The Role of Finance in Procurement

Finance sets spending limits for procurement, and procurement aims to save money when and where possible through both cost savings and cost avoidance measures. Using an automated procure-to-pay, or P2P system to connect procurement to back office functions, from purchase requisition all the way through invoice processing helps to improve efficiency and mitigate risk. Finance is able to pay for everything procurement orders and receives, and procurement is able to use three-way matching to ensure the items they order are what they receive, and what they receive is what they pay for.

Procurement Should Demonstrate Return

Beyond working together on technology surrounding the P2P system, the procurement department should be willing to demonstrate the return on investment their actions provide.

Establish Clear Responsibility Parameters

To facilitate better collaboration between procurement and finance, it’s essential to establish clear parameters as to who is responsible for what. Key activities should be assigned to one department to take the lead, based on team strengths.

Consider Each Department’s Point of View

When it comes to spend management, finance often looks at it from the accounts payable perspective. This means they’re more focused on accounting issues surrounding the budget, accurate cost recording, and invoice processing.

Discuss and Agree on Cost Savings Reporting Standards

When procurement uses the term “cost savings” typically, it means they’re seeing a decrease in price. When finance hears that term, they’re expecting to see a reduction in expenses compared to the previous year’s statement.

Set Financial Goals Together

Finance sets the expense limits and goals, but if those goals involve community purchases, they may not have the same knowledge as procurement does. Finance may have no idea about how wildly commodity prices fluctuate and end up creating nearly impossible financial limitations for procurement.