The Alternative to the ‘No-PO, No-Pay’ policy? Automated P2P, and here’s why:
It’s time to switch up your ‘No-PO, No-Pay’ policy – we’ve enlisted Magnus Bergfors from Basware to explain how.
For decades now, procurement organisations have tried to use ‘No-PO, No-Pay’ policies to drive compliance and automation. The logic behind this? No invoice will be paid unless there is a corresponding purchase order that can be matched to the invoice.
But why is the purchase order (PO) so important? Used correctly, POs – or the process of creating the PO – can enable higher levels of compliance and automation. A big win for procurement!
Let’s start with compliance
When it comes to order creation, there are two main types of POs:
- The automatically created PO
A system automatically creates POs of the required items based on the required demand, the bill of material, applicable lead times, and order quantities, and can send the PO directly to pre-approved and pre-defined suppliers.
- Manually or semi-manually created PO
In my opinion, this type of PO is more interesting when it comes to the No-PO, No-Pay argument. The process here often starts with a requisition that needs to be approved before it gets turned into one or several POs (say, for example, if there are items from different suppliers in the requisition). The approval is the key step from a compliance perspective, as the approver is supposed to ensure that the order is in line with policies, the right vendor is being used, and so on.
What about automation?
If the invoice can be matched against an already approved PO, the invoice doesn’t need additional manual approval and can be automatically approved for payment. Most organisations also require a goods receipt before the matching is completed, a process referred to as ‘3-way matching’. A modern P2P system should not only support 3-way matching, but ‘n-way matching’, where the ‘n’ represents the varying number of any matching points needed.
It seems like POs make a whole lot of sense. So why is a ‘No-PO, No-Pay’ strategy a bad idea then?
Yes, POs simplify processes and bring greater visibility into budgets and spend analytics. But trying to enforce a 100% PO process is not only difficult from a process and change management perspective, it’s also unnecessary.
Why?
Because gaining control and optimising spend is an iterative process. It requires strategic consideration across all of the ways money is being spent.
There are multiple problems with relying on and forcing end-users to create POs:
- A PO often adds no value for the end-user.
What if you don’t know what something is going to cost? How would you then create a PO or requisition?
Imagine, for example, if you needed to repair a piece of machinery because something is broken, but you don’t know what until the repairman has identified the problem! There are many cases where POs make no sense, including utilities, subscriptions, rents, and leases. - It is unclear how much effort the approver actually puts in to ensure compliance…
The downside of allowing ‘easy’ approvals on items such as mobile phones, especially via email is that it’s unlikely the approver will look at the order with any level of detail. And does the approver even know what supplier should be used in any given context? - It can turn procurement into the ‘PO police’.
Instead of working proactively with the business, the procurement team is reduced to chasing end-users that haven’t created POs (at least in the view of the business). - Some P2P systems can only match invoices against POs raised in the same system.
This means that end-users that work in one system have to switch systems and recreate the PO to meet the policy requirements, instead of being able to use the system they are already working in.
Find the PO/No-PO Balance with P2P Automation
Although there are many issues with enforcing end-users to create POs, this doesn’t mean that we should skip POs altogether. The trick is to understand when to require a PO, and when to rely on other methods to ensure compliance and get the most out of automation.
PO usage can be great and brings tremendous value to an organisation, but the idea that this tool can work for all spending is unrealistic.
POs should be one tool in your toolbox – not the go-to option.
The answer? A holistic procure-to-pay (P2P) solution that delivers advanced e-procurement capabilities and a best-in-class AP solution, working together to accommodate all your spend.
Your e-procurement solution should enable workflows and purchasing options that make buying the right way the easiest action to take, making 100% user adoption a reality. Then, your AP automation solution should be able to capture 100% of your invoices, regardless of type, format, or supplier capabilities.
The solution should allow for PO matching against all POs (ERP, procurement, other solutions) and have the ability to manage recurring, non-PO spend through workflow rules and advanced logic. Finally, it should be able to code and route non-PO invoices for review, approval, and processing.
A modern P2P solution like this should support:
- Traditional P2P approval workflows – for pre-negotiated catalog and e-form items as well as free text orders when the price is known at the time of the order.
- The capability to import POs or matching data from other systems – eliminating manual tasks, streamlining the process.
- Quick quote/RFQ capabilities – to request pricing from suppliers where the response can be turned into a PO with the same approval workflows as above.
- Contract/spend/payment plan capabilities – where an invoice can be matched against a contract or a plan that defines what amounts and frequency of invoicing that is agreed and approved.
- Smart coding of invoices – when there is no PO or contract to match against, the system suggests or prescribes accounting codes based on rules and machine learning capabilities.
- Capability of recognising recurring invoices – and suggest the best approach for ensuring compliance and automation.
The moral of the story: use POs where it makes sense and adds value!
This will allow you to meet the original goal of the ‘No-PO, No-Pay’ strategy of compliance and automation, without creating unnecessary administrative work for the end-users!
