New industry study reports a significant reduction in intended spend on Procure-to-Pay Platforms by Jon Hansen

Posted on October 7, 2014

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You ever notice that with a satellite dish, there are always sporting events going on somewhere around the world on a 24/7 basis.  From football – both the North American and world versions – to cricket, hockey and even outrunning boulders down steep inclines (although I am not sure if the latter counts as being a true sport).  Nonetheless, my point is that we are bombarded with accessibility to every form of athletic competition.

The same can be said for industry reports.

Hardly a day goes by in which a new e-mail doesn’t cross my virtual desk proclaiming insightful revelations about the procurement industry.  It’s not 24/7 mind you, but you get the point.  The fact is that the mere existence of industry reports are in and of themselves hardly noteworthy. However, sometimes the findings they bring to light are.

Take for example the just released results from the second annual Xchanging survey on procurement technology and spending trends.

Over the past year I have both read and written about the advent of Procure-to-Pay technology platforms, especially within the context of supply chain financing and the need for AP departments to streamline the payment process.  I was of course not alone in this focus, especially given industry developments such as the Obama Administration launch this past summer of the SupplierPays initiative.

Against this backdrop of increased awareness and the obvious benefits derived from a P2P platform in the critical area of supplier payment, one would expect that there would be an increase in the commitment to implement these solutions.  According to the Xchanging survey, this is not the case.  In fact, and based on the response from the sourcing, procurement and outsourcing professionals from Fortune 500 and Global 1000 companies that were polled, a “significant reduction in intended spend on Procure-to-Pay Platforms” is expected.

Xchanging Report Chart

The interesting question this raises is why?

If as noted in the survey, 68% of respondents believed that their C-suite views sourcing and procurement as strategic to the business – which is considerably higher than the previous year’s 38% result, why would the investment in P2P platforms decrease?  Given that studies show that  the “impact that a slow payment regimen has on suppliers from a liquidity standpoint is significant”  and that it ultimately affects the quality of products that the buying organization can offer its clients, one would think that the strategic advantage of a process that ensures timely supplier payments would be a top consideration.  And I am not just talking about this from a supplier standpoint.

An Institute of Financial Operations article, found that days sales outstanding (DSO) are at “record levels” averaging 42 days in the U.S.  While defective invoices from vendors are at the heart of the problem, the impact on a buyer’s AP Department is significant in that “nearly two-thirds (63 percent) of past due payments,” are caused by invoice variances, and take on average “two to three times longer to be paid than clean invoices.”

If I were a C-Suite executive – which I was in a previous life, and was strategic in my thinking, I would focus more as opposed to less of my attention and dollars on addressing this problem.

But that’s me.

What do you think?  Should organizations spend more or less on P2P technologies?

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Posted in: Commentary