Why Pre-Approved Spend is the Ultimate Benchmark

Ben Mlynash
Ben Mlynash
Senior Director Solutions Architecture, Professional Services, Coupa Software

Ben leads a team that drives functional process design, architecture, and configuration on customer implementations. Ben has led or supported over 300 implementations. When he's not helping people implement Coupa, Ben enjoys raising his two young daughters, traveling, and following sports.

Read time: 11 mins
Why Pre-Approved Spend is the Ultimate Benchmark

In a perfect Business Spend Management scenario, employees submit a requisition and get an approved purchase order for everything they spend money on, outside of monthly recurring items such as utilities and leases. When spending is pre-approved, it means employees are buying from contracted vendors, getting negotiated savings and complying with internal controls. That reduces risk and fraud and gives everyone visibility into spending against budget. Downstream, when an electronic invoice comes in, it matches up with the PO automatically and goes into the queue for payment without anyone having to touch it.

It’s a totally digital process, which is the ultimate goal of your technology transformation. That’s why pre-approved spend is one of the key metrics we track in the Coupa Business Spend Management Benchmark Report, our annual report that looks at performance metrics based on aggregated, anonymized data from our Business Spend Management platform

The long-term, positive impact of hitting that benchmark goes beyond process efficiency. It changes the way people can spend their time. Buyers can shift to managing vendors and commodities, not transactions. Accounts payable can spend time on more strategic activities. Finance has real time visibility and control. Compliance is automated. Your company can grow, without adding people to handle paper.

Eventually you want to get to a point where every invoice that comes is backed by a purchase order, It’s a long-term maturity goal, and you need a plan to get both employees and suppliers on board. Here’s what that usually looks like.

Coralling “Mavericks”
The first thing you need to do is get your system set up so that it’s easy for employees to follow the rules. Employees don't want to be “maverick” spenders. If they search the system and find the right catalog and item, or they can easily find the policy that tells them where to go and what process to follow, they’ll follow the rules. It’s when they can’t find what they need, or the approval process takes too long, that they go outside the process and non-PO backed invoices start showing up.

To lay the groundwork for that easy employee experience, you’re going to have to consolidate your suppliers, figuring out in the process which ones you want to offer as preferred providers. That can be a project on its own, especially for companies that have tens of thousands of suppliers. Most companies approach this in tiers, focusing on with the highest numbers of transactions, in the most common spending categories.

Next, you have to configure your policies in the system, set up your contracts, and your catalogs. Catalogs go a long way toward providing a consumer-like e-commerce experience that makes it easy for people to find what they want and requisition it.

Finally, make sure that getting a requisition approved and turned into an PO is quick. This is critical to employee satisfaction and adoption of the system, which is why we also have a benchmark for req-to-PO time. Long approval chains are one of the biggest reasons for delays, so as you automate, give some thought to your approval chains. 

Focus on Suppliers
Once you’ve got all of that in order, and employees are getting in the habit of going through the purchase order process, you can shift focus to getting more of your suppliers to submit their invoices electronically. A lot of times the supplier piece is an afterthought, but it shouldn’t be. Their participation is critical, so you have to get them to align with you. The more suppliers you have enabled, the closer you are to fully automating the invoice process.

Your major suppliers should be enabled in the system when you launch, but over time you’re going to want to come back and start reviewing the long tail of the supplier base, working through it in categories and starting with those that are submitting the most invoices in each. How deep into the supplier base you can go is usually a question of resources. As we grow the Coupa Supplier Network and improve our community intelligence capabilities, our supplier enablement team is increasingly able to speed that effort by matching your current suppliers with suppliers already transacting with other Coupa customers via cXML or portal.

It’s pretty fast to set a supplier up; what really takes time is reaching out and following up, and providing any training that people need, and doing that with hundreds or even thousands of suppliers. You may want to bring in a partner to help. You need a communication plan around what you’re doing and why. This should not just be, “hey, we’re moving to a new system, so you are too.”

Offer Options
Explain options they have for submitting their invoices, whether that’s by cXML or EDI, supplier portal, or supplier actionable email notification. Also make sure they understand the benefits, which are usually faster payment cycles, and the ability to track the invoice status in your system without having to call anyone.

Of course, even as you’re collecting all this information, there’s churn happening. If you have our SIM (supplier information management) product, that makes things a lot easier to keep everything up to date right within Coupa.

Not Just for AP
There’s a lot of benefit to AP from getting suppliers on board, but the best way to look at this is as an interconnected process that benefits both procurement and finance.

You have to give the users to right environment to be able to follow the policy. If the content is not there, and the system is too hard to use, you're still going to have the same difficulty with people going around the systems, POs going to the wrong suppliers and taking time to process. Invoices still have to be coded and routed by AP, and you don't get visibility into spending until after the fact.

If you get all of your employees going through the pre-approval process but you don’t have suppliers on board to submit invoices electronically, you’re still going to have a lot of manual work in AP.

When you can pull it together from both sides, you can institute a “no-PO, no-pay” policy. This is the best practice, the ultimate goal, and the reason you’re investing in an automated system in the first place. It’s a process transformation that takes time, but once it is complete it has the power to transform the way the whole company does business.