Our seven-step approach for an effective source-to-settle process
This proven approach takes an end-to-end view of the source-to-settle process – from sourcing through settlement. The end-to-end process covers all activities involved in determining your spend budget, your preferred suppliers, how you buy from them, how you receive your goods and services and how you receipt your supplier invoices, how you handle discrepancies and how you settle your liabilities with you suppliers.
When it comes to working capital improvements in the source-to-settle (S2S) space, world-class companies take a cross-functional view of the end-to-end process to drive improvements, not only in cash, but also in cost and service. Cross-functional because these companies have a holistic approach encompassing sourcing and procurement, finance, operations and treasury. There are trade-offs associated with each decision made across the S2S process. For example:
- Sourcing/procurement balances its effort to reduce spend through favorable terms and contracts while improving supplier relations.
- Accounts payable looks to pay those negotiated contracts on time in order to capture early payment discounts while striving for good payment performance.
- The treasury group looks for ways to achieve low-risk, high-yield returns on cash while maintaining the necessary cash flow to effectively run the business.
Each of these functions impact cash flow generation, making it a delicate balancing act across the whole organization. And finally, since working capital initiatives focus on the operational process to drive sustainable change, they also have an impact on revenue, cost and service:
- The impact on profitability comes by reducing cost of goods sold (reduction in spend by better management of discounts) and by reducing SG&A (reduction of transaction processing costs).
- Improvements in service come from a better utilization of technology through a supplier portal, by a reduction in discrepancies through workflow automation, and attaining scalability through structural changes such as shared services.
Our seven-step approach addresses common challenges that clients face in the source-to-settle process and provides proven practices to improve cash, cost and service levels.
- Free cash flow
- Accounts payable value
- Days payable outstanding (DPO)
- Weighted average days to pay (WADTP)
- Weighted average terms (WAT)
- Early/late payment
- Spend per term
- Supplier Pareto
- Payment run profile
- % EDI
- Order to settlement cycle time
- Blocked payments
- Contract term leakage
- Volume of purchase with PO
- Average spend per upplier per category