Reducing financial risk during uncertain times

Author: David Griffiths, CEO at FISCAL Technologies

As the economic impact of the COVID-19 crisis deepens across the globe, the ability of organisations to purchase products and services in a timely and cost-efficient manner will separate the survivors from the casualties.

With a whirlwind of new factors disrupting global supply and demand, such as working from home, new borders, tariffs, and supply disruptions, this inevitably means an environment of increasing risk from fraud, error and non-compliance. To build a strong defence against this, organisations must act swiftly and focus on the procure-to-pay process (P2P) – the process that is the engine of supply chains locally or globally. Through this, reputation damaging mistakes can be spotted early and that will provide much needed protection to the bottom line in this very uncertain world. 

There are five keys areas that organisations should be focusing on reducing procure-to-pay risk and deliver positive impact in the short-term: 

Strengthen your controls 

Since the beginning of the pandemic, there will have been many people and process changes implemented within organisations, which can negatively impact cash and working capital. You should review controls around your Accounts Payable processing; looking at who’s got access and allocate a team lead to go carry out an in-depth P2P controls risk assessment covering invoice & supplier management, signing authorities, segregation of duties, and payments. Additionally, P-card and expense policies should be audited and updated. All these policies need to be communicated and then enforced. Empower your teams

This is dear to my heart, especially as the accounts payable teams who are normally a tightly knit team, have been split up with remote working. You must not lose faith in your accounts payable team – they are very much heart of the solution and need to feel empowered. Giving them the tools and authority to develop much stronger internal partnerships with other teams is vital. Now is a good time to allocate resources to the AP team to elevate and increase their value. They are also best placed to provide oversight and look for areas of weakness, doing spot checks on suppliers, double checking payments and running just an internal audit cross the P2P cycle.

Guarding your supply chains 

There are number of different ways that you can defend your supply chains from interruption and costly inefficiencies. For example, some of our customers are now bringing back statement reconciliations and focussing on the top 20 or 20% of vendors. While it would be tough in the current climate, this can be done in-house. On the other hand, you could use a reconciliation service and have that working in the background and supporting your accounts payable team, which I think is vital. Running forensic checks daily is crucial. This involves looking at all invoices and all supplier details, finding anomalies and warning signs, and alerting your AP team proactively to risks within your supply chain. 

Safeguarding your cash 

Protecting and collecting cash is paramount right now, so you should create a P2P cash task force, working against key objectives. A lot of organisations are extending payment terms, which is tough, but cash can be generated through a working capital review. This identifies cash that is locked-up in the P2P cycle including up to three years’ worth of historical transactions can be released – using insights to selectively collect this from suppliers. Further protection comes from analysing root causes to drive process improvements, thus eliminating the risks at source. Cash can be protected proactively, and applying the same forensic analysis to historical transactions allows you to claw back historical errors too. 

Your next finance project

Again, listening to our customers many of the larger financial transformation projects such as migrating to a new ERP or Source-to-Pay system are being put on hold. However progressive Finance Directors still need to invest, and they are choosing smaller rapid return projects that deliver immediate cost savings to their bottom line.  

According to the Purchase to Pay Network, the key criteria any senior financial decision maker should be looking at are; minimal time to implement, remote training, fast payback and 10X ROI, strong security and finally, there always needs to be a proof of concept. 

Ultimately, the recent upheaval and future uncertainty has created an environment of increased risk, and it’s critical that finance teams focus on protecting their working capital and supplier relationships. 

Featured in this Article:

David Griffiths FISCAL Technologies

Author: Eleanor Hazelton