Executives can get a more complete picture of the value vendors bring to their company when the finance chief creates a formal procure-to-pay process, says Gil Adler, controller for urban air company BLADE.
Especially for startups, creating a procure-to-pay process often takes a backseat to more pressing matters when the finance chief must wear multiple hats, Adler said in an Airbase webcast.
“We did the best we could under the circumstances,” said Adler, who joined Blade three years ago when it was a privately backed company on its way to becoming a major platform for managing private helicopter and other air trips into city centers. “As we’ve grown as a company, we’ve had to have a little bit stronger division of labor, which has allowed us to have a proper procure-to-pay process.”
The benefit of getting the system in place is clear, he said, even if the process doesn’t always lead to the company hiring the best or cheapest vendor.
“Coming in with that data and a systematic way to evaluate each of the vendors … ends up benefiting everybody,” he said.
Ultimately, vendor choices are made by the end constituent — the CFO, COO, CTO, head of product or other executive who works directly with the product or service — and that decision can sometimes be made on the basis of a relationship.
But by adding quantifying factors to what is often a qualitative decision, the finance function can help the company in the long run.
“I believe that happens in most companies,” Adler said. “Your end-constituent might think that the vendor is ideal or the easiest to work with or provides the highest quality service, but then you come with the data, or you come with an RFP with other vendors, and you realize they’re not the cheapest, they’re not the highest quality, they’re not performing the best, or they have the highest percentage of errors for their invoicing, which ends up being an administrative burden for the company.”
The finance chief’s job is to put the system in place, quantify as much of the information as possible, and then step back and let the executives make their decisions.
“There are some end-users who … don’t want to see change, regardless of the data,” he said.
Adler, who helped BLADE go public this fall when it merged with a special purpose acquisition company (SPAC), said his team needed to get systems like procure-to-pay into place as part of the company’s preparedness for public scrutiny.
“After ensuring we actually had GAAP accrual financial statements with unqualified opinions … it was really just roll up your sleeves and say, ‘What are we buying and what are we paying for it? Who is responsible to pay that?’ In that order.”
The question of who is responsible for a product or service isn’t always the CFO, CTO or other C-suite executive.
“You might have a CTO, but his director of product is truly responsible for evaluating consultants and vendors,” he said. “So, it’s identifying who the actual end-user or constituent would be. And once you identify that constituent, and you understand what’s being purchased and why, then you can formulate some type of system to actually go in and evaluate the vendor, evaluate and build an RFP process.”
Adler defines procure to pay broadly. To him, it starts with evaluating the vendors, going through an RFP, creating a purchase order, creating an invoice, receiving the goods, doing the analysis and reconciling, and then making the payment to the vendor.
“There’s always room for improvement,” he said. “It doesn’t matter if it’s a bank reconciliation or a schedule or RFP vendor evaluation.”
At BLADE, executives can make spend decisions up to a limit, typically between $10,000 and $15,000, but after that, any spend must go through the formal RFP process.
“[Spending] $5,000 on some company tee shirts is below our threshold for materiality,” he said.
With the RFP process, the company requires a minimum number of bids. “I’m a little biased from my experience working for the Israeli Ministry of Finance, where you had to have at least three bids for any purchase,” he said.
The company uses its own proprietary system for conducting the RFP. That provides a degree of flexibility his team otherwise wouldn’t have.
“You [can] over-complicate things and over-invest,” he said. “Then you might end up not being able to see the forest through the trees of what the whole purpose of finding this vendor may be. There are companies out there that need hundreds of parts to build one product they sell. And those hundreds of products, of inputs, may come from hundreds of vendors, so there’s no software I’ve used in order to get through this.”