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- November 13, 2018
- Adam Alphin and Rajiv Ramachandran
- Finance & AP
In the consumer world, paying for a purchase is simple. You select what you want to buy, hand over the money to the seller, get a receipt for your records (or these days maybe not) and you’re done.
In business though, payment is at the tail end of a long process that starts when an employee creates a purchase requisition. That goes through an approval workflow, and once everyone who needs to authorize spending the money does so, it gets turned into a PO that is sent to the supplier. If it’s a supplier you haven’t done business with before, you've got to also onboard that supplier into your vendor master.
Then, once the supplier has delivered the goods or services that have been ordered, they've got to create an invoice. That's got to go through the buyer’s AP workflow, where it is matched against the PO. When everyone has signed off, it is integrated back to the ERP where it goes into a payment processing workflow for either check, ACH, credit card, or wire, depending on how the supplier wants to get paid.
There are a lot of friction points along the way where the process can bog down, slowing the exchange of goods, services and money. But, this process is necessary in order to control spending, comply with regulations, and maintain separation of duties to prevent fraud.
Or is it?
A more consumer-like experience
That’s what we asked ourselves as we studied the problem of timely (or not so timely) payment at the request of some of our customers. The answer is, there are times when it makes sense to run a more streamlined, consumer-like payment process. That’s why we’re excited to announce our virtual p-card product that will let buyers pay on PO.
If you’ve gone through all the necessary approvals as a corporation to approve the expenditure of money, why wait for an invoice, and go through another approval process? Why not use the PO as a payable object instead? In fact, there are a couple of use cases where this works.
The first is with low value, high volume, transactions. These are typically low-risk transactions for things such as office supplies, computer peripherals, or some MRO items. These generate a lot of invoices, but the invoicing and AP process on the back end is adding little value from a control or risk management standpoint. In fact, that whole process could be adding a significant percentage to the cost of the item, and sometimes may even cost more than the item itself.
The second use case is when you are doing one-off business with a supplier. It sounds like a trivial thing to set up a new supplier in the vendor master, but if you’re in big company, you get requests to set up new suppliers all the time. It’s a lot of work to do all that due diligence for just one or two transactions, and what happens is you end up with a lot of clutter in your vendor master that has to be eventually cleaned up. When the payment travels over the credit card rails, the credit card provider handles the KYC (Know Your Customer) and OFAC (Office of Foreign Asset Control) checks. So, why not allow people to submit a requisition for a one-time transaction, explaining who they're going to spend the money with and what it’s for, and offload some of the compliance work to the bank?
Better than plastic
In both of these use cases, it makes sense to eliminate unnecessary, duplicative work. Once the PO, complete with accounting codes, is approved, a virtual p-card is dynamically generated by the buyer and sent to the supplier. This is a unique, full-length credit card number that’s authorized for use only by that supplier in that amount.
This offers much more security and control than traditional p-cards, which is how a lot of companies currently address these spending use cases. What usually happens is that a p-card is issued to a departmental manager or admin, and the card or card number is shared among the employees in the department. Suppliers may even have the card number on file.
That’s not secure, and there’s no control over spending. You really only know how much has been spent when you get the statement. Then you have to manually reconcile the statement by sending this data to a whole bunch of people, asking them to provide receipts, and then key the transactions into the ERP.
Other companies look at those downsides and simply won’t adopt p-cards, instead resigning themselves to the usual requisition to invoice process. Neither choice is really great. Companies want other options.
A unique experience
By integrating the virtual p-card with the PO process in Coupa, we’re able to offer our customers a unique experience with everything available in one location—not just the ability to pay, but to reconcile the payment touchlessly with all the accounting information that's already in Coupa. No longer do you have to reconcile p-card reports and receipts, rather the virtual card charge transactions are tied to a Purchase Order – automatically.
This doesn’t preclude you from creating an invoice in order to reclaim VAT or for other purposes. It just means that the supplier can get paid sooner. If you do need an invoice, when those invoices come in, we bucket them separately in Coupa so they don’t get paid twice.
When wouldn’t you pay on PO? Anytime you need a three-way match between purchase order, receipt of goods and invoice, the full process is required. You wouldn’t do it for capital expenditures, and big-ticket items where the p-card interchange fee is steeper than the supplier is willing to pay.
And, not every supplier is going to accept the virtual p-card, even for smaller purchases. But, many should see value in getting paid faster, with less paperwork required. This is actually a fast, easy alternative to an early-pay discount program or other working capital optimization plan. The supplier is getting paid early, and the buyer gets to hold their money until they pay their statement, and they get card rebates as well.
There are times when businesses just need to pay fast, and historically that has meant giving up a measure of visibility, accountability and control. By unleashing the power of the data already present in the PO and tying that to the security and compliance of the virtual card, buyers can cut down on the invoices and supplier information they have to manage, suppliers can get paid sooner, and both can get started sooner on whatever it is they’ve already agreed to do together.