Why procurement pros need to help with cash-to-cash cycles

Procurement professionals should reach out to colleagues in finance and offer to help out with…...

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Procurement professionals should reach out to colleagues in finance and offer to help out with vendor payments and the cash-to-cash cycle (CCC) if they wish to improve company cost reductions, experts from The Hackett Group have recommended.

Finance teams conventionally handle these crucial areas, but procurement can bring unique insights to both, especially when supplier contracts are being reviewed.

Knowledge derived from supplier relationship management gives procurement a deep understanding of which suppliers are the most strategic to the business and which are of lower value.

If procurement practitioners do get to handle CCC (the interval between buying materials or inventory and paying the suppliers), it’s often simply because it’s “trickled down” to them from finance.

However, procurement can add real value to this process.

Shawn Townsend, one of The Hackett Group’s directors, explains that procurement can use this process to pinpoint ways that lead times can be optimised as well as exploring discounting opportunities with suppliers and negotiating best pricing.

He recommends that procurement pros explore ways of extending contract terms with suppliers – for example, by negotiating the receipt of materials as the trigger point for initiating payment periods rather than date of invoice.

Noticeably low-value partners, he adds, could be financed through a bank or a purchasing card, but partners of strategic value to the business require higher-level dialogue to negotiate mutually optimal payment terms.

Hackett associate principal Craig Bailey adds that another key strategy is to seek discounts for shorter terms, which can have a significant impact on boosting working capital.

None of this means “acting the bully” – skilled procurement negotiators can engage in genuinely collaborative discussions with suppliers to identify arrangements where both parties meet in the middle to the benefit of both.

A key takeaway for procurement is to work at better relationships with finance colleagues, instead of simply undertaking guidelines they’ve given.

Finding out what they want to achieve and working out how to help them can add impressive business value.

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