very detailed vendor selection process because it requires a lot more dependency on that vendor. So these are some of the things you need to focus on at the same time, you always need to have a backup vendor, because sometimes what happens if something happens, marketing happens, how the vendor is not able to provide the critical products or services, then you need to have some backup in order to not to disrupt the services or sometimes you have a dual vendor. So for the same product, you can divide it into 2, so that way, if the vendor cannot meet one vendor, other vendors as a backup or a dual vendor relationship will help also the other thing we need to focus on the create, the preferred supplier list. So what happens once you prefer supplier listing, you go through the. You have gone through the detailed vetting process, you can order them, and you don’t have to worry about every time you need to keep checking on or vendors, whether vendor relationship issues. The other thing is, that the KPI is very important. So KPI, which includes how the vendor is performing, how they have done the delivery rate, and the defect rate. What’s the timing of the delivery? What’s the way they are pricing everything? And those KPIs you need to review on a regular basis. At the same time, you need to provide the scorecard to the vendor to give them feedback on what kind of Kpi came up, and what the scorecard would be, and where they need to improve it. So these are the stuff you can focus on in the vendor selection process and at the same time you need to have risks. Management is also, whether the vendor is compliant with the all. Those regulatory requirements for the government or local regulation, because you do not want to get into a situation where the vendor has some issues with their not meeting with the local or regulatory requirement, and that will impact your production or your operational efficiency. So these are the few things there are a lot more things I can come up with a lot more laundry list of items, but these are the more critical things we need to focus on when you select the vendor, and how the vendors are critical in the selection process.
Riya: Sure. great. So to get into the details of it. Can you explain how your organization handles risk management in the procurement process, and what strategies are in place to mitigate procurement, and related risks, and for faster, more flexible procurement decisions?
Mike Vaishnav: Sure, so risk management is a critical aspect of the procurement in the organization. When you need to strive for the balance between control with flexibility, and how to respond quickly to changing market conditions. For this, to manage the risk you need to 1st of all, be you to assess the risk and identify the risk. What is the risk involved with that? So there are a few examples of the risk. So 1st of all is a supplier evaluation or a vendor evaluation. So when you select the vendor, you need to see the vendor’s financial stability, reputation, credit, check their past performance, how they can meet the market requirement or not. So those are the 1st things you need to focus on the vendor side. Another risk, I can say, is a contractual risk. So what is identifying the contractual risk? What are the contractual terms, including the payment terms and delivery schedules? And then any liability issue. The liability clause is involved with the contractual term. That’s the second risk you need to identify. 3rd one, I would say, is more on the operational risk.The operational risk is underlying the supply chain. How quickly you can procure the product? What is the demand, what is the market? What is the nature of geopolitical issues that are going to impact your operations? So these are the 3rd things you need to focus on, the other one would be a product and service profiling risk. So there are, like some of the critical worth is recurring. So for the critical procurement or critical supplies. You need to focus on, how they are going to, how you’re going to procure quickly, and how it’s going to impact.If you don’t get it because of any changes in the market or inflation with the pricing, while the lower it requires more, with more scrutiny versus the other low-risk, profile, or recurring purchase, maybe have more flexibility and then another one would be a quantitative and qualitative analysis by using the swot analysis or any risk, matrix or other data analytics, you need to focus what going to happen.And other biggest risk, I would say, is the demand and supply risk in the market and then demand and supply changes because of with the changes in the business environment, inflation, geopolitical issues, market, market condition, etc. So these are the 1st of all you need to identify what the risk would be, and then you need to find out what is the risk mitigation strategy. So whether one of the risk mitigation strategies is the 1st of all. If we look at the supplier, we need to make sure they are financially stable. They need to check your credit check and make sure they are financially stable. So they’re not going to close down their business where we have a key dependency on them. The second thing you need to focus on is their production capacity, or their procurement capacity, where we are relying on them to buy the product, and they are going to deliver in a timely manner to mitigate this risk. You need to have a diversification of the suppliers. We always have, like multiple suppliers backup suppliers, or dual suppliers. So in that way, if one person fails, you can focus on the other side.The second thing you need to have is pretty thorough contract management. So either you can use the contract management tool contract management software or your internal review and make sure you have been analyzing the contract in very detail, so there will not be any contract dispute at the end in terms of the payment or delivery, or any other condition in which you have to focus your resources in getting the like unproductive time with the legal issues and everything. The other thing, I would say. Inventory buffering is like maintaining the safety stock, so you don’t have to rush at the last minute to rely on any vendors. For, say, like, when you have a critical requirement for any inventory you need to have. Another thing is like adjusting time or, what do you call just in case type of inventory inventory system. So just in time is more on the more recurring type of thing where you can order immediately where there’s enough supplies in the market, or enough supplies with the vendor, so you can gain it very fast. But versus just in case is a very critical type of inventory, where sometimes you may not have it gain immediately.So what happened? You need to keep some buffer stock or incremental inventory, or you have to order in advance so that you don’t have to go into the situation where you have you. You are in and you have a problem with your operation. operations.The other thing you focus on is scenario planning. So you plan the scenario based on your own requirement based on the market condition, based on demand, and supply based on the vendor situation. And you, you order, or you procure the inventory based on that or procure the services also based on that if any critical services you need. So in that way, the scenario analysis give you helps you with the what are the things what critical function should be, and how you mitigate that another thing would be a predictive analysis which you can use like AI tool or another tool can do the predictive analysis based on the market forecasting or demand, and based on that, you can determine what’s the procurement plan should be. So these are, all those things you have to focus on. And sometimes you can create the risk with algorithms also. And based on this, of course, with the use of AI or use of any other system where you can predict the market. But there are a lot more other mitigation strategies. But these are the key mitigation strategies. You focus on the risk where, if you mitigate this easily and you do not have any operational issues, you have more operational efficiency, and there won’t be any risk associated with that.
Riya: Excellent details. So in what ways has your organization integrated technology or automation into the procurement process to streamline approvals and ensure compliance?
Mike Vaishnav: So procurement. Are there a lot more technologies that you can use with the streamlined approval? Or I would say, overall the p. 2 B process instead of focusing on the streamlining approvals or compliance. Let’s focus on the bigger picture. The p 2 p process procure to pay process so things can be done to the E-procurement system. So people can implement the e-procurement for the entire procure-to-pay process where you can. You can streamline all this process approval level as well as from procurement to the end of the matching the goods with the ERP systems.
Riya: Excellent details. So in what ways has your organization integrated technology or automation into the procurement process to streamline approvals and ensure compliance?
Mike Vaishnav: So integrating technology in your procurement process to streamline the overall procurement is a key thing. And what people like to focus more and more on technology lately is to rely on the technologies, to make the pro achieve operational efficiency. So I will give you some examples. What are the things companies are doing? One is the E-procurement system. So this is implementing the E-procurement system that will automate the complete procure-to-pay process from the purchase, acquisition, and approval, to all the way to making the payment to the vendors in that way. What happens to this E-procurement system? Either you can have an offline tool, or it can integrate into your ERP that will help you to make the process a lot smoother with total good compliance and control. The other thing people can think of is doing the automated workflow. The companies are creating the automated workflow based on the predefined criteria or predefined threshold or rules, and based on that, they will for the vendor, for the amount, or for the product, and then they can create the automated workflow, and integrate with their system. To make this techno process efficient the other one would be they like more on the contract, manage contract management software like Cms type of thing, where they can implement this contract management software to monitor and manage the contract and make sure that they are in the property and compliance, and all those criteria have been made for the various contracts. The suppliers portal is another one where they integrate the suppliers. What so integrate the vendor vendor system with the through the supplier portal, such as, like the Ocr or Pdf. Thing, or invoice processing via Api, where suppliers can submit their invoices and communicate with the company online but they don’t have to worry about manual intervention, or very, I shouldn’t say manual, less manual intervention. And in that way, this process can be pretty smooth in making the communication with the supplier. The other one is making sure that any system if you are using the offline system for any e-procurement system, is procured to pay. You integrate with your Erp to have better financial control and better visibility, at the same time better closing the finance books, financial books in a timely manner. The other thing would be AI and machine learning, which is a pretty wide field. You can use AI all the way from the communication process, flow, market analytics, and predictive analysis, all those details you can use for the AI and digital signature is another one where you don’t have to shuffle the paper for people’s approval or signature. Digital signature is another one of the technologies. You can use it and also the audit trail and report some of the audit trail. You need to give it through data analytics. People have a different tool for data analytics, where they can get the dashboard or data from the various procurements, whether the purchase order or a procurement, or by type, or by vendor. In that way, they can do the spending analysis and make sure there is no unusual or unusual trend in spending. And that way technology helps in all different aspects.
Riya: It’s fascinating to know how technology plays a role. So would you like to highlight what potential role you see for AI in your procurement processes?
Mike Vaishnav: So AI lately has been becoming very popular, and it has been enhancing the process in procurement by allowing flexibility as well as control. So, AI, if you use it at a very high level, you can use it from complete, from procure to pay process, from approval. To what do you call opening up to pr purchase or purchase acquisition, routing through the purchase acquisition to the various approval levels, converting into the PO sending it to the vendor and getting back, and then come all the and then also integrating with your Erp. So AI has an endless potential for this. Procure to pay process. Also, AI will help us very fast in accrual analysis. When at the month end you can focus on how the outstanding accrual process makes AI make the accrual process very faster. Another thing also, AI helps, is making the communication internal and external communication a lot faster and you don’t have to wear that, because that quite a few times with the AI Chatbot you can have a communication done Lot, efficiently and faster without human intervention based on the predefined algorithms. In that way anybody wants 24 by 7, with a different time zone, different geography, or in the same geographic area people are not around. AI can support in providing all information regarding, and if any questions have been asked, it has been answered instantly. Also, with the help of AI solutions. You can get a specific dashboard. I’m not saying that ERP will not do that, but ERP always has some limitations whereas AI can be more flexible. So these are some of the, I would say, technical parts of the AI, where you can focus on the procurement process. But there are some of the more strategic parts of AI also. So AI can help you with the inventory management solution. It can predict the inventory. It can predict your production cycle. And of course, Erp can tell, some of the models can do that. But this is a more user-friendly way of predicting some of the inventory and demand management. It will also provide predictive analysis which gives what the market condition would be, what the market demand and supply that information AI can collect, and based on that, people can make the decision a lot faster. Also, some of the AI-driven processes, like some of the forecasting processes or the demand generation processes, or not even manage the demand and supply as well as the production cycle. AI made that process a lot more efficient and a lot faster. And then, last, but not least, it is also for control and compliance. So AI will help us, manage the control and compliances, and make sure that this company is following all those regulatory requirements or legal requirements, and if any has been not followed, then AI can flag those issues and people can focus on it, correcting that plot faster. So shortly AI has a very high potential in the procure. Of course, there are all those finance processes. I strongly believe that AI has a very high potential, but the procure-to-pay process AI is very efficient by technical way of complete procure-to-pay process solution as well as some of the strategic items also, and also at the same time, AI can easily integrate with any ERP system, so that will help to complete, get the data in and out of the Erp system. Also, if the company and the production cycle are connected with the Erp system. It’s easy to interface or interchange the data with the Erp system, and AI.
Riya: That is an exciting area. So it’s been a pleasure discussing the balance between flexibility and financial control in procurement with you, Mike. Thank you so much for taking the time to share your valuable input.
Mike Vaishnav: Thank you.
Riya: Thank you. Have a great day.
Moderated by Emily, Digital Transformation Consultant at Hyperbots
Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant at Hyperbots, I’m very pleased to have Jon Naseath on the call with me. Jon is a chief operating officer at Osmo. The topic that we’d be discussing today is why matching invoices with purchase orders and goods receipt notes is tedious, and also how AI solves it. Thank you so much for joining us, Jon. To start off, can you please explain some of the major challenges that organizations face with invoice matching to purchase orders and goods receipts?
Jon Naseath: The fundamental issue is, vendors want to get paid. You’ve got all this purchase order process upfront to get approval for payments, and accounting isn’t going to release the funds until you’ve verified that the services have been done or the goods receipts have been received. The hold-up is usually vendors calling up their contacts within the company and saying, “Where’s my money?” And then you have to verify, “Well, did you get the work or the goods?” Then you can pay them. Accountants love paying people, but they want to make sure the boxes are all checked.
Emily: Can you provide an example of how complex matching requirements can affect the invoice processing workflow?
Jon Naseath: Sure. It’s usually data disconnects. There was a plan when the PO was created, and then the invoice had something slightly different. With goods receipt, it should be straightforward. For example, the invoice lists 100 units of product, and the PO specifies 90, but the goods received say 85. They’re trying to charge you for 100, but you approved 90, and they only sent 85. So what are you going to pay them? It usually takes effort instead of flowing through automatically.
Emily: Understood. What are some of the common format differences between invoices, POs, and GRNs that complicate the matching process?
Jon Naseath: A lot of times, especially in international transactions, there are differences like month-day-year versus day-month-year formats. There are also differences in units of measure whether it’s quantities or services provided. Sometimes the invoice might be for work performed, and you have to verify if they completed the work. Did they do what they were supposed to, or are they just saying that? Also, is the person signing off on the work holding the vendor accountable, or just saying “pay them”?
Emily: Got it. So, Jon, how does data entry error impact the accuracy of invoice matching?
Jon Naseath: If it’s intentional, it’s a fraud, but if it’s an error, it can be small things like entering the amount in euros when you’re expecting US dollars. Data entry errors like this can cause issues with reconciling numbers. For new vendors or publishers, it can be a lot of work to chase down little data points. Meanwhile, vendors are asking, “Where’s my money?” Another example is when a customer uses a DBA (doing business as) name, and they send a slight variation of their name, like Vendor Inc. instead of Vendor LLC. Data quality matters.
Emily: It sounds incredibly overwhelming. So how can AI help in automating the data extraction and normalization process?
Jon Naseath: It’s two-fold. First, avoid the issue in the first place. AI can help by reconciling the data against the PO to catch discrepancies before sending it. This helps vendors get paid faster. On the receiver side, AI can flag errors quickly so they can be resolved before reaching accounts payable. Ideally, it flags the issue and sends it to the business owner of the account to fix it before accounts payable is even involved.
Emily: Got it. What role does AI play in detecting and correcting errors in invoice processing?
Jon Naseath: AI can identify common errors in documents like typos, incorrect item codes, or mismatched numbers. It also looks at historical data trends to detect patterns. If an accounts payable clerk is manually processing hundreds or thousands of invoices, they can easily miss these issues. I remember joining a company where the accounts payable clerk was buried under a mountain of invoices. We automated some of it, but it was still painful. AI can help people in these situations and reduce their workload.
Emily: Can you explain how AI algorithms detect anomalies and discrepancies in invoice matching?
Jon Naseath: AI is very effective at identifying patterns and spotting discrepancies in quantities, prices, or item descriptions. AI does this across hundreds of variables and can instantly flag issues that a human might miss. A typical accounts payable clerk might not be motivated to catch these anomalies, especially if they’re overwhelmed by the volume of work. AI helps mitigate those risks.
Emily: How does AI handle the challenges of matching invoices that reference multiple purchase orders or involve partial deliveries?
Jon Naseath: In accounting, it’s easy to think everything should line up perfectly in a two-way or three-way match, but in reality, you often have invoices referencing multiple POs or partial deliveries. You don’t want to delay payments by asking vendors to reissue invoices. AI can reconcile these discrepancies and help keep everything in order across big POs and multiple transactions.
Emily: To wrap things up, what are the key benefits of integrating AI into the invoice-matching process for an organization?
Jon Naseath: Integrating AI into invoice matching automates repetitive tasks, reduces manual errors, improves data accuracy, and enhances anomaly detection. It helps you get the job done faster and protects you from costly errors, like overpaying a vendor or missing a payment. AI is like having an extra set of eyes to help you avoid mistakes.
Emily: Got it. Thank you so much, Jon, for talking to us about why matching invoices with purchase orders and goods delivery notes is tedious, and how AI can help. It was great having you today.
Jon Naseath: Great, my pleasure.
Moderated by Emily, Digital Transformation Consultant at Hyperbots.
Emily: Alright. Hello, everyone! This is Emily, and I am a digital transformation consultant at Hyperbots. Today we are joined by John Silverstein, and we’ll be talking about strategies for matching in accounts payable. John is the VP of FPNA at Extreme Reach and has over 20 years of experience navigating Fortune 500 giants and dynamic startups. Let’s dive right into the topic, John. Just to start with a very easy question: What is the choice of fields for matching in the accounts payable process, and why is it critical for any organization?
John Silverstein: This is one of the most important parts of the AP process. Once you set up the matching criteria, it controls whether your matching is efficient and accurate and whether you’ll need to perform rework. Essentially, it ensures that we pay for what we purchase. Proper matching can prevent errors, fraud, and overpayments while ensuring compliance with contracts and internal policies. However, being too strict on the matching can slow down processes. It’s not just about the matching itself; it’s also about what data you’re gathering. You might match on three or four fields, but you could be gathering 20 fields, which may not need exact matches but can help inform decisions down the line.
Emily: Got it. So, John, can you explain the difference between two-way and three-way matching and when each is most appropriate?
John Silverstein: Two-way matching doesn’t involve the receipt of goods; it’s based only on matching the invoice with the PO. This method speeds up the process since you’re matching PO fields against the invoice fields. It’s especially useful for services or low-value transactions where you don’t necessarily have goods to receive. Three-way matching, on the other hand, includes the receipt of goods. This ensures that what you ordered on the PO is what was received. This method is more thorough and is ideal for high-value or high-risk items.
Emily: In your experience, what are the most critical fields to include in three-way matching, and why?
John Silverstein: The most critical fields are the PO number, quantity, unit price, and total amount. These fields ensure that you’ve received everything as expected and that the invoice matches the PO. The PO typically contains all the necessary accounting details, which predetermines how the item is booked once received. The PO number links to the invoice, while the quantity and unit price confirm that what was ordered matches what was billed.
Emily: Should the address field also be considered for matching?
John Silverstein: The address field is hard to match but critical for capturing from a sales tax perspective. Matching addresses can be tricky because billing often happens through different entities with varying addresses, which can slow down the process. While it’s essential for tax compliance, in my experience, I don’t usually match the address due to the many nuances.
Emily: Makes sense. Should the dates on invoices be matched as well?
John Silverstein: Yes, but dates should be matched within a tolerance. An exact match isn’t always expected since invoices might be issued a day before or after the receipt of goods. There are multiple dates like order date and ship date, making it confusing. AI can help with this by identifying the appropriate dates, but it’s still important to have some flexibility when matching dates to avoid unnecessary back-and-forth.
Emily: What do you do for tax matching?
John Silverstein: Sales tax typically isn’t matched at the PO level as the PO might not include sales tax details. However, it’s crucial to capture and validate this information. If you’re tax-exempt, you want to ensure you aren’t being charged incorrectly. Even when there’s no sales tax, it’s still important to check since your organization might still be liable.
Emily: What are the potential risks of matching too many fields in the AP process?
John Silverstein: The main risk is that you’ll never achieve an exact match on all fields like descriptions, item codes, product codes, and dates due to differences between the vendor and your system. It’s crucial to only match fields that are necessary for catching fraud and discrepancies like quantities and amounts. Matching too many fields can lead to errors, confusion, and manual processing, which defeats the purpose of automation.
Emily: On the flip side, what could be the consequences of matching too few fields?
John Silverstein: Matching too few fields, like just the PO, could result in missing key details such as quantities received. It’s important to strike a balance matching enough fields to ensure accuracy without overcomplicating the process. Depending on your industry, you’ll have different rules and risks to consider, but finding the right balance is key.
Emily: How can AI play a role in optimizing the matching process?
John Silverstein: AI accelerates the process by allowing systems to read invoices and correctly match them with POs and receipts. In the past, this was a manual process, often involving paper checks. AI not only automates this process but also improves accuracy by identifying potential matches that might not be straightforward. As AI learns over time, it can even begin to match more fields that weren’t possible before, reducing errors and manual interventions.
Emily: How do you balance the need for accuracy with the need for efficiency in the AP process?
John Silverstein: It’s all about how many fields you’re matching and capturing. Accuracy is crucial because it impacts accounting, audits, and overall financial integrity. AI helps by learning and adapting over time, enabling you to strike the right balance between accuracy and efficiency. As AI continues to evolve, it will further optimize this balance by reducing manual checks and improving the precision of automated matching.
Emily: Looking ahead, how do you see the role of AI and technology evolving in the accounts payable process?
John Silverstein: AI will make AP processes much easier by taking over tasks that currently require manual effort, like data entry. The keystrokes and data entry AP clerks handle today should become minimal. AI will also improve the integration between AP and AR processes, simplifying how invoices are issued and paid. Eventually, AI will handle complex formats and requirements, transforming how organizations interact with vendors and customers. It’s exciting to think about the potential AI has to make accounts payable more efficient and less error-prone.
Emily: Thank you so much, John, for sharing your insights on such an important topic. It’s clear that the right approach to matching in accounts payable, when supported by AI, can significantly impact a company’s financial health and operational efficiency.
John Silverstein: No problem. Thank you.
Moderated by Moderated by Sherry, financial technology consultant here at Hyperbots.
Sherry: Alright. So hello and welcome to all our viewers on CFO insights. I am Sherry, a financial technology consultant at hyperbots, and I’m very excited to have John Silverstein here with me, who is a seasoned finance executive, with over 2 decades of experience in leadership, roles with expertise across both Fortune 500 companies and hybrid startups. Thank you so much for joining us today, John. We will discuss the balance between centralized and decentralized procurement processes, and how artificial intelligence can enhance these approaches. Your insights will be valuable in understanding how organizations can optimize their procurement strategies. Let’s get right into it. Can you describe your organization’s current procurement structure and the rationale behind choosing a centralized, decentralized, or hybrid approach?
John Silverstein: Yeah, thank you. Sherry. So from a centralized, decentralized procurement strategy. It depends on the type of organization and the maturity of the organization. So if you’re in businesses that don’t do that much procurement, or it’s not a big cost item, and your cost items are more on the people side of things, and things like that. You may go with that decentralized process or if you’re a startup you’re often decentralized. But the sooner you can get to that centralized or figure out a way to consolidate or centralize, which we’ll talk about with AI and things that you can. You can put those procedures in place and put the right procurement process. It can allow for a decentralized process. That works but it’s typically over the last couple of decades that I’ve been trying to move and mature towards a centralized process, particularly with large procurement processes. So if you’re going down the path and, you need to ultimately get to that. You want to use procurement people to do purchasing causes that will save money and even your service industries and things like that. They procure a lot. And you’re constantly getting sas sprawl and technology issues, it is always the case, even in your service businesses. So it’s kind of like you must have the procedures that you’re doing. POs, that you’re doing matching. It simplifies it on the back end. So that’s part of why, the business I’m currently in. We’re going. We’re moving more central. We were kind of scattered before, but our departments ended up very siloed, too, and you had disparate systems throughout the entire organization. So that’s why we’re moving towards that centralized process.
Sherry: That makes sense. Thank you for sharing that. And in your experience, what are the key benefits you’ve observed from centralizing vendor approval and sourcing?
John Silverstein: Yeah, when you centralize that vendor approval and sourcing, it gives the ability to combine purchases or pick the right vendors, or have contracts that are more standard and things like that with the vendors. So it speeds up the process. So a lot of people talk about it. Oh, we need to be decentralized so everyone can purchase and do those things. But you lose control pretty quickly and it slows down the process because you don’t have already approved vendors that know how to operate with you and know how to know your procedures and your legal contracts and things like that. So you often get stuck with that decentralized process of having to go through there.
Sherry: Right and, on the contrary, how does decentralizing PR and PO approvals impact your organization’s procurement, efficiency, and flexibility?
John Silverstein: Yeah, If you decentralize it, it creates a lot of challenges. Particularly if you don’t have a way to capture and understand the spending within the organization, and the proper processes to get it. Cause. Ultimately, if you’re someone who’s able to even sign a contract approve something, or create a PO. If you don’t have a centralized, then you have so many sources going through it can get backlogged if things come through at the same time, and the prioritization gets harder. It generally doesn’t do what it’s expected. This decentralization is where you think you’re more agile and things, and everyone’s allowed to do things. But then it goes back to what I was stating before. Like, you want those standards, procurement people are professional people. There’s a reason why they exist and why organizations hire them. And if everyone’s going outside of the system basically it’s a decentralized process, it creates a number of challenges.
Sherry: And what challenges have you encountered with your current procurement structure? And how have you addressed them?
John Silverstein: Yeah. So the challenges are, of course, like making sure that you’re going, that everyone’s going through the centralized process, particularly when you’re making those movements that change from a decentralized where people can purchase and do things and make decisions in silos? But that ultimately gets them to follow the process. But if you can control that through the systems, then you make sure that you continue to capture. And then when people start to see that it actually improves the process, and you end up with a better deal, and you end up with better products or you might even say no to certain suppliers or things like that with the centralized it’s gotten much better. It’s removed a lot of the challenges we previously had that we said wouldn’t necessarily go away. But they are because we’re using that professional procurement person to go in, and we have a real vendor list. We have real approvals. We have real contracts with everyone. Now we have a PO process that makes sense. So those things critical that you put those in place, and then it gets easier. But it’s a challenge to get everyone to make that change and shift it. But as they see the success of it. And you start simplifying. Even the number of vendors you’re managing and things like that. It gets faster and easier.
Sherry: It’s great how you handle that. So since AI is taking the finance industry by storm, I have to ask in what ways can AI enhance centralized vendor approval and sourcing processes.
John Silverstein: Yeah, there’s several ways from just going through and doing checks on vendors. And to make sure that you’re following a vendor approval process. You could do that through AI potentially versus having to go through the next. Necessarily a procurement person. There are some initial checks you could do. Also, It depends on your process. You could go through and almost provide that end of the day. It’s kind of we’re saying, decentralized and centralized, but at the end of the day, the request for procurement and things, it’s decentralized. Everyone’s making their own decisions or needs to purchase something. That’s what creates this process. It’s whether they have to go to a person or go through a technology or how they do it. So AI, I think gives that ability, actually gives more flexibility, and kind of can centralize a decentralized process and things and pull it all together. So I think that the key is that you’ll be able to get the data. You may even have AI as you go submit for purchase or PO. It could check and do some checks upfront to see. Yeah, does this make sense? Is there a product or service that we already have? Have we gone through it, or is it there? Or is there outside data that we should even use and check the vendors or the products that we’re purchasing, that it makes sense?
Sherry: AI seems promising in this area. How can AI be utilized to improve the efficiency of decentralized PR and PO approvals?
John Silverstein: Yeah. So AI can go through the logic. Making sure that POs are getting automatically approved, going through meeting certain criteria, and things of doing that it can also check. If your PO process can get stricter. Actually, with AI, you’re able to capture even more information. Upfront potentially to build out often POs are too generic and then it gets harder to do the 3-way matches and things down the line which we’ve had previous discussions on this CFO insight. So it’s critical that AI can improve that, increase the quality, increase the data, and then do more and more checks on how you go through your procurement process.
Sherry: And what are some examples of AI applications that have been effective in procurement? And how have they impacted your organization’s processes?
John Silverstein: Yeah, so I would say, it’s a little too early for us. From an AI perspective on how it helps. But it’s going through and getting actual POs for the smaller organizations, It gives the ability. I’ve been in a number as a consultant going into organizations that are under your like 100 million dollars in revenue to go through. And a lot of those organizations don’t have POs. They don’t have these processes. I think AI is allowing them to do the processes without a huge heavy lift to put those standards and controls in place. So AI is allowing everyone to have what the big companies have and to also then do where it would be. A heavier lift is to make suggestions on negotiations right? Checks on. And you’re seeing this in some of the other expense tools and in your other purchasing products and things you’re starting to see. AI actually goes out and suggests hey, you can get a better deal. This is the average deal size. This is typical. This is the contract. They’ll check the legal things, and they’ll give suggestions and things like that. So that whole process is getting better and easier. Smaller companies, typically just take the standard contract and sign. You may not do that anymore. You may redline a contract because of AI that you would have typically just signed in the past, and might have been hurt down the road.
Sherry: Looking ahead, how do you see the role of AI evolving in procurement? And what future developments are you most excited about?
John Silverstein: I’m most excited that this is giving me the opportunity for everyone to have real procurement processes versus just going and buying things on a P. Card or things like that. Instead, they can go through, and you can purchase with terms. You can understand the terms you can go in, and you can get the appropriate discounts. What’s the right deal size? What’s the right number of licenses? What’s the application if it’s software, should it be used, are there other areas and other departments that should come together? AI can help with all this. Bringing it and having an understanding that some people may not think about as they’re going through an actual purchase.
Sherry: It looks like there are exciting times ahead for AI and procurement.Thank you for your time, John, and your valuable insights, your perspectives on centralizing versus decentralizing procurement, and the role of AI in these processes will be greatly beneficial for organizations looking to optimize their procurement strategy.
John Silverstein: Alright. Thank you, Sherry.
Finance and accounting (F&A) are critical to the operational efficiency and strategic decision-making of any business. The advent of artificial intelligence (AI) presents a transformative opportunity for these functions. This article analyzes manual, analytical, and strategic activities within these functions and determines the most optimal AI adoption roadmap.
The following table estimates the volume of manual, analytical, and strategic activities in these functions as high, medium, or low:
| Functions | Manual | Analytical | Strategic |
| Procure to Pay | High | Medium | Low |
| Order to Cash | High | Medium | Medium |
| Expense Management | High | Medium | Low |
| Tax and Compliance | Medium | High | High |
| Treasury | Medium | High | High |
| Financial Planning & Analysis | Low | High | High |
| Mergers & Acquisitions | Low | High | High |
The next-generation AI technologies are mature and can be applied well in Finance and Accounting with a significant financial impact. We recommend prioritizing the Procure-to-Pay, Order-to-Cash, and Expense Management functions for AI adoption.
AI techniques for interpreting unstructured data have advanced significantly in recent years. These techniques now permit what was previously considered human-level intelligence tasks.
Transformer-based frameworks allow for unstructured content understanding, language generation as well as predictive tasks. Large Language Models (LLMs) accelerate the ability of AI systems in language understanding, information retrieval, summarization, text generation, and conversational AI. Data-driven econometrics models for forecasting and trend analysis enable numeric and financial data analysis.
In finance automation, this is how these AI techniques can radically transform each of these tasks:
The structured and orderly nature of finance processes, underpinned by a robust ERP knowledge base, provides a solid foundation to leverage sophisticated machine learning and AI methodologies. Now is an opportune moment to invest in the adoption of AI-native strategies for a substantial positive business impact.
The P2P function involves numerous repetitive and manual activities where AI can significantly increase efficiency and reduce errors.
| AI Capabilities | Readiness |
| Uses machine learning and LLMs to achieve straight-through processing for 80% of invoices. This includes automated invoice extraction, understanding, validation, matching, GL coding, and posting | Short-term |
| Uses forecasting systems to automate accruals | Short-term |
| Uses predictive and prescriptive models for optimal vendor payment timings | Short-term |
| Uses advanced ML techniques to detect fraudulent and duplicate invoices | Short-term |
| Uses classification techniques to classify expenses for capitalization | Short-term |
| Uses AI models and tax dictionaries to verify the sales and other types of applicable taxes | Short-term |
| Builds company and F&A-specific conversational AI models to provide chatGPT-like analytics | Medium-term |
| Optimizes vendor selection using predictive analytics | Medium-term |
The O2C function is also highly manual and prone to AI automation.
| AI Capabilities | Readiness |
| Uses machine learning and text processing techniques to extract and validate purchase order information from customers PO documents and contracts and auto-uploads information into the ERP system, resulting in 95% plus automation | Short-term |
| Uses advanced AI techniques to generate customer invoices based on purchase orders, customer master, inventory, and shipment information to generate 100% First Time Right (FTR) invoice. | Short-term |
| Uses recommender systems to create a daily/weekly priority list of customers for collections. | Short-term |
| Uses dynamic models to enhance customer credit scoring | Short-term |
| Uses advanced data science techniques for cash management including discovery of discrepancies, over and under-payments | Short-term |
| Uses generative AI to automatically communicate with customers on invoices and payments, including follow-ups | Short-term |
| Uses generative AI for conversational analytics on O2C data | Medium-term |
Employee expense management continues to be tedious for employees and the finance teams. This process can make use of AI to achieve a very high degree of automation.
| AI Capabilities | Readiness |
| Uses image and text processing techniques to automatically extract information from receipts and bills, and validate and auto-create expense reports for employees. | Short-term |
| Uses machine learning techniques to verify expense reports against policies and proofs. | Short-term |
| Uses advanced ML techniques to detect fraudulent and duplicate expenses. | Short-term |
| Uses classification techniques to identify the correct GL code for each expense | Short-term |
| Uses generative AI to communicate and answer employee queries | Medium-term |
AI has a high potential to optimize and streamline the tax and compliance function.
| AI Capabilities | Readiness |
| Automates collection and validation of data required to file tax returns, ensuring higher accuracy and reduced human effort | Medium-term |
| Applies the correct withholding rates based on payer and recipient jurisdiction, reducing errors | Medium-term |
| Helps organize documentation related to taxation for audit purposes | Long-term |
| Tracks applicable sales and use taxes across jurisdictions, ensuring accurate application to transactions | Long-term |
| Uses generative AI to map financial statements to the latest reporting standards. Facilitates SOX compliance | Long-term |
AI can provide substantial value by automating routine activities and improving decision-making in treasury management.
| AI Capabilities | Readiness |
| Machine learning models analyze historical cash flow patterns to predict future cash needs. | Medium- term |
| Monitors cash balances across accounts and recommends the most efficient pooling techniques. | Medium- term |
| Compares fee structures across banks, helping to negotiate better terms. | Long-term |
| It uses advanced predictive models to assess market risks and helps optimize long-term portfolio allocation. It also recommends low-risk, high-return, short-term investment opportunities. | Long-term |
| Predicts currency fluctuations to help develop effective hedging strategies. Identifies forex arbitrage opportunities. | Long-term |
| Builds models to identify market and operational risks using various internal and external debts. | Long-term |
FP&A involves many analytical and strategic activities. AI can help improve decision-making for these activities.
| Automates the data extraction from structured and unstructured sources like documents and ERPs | Long-term |
| Analyzes the historical data to build predictive budgets and rolling forecasts | Long-term |
| Simulates scenarios and recommends outcomes | Long-term |
| Helps in variance analysis between planned and actual budgets | Long-term |
| Analyzes capital allocations and predicts ROI using historical data | Long-term |
| Predicts future cashflows based on historical trends | Long-term |
AI can play a significant role in M&A, improving efficiency and strategic decision-making.
| AI Capabilities | Readiness |
| Analyzes financial reports and news articles to assess potential targets. | Long-term |
| Builds sophisticated financial models using machine learning to provide a more accurate valuation of the target companies. | Long-term |
| Analyzes contracts and other financial statements for risks and liabilities. | Long-term |
| Identifies and predicts potential risks. | Long-term |
| Provides data-backed insights into potential negotiation points. | Long-term |
Now that we have analyzed the specific AI-based automation of the above finance functions, we can estimate the financial impact it can create.
Having evaluated the financial impact on all F&A functions, we can recommend the AI adoption roadmap.
The next-generation AI technologies are mature and can be applied well in Finance and Accounting with a significant financial impact. We recommend prioritizing the Procure-to-Pay, Order-to-Cash, and Expense Management functions for AI adoption.
Moderated by Emily ,Digital Transformation Consultant at Hyperbots
Emily: All right. Hi everyone. This is Emily, and I am a digital transformation consultant at Hyperbots. For today’s discussion on the evolution of the Procure-to-Pay process, I’m very glad to have Tony on the call with me. Anthony is the VP of Finance at Delcath. Anthony, would you mind telling us a little more about yourself before we get started?
Anthony Dias: Sure. I’ve over 30 years of experience. I started my career in public accounting many years ago and then moved into the private sector. I’ve worked in small to medium-sized companies, most of my career in companies that are probably in the startup phase that needed more experience to kick into the next level through public stages or acquisition phases of the company or growth phases. I’ve had an opportunity to work for a very large organization that got sold for five billion dollars as well. So, I have a good understanding of good processes, good business practices in both small and medium-sized companies. The industries I’ve been in are mostly manufacturing, high-tech manufacturing, and for the last 10 or so years, the bio-pharma space where we have manufactured both devices and drugs. Most of my experience has been at the senior level of finance, both as CFO and VP of Finance, in both public and private companies, including private equity and VC-backed companies. So that’s a high-level background.
Emily: That’s amazing and really glad to have you here on this forum today. Along with the many organizations that you have worked in, you have also been associated with all the processes of finances as well. Would you like to share what kind of Procure-to-Pay initiatives you’ve been a part of in the various organizations?
Anthony Dias: Yeah, I would say when I first started, the Procure-to-Pay part of the organizations I’ve worked at was really manual. As I mentioned, most of the companies I worked with were startups looking for the next phase. As a startup, your biggest priority is making sure you’re paying your vendors and employees. But as you grow, you need to look at other facets of growth, and bringing on additional accounts payable folks may not be the most ideal use of your resources and cash. So, looking at systems and more efficient processes around procure-to-pay becomes crucial for supporting the growth of the business. This includes having proper controls in place and better processes from the purchasing side, ensuring proper approvals, processing invoices, paying the right vendors, and controlling payments.
Emily: Got it. Tony, for the sake of the audience, would you like to break up the overall Procure-to-Pay process into sub-processes?
Anthony Dias: Yeah, I would say the front end of the process is primarily the procurement process, where you may have a requisition process for purchasing a service or product. This involves ensuring the person is authorized and getting the best price by putting a bid out, working with legitimate vendors, and having the proper approval to spend the money. Then there’s the purchasing process, where a purchasing department might vet the vendor, negotiate the best price, and handle contracts. Once the decision is made, they issue a purchase order committing the organization to the purchase. The next phase is in the finance realm, ensuring receipt of goods or services, verifying the pricing and quantities, and making timely payments based on contractual terms.
Emily: And how do you see the evolution of these processes over the last decade or so?
Anthony Dias: There’s been a lot of evolution in the last 10 years. My career started 30 years ago, and for the first 20 years, a lot of it was very manual. In small finance groups, the focus was on paying vendors and employees. As companies grow, they tend to invest in other areas like sales and marketing, often overlooking the accounts payable and Procure-to-Pay processes. The accounts payable group grows but without additional resources, leading to inefficiencies. OCR technology has been helpful, where invoices are scanned and processed electronically, reducing errors and lost mail. Electronic invoicing and payments through ACHs or wire transfers have also become common, making the process more efficient and reducing the risk of errors and delays.
Emily: So, apart from OCR or digital adoption, what other tools and technologies are used in different aspects of the Procure-to-Pay process?
Anthony Dias: In the requisition process, technologies have been adopted by larger ERP systems, making everything more electronic and web-based, which is crucial as businesses become more global and remote. Mid-sized and smaller ERP systems might not invest as much in these areas. Technologies include electronic requisitions, purchase orders, and vendor price comparisons. In the accounts payable process, the adoption of electronic payments, capturing invoices through OCR, and other technologies have minimized manual errors and improved efficiency.
Emily: After the adoption of such tools and technologies, are there still challenges that exist on the procurement side?
Anthony Dias: The biggest challenge is time. Getting a requisition approved by a manager who gets many emails can be slow. The purchasing department also needs time to find the best price. For someone needing a product or service quickly, this process can be frustrating. Speeding up approvals and negotiations can help. There’s also the issue of adherence to processes and the perception that controls and procedures slow things down. Improving the speed and efficiency of these processes is crucial.
Emily: Why do you see many organizations still having significant elements of purchases without a rigorous PO-driven process?
Anthony Dias: It often comes down to the hesitation of non-finance folks to follow the process, preferring the ease of direct purchases as they do in their personal lives. The mindset in organizations is still not there for some. They might feel that going through the approval process is unnecessary when they can quickly purchase items online. But organizational purchases need to comply with standard practices, regulations, and ensure consistency. The process also ensures the company is not at risk and is getting the best terms.
Emily: Apart from the timing, what other challenges have you seen in the procurement process in general?
Anthony Dias: The three-way match process matching purchase orders, receiving goods, and invoices can be time-consuming. Discrepancies in quantities, prices, or quality of goods received versus what was ordered can cause delays and require back-and-forth communication with vendors. Resolving these issues takes time and can affect payment timeliness, leading to potential leverage issues with vendors.
Emily: What are the best practices in streamlining the procurement process to have better financial control?
Anthony Dias: Best practices include a robust requisition process with manager approvals aligned with budgets, a purchasing group vetting vendors and ensuring the best prices, timely receipt and verification of goods, and accurate and timely payment of invoices. Good communication between procurement and finance is crucial, ensuring everyone is aligned on budgets and vendor payments.
Emily: What kind of collaboration would you suggest between the finance and procurement teams to achieve the company’s common business objectives?
Anthony Dias: Procurement and finance should have a strong partnership. Purchasing should understand budgets and approval limits, consult finance when needed, and ensure proper vendor documentation flows to the accounts payable team. Collaboration in budgeting and forecasting is also important, ensuring purchases align with the company’s financial plans.
Emily: Can you share the inefficiencies that still exist in the procurement process despite best-in-class ERP implementations?
Anthony Dias: Some inefficiencies still exist due to resistance to change, manual data entry, and writing checks. People are often slow to adopt new technologies due to risk aversion and a lack of understanding of how these technologies can minimize risk and improve efficiency. Educating staff on new technologies, demonstrating their benefits, and investing in these areas can help address these inefficiencies.
Emily: Apart from the mindset, what else do you think is needed to improve these processes?
Anthony Dias: Investing in these areas is crucial. As companies grow, they need to re-evaluate and invest in their accounts payable and procurement processes to avoid inefficiencies and risks. Continuous education and training for staff on new technologies and best practices, attending conferences, webinars, and networking with other professionals in the field can also help improve these processes and keep them up-to-date with industry standards.
Emily: One last question: what do you think could be done to address these inefficiencies better?
Anthony Dias: Education is key. Accounts payable clerks, CFOs, and controllers need to stay informed about new technologies and industry best practices. Networking with peers, attending conferences and webinars, and bringing in experienced people can help. Investing in technology and processes will help organizations grow efficiently and keep employees motivated and engaged by reducing manual work and improving job satisfaction.
