Sachin Sharma, founder of Procurement Procure Desk, walks through five ways CFOs can cut spending: enforce purchase approvals, use purchase orders for cash-flow planning, run spend analysis for typical 5-8% savings, automate invoice matching, and regularly update procurement processes.
As a cfo, if you're always asking this question on who made this purchase, you have a spend control problem. And if you're looking to implement a procurement solution to solve that, this video is for you. After working with close to 500 customers on implementing better spend controls, here are the five ways I have noticed on how CFOs use procurement software to control spending. Now, if you're joining me for the first time, welcome. My name is Sachin Sharma. I am the founder of Procurement Procure Desk, where we help growing companies implement better spend controls through procurement and AP automation. So let's get started. Number one is they use procurement software to control spending through purchase approvals. And the process is pretty simple. Use a approval process so that all purchases that are made are approved before somebody spends the money. Right. And that you do it in a couple of ways. Number one is you set up a delegation of authority or an approval process where a request needs to be approved by someone based on the amount. You might have different approvers. And as a part of that, you also want to check for budgets because that is the, I would say the superpower from an approval standpoint. Because now you can also check not only the person approving it approved it, but I have the budget for it. So they don't go over budget. Right? So that's number one. Number two is they use the system for better cash flow planning and that is through better visibility into their committed spend. So having a purchase approval process is good, right? You need somebody to go and approve a purchase. But what is more important is having a purchase order following a purchase request. Because now you have full visibility into what is committed and open and that you need to plan for from a cash flow's perspective. So if you have a large purchase that is made, let's say you bought a capital, you purchase a capital equipment for, I don't know, $100,000 and 50,000 is due in three months. The remaining 50,000 is due three months after. Those are the milestones that can be defined in a purchase order. So that you can now go and run a report and say, show me all my open orders and the milestones and plan cash flow based on that. It's as simple as that. Number three is cost reduction. So it's important to control cost, making sure that the right person is approving the purchase before it happens. But once you start spending money, you also should look for, okay, can I actually reduce the cost of buying something? For example, three people bought three laptops from three different vendors. It's the exact same laptop but one bought it for thousand dollar, another for 1200, another for 1300. Can you actually buy if you go at a cheaper price? If you go to the one vendor answer is yes. So that is what you need to implement from a cost reduction standpoint is what we call spend analysis. So having the rhythm or routine or hygiene to review your spend on regular basis to see if you're getting the best price for what you're buying or can you negotiate better cost. In our experience we have seen companies achieving anywhere between 5 to 8% on their annual spend. So it's, you know, it's not small change. Right. Number four is they use the system to improve the productivity of their AP team. So by implementing a three way match process. So what I mean by that you have a purchase order, let's say you bought a monitor, the vendor sends you the monitor, now they send the invoice. So as a best practice you should match an invoice with a receipt and a purchase order to make sure they all three matches. Right? You ordered received it and the vendor actually invoiced you for the exact same product that you ordered at the same price. Now a lot of times if you are not implementing the controls properly, your team is spending a lot of time chasing those matching issues. Okay, we have a missing receipt or the amount is wrong and so on. So doing this right can not only improve the productivity but also save you cost. On an average, a invoice match issue takes 20 to $50 to resolve. But if done right, it can be done under $3 or $4 depending upon the time that you spend. Right. So that's kind of a general framework to think about. This number five is they review their process often. So if you are implementing a system and just implement and forget about it, that is not the best practice. Right. And here's why your as the company grow, your processes needs to evolve along with it. So a very common example that we see is approval process. You set it once, let's say anything more than, I don't know, a thousand dollars needs approval. And when you set it up it was maybe 20 employees who were making the purchase. Now you got 200. Right. So is that thousand dollar limit still make sense or should you actually lower it and make it 500 or maybe make it 200? Whatever the case is, that's an example of looking at the process. Right? Same thing is with any other sub processes like what you do with invoice matching. What you do with invoice matching approvals you should continuously evaluate and look at optimizing that. So, just to summarize, if you are looking to implement a procurement software to control cost, here are the five ways or the five best practices how to best control cost using a software Number one is control spending through approval Number two is use committed spend for better cash flow planning. Number three is use spend analysis to reduce cost Number four is automate the three way match process to improve the productivity and number five is review the process often and make changes. Now, if you enjoyed this video, feel free to hit the subscribe button. So we let you know when we release videos like this. And thank you for joining me today. And I'll see you in the next video. Thank you.
