Sachin Sharma, founder of Preparedesk, explains how tracking PO compliance rate—the percentage of invoices tagged with a PO number—prevents cash flow problems, budget overruns, and duplicate payments. He walks through three steps: remove process friction, automate approval thresholds, and tie POs to budget checks.
If you're a CFO of a growing company, there's one metrics you must track and most CFOs don't. It's not their fault, it's just that their system doesn't allow for that matrix to be tracked. So this one matrix can help you identify any potential cash flow problems, any issues with audit, any risk of duplicate payments and so on. So if you are worried about any of these challenges in this video, I'm going to break down what is that one matrix, why is that important and how we go about improving that metrics in your company. If you're joining me for the first time, welcome. My name is Sachin Sharma. I am the founder of preparedesk, where we have growing companies with purchasing automation and better spend controls. So let's jump right in. So the matrix is PO compliance rate. So what do I mean by that? In simple terms, it's a measurement of what percentage of your invoices have a purchase order number tracked to that or tagged to that. And the idea is that the PO number exists. That means that spend has gone through review and approval process. You have looked at whether it was approved purchase or not, rather than a surprise invoice showing up. So why is that important? So let's look at a couple of scenarios here. Number one is if you don't have your spend under control and you don't have PO numbers, you, you are always dealing with budget overruns. It's always checking, okay, do we have the budget for this or not? Because invoice just showed up versus having a upfront process which is more proactive and checking whether you have a budget in place or not before you actually make the purchase. Right. So that's the difference here. Number two is we see the month end close process being very long, generally 15 days. And the reason for that is you have invoices coming up, you don't know whether they're approved or not. So you have to route everything for approval. You maybe have a manual process and your AP team is continuously chasing people to get invoices approved and that slows down the month end close process. Right. Or you're probably doing accruals and things like that. Number three is you're probably paying like duplicate payments. There's no matching of invoices. So invoice comes in, goes to review and by mistake somebody might approve the same invoice twice. Right. So if you have this matrix or you have most of the purchase orders created, it can prevent budget overruns. You can close books faster and Then it prevents any duplicate payments. So how do you go about implementing this in your company? Process is pretty straightforward, right? Number one is if you have a purchase order process, great. Then figure out how do you remove the friction. If you don't, then set up a new process. What do I mean by friction? You can't have a purchase order process where everything needs to go through five approvals because it just slows down the whole process. People start finding workarounds so that they can just go buy what they need to buy without getting an approval. So the idea here is maybe you want to remove the friction from a process standpoint, make it easy for them to submit a request and then get it routed for approval and so on. Number two is just a continuation of the first is you probably want to set up automated approvals so maybe anything less than $500 does not need an approval or maybe just need manager approval and so on. And as you start looking at more and more you spend, maybe for each individuals, you can control a little bit of what they can buy without just kind of, you know, asking for approval all the time. Right. Number three is building proactive budget checks. So if you have a purchase order process in place, right? People are creating purchase order, you made it really simple and you remove the friction from the process. The next thing is to tie it to a budget so that when somebody is trying to create a purchase order, they can actually see whether they have a much budget in the like for that purchase or not and whether they can move forward or not. That is the most proactive way I know to control budget and prevent any budget overruns because you can check it in real time whether you have money left or not before you proceed. So if you want to avoid budget overruns, surprise invoices, long month end close process, improve on this one matrix which is increase the number of purchase orders and that improve your overall compliance rate, the PO compliance rate. If you're struggling with any of these challenges, click on the link below to schedule some time in front of our product specialists and be happy to walk you through how procurex can help solve these challenges. Thanks for joining me today and I'll see you in the next video.
