Vendor procurement process and role of virtual cards in simplifying it?
The vendor procurement process is a critical aspect of any business that involves acquiring goods and services from external suppliers.
The procurement process involves several steps, including identifying vendors, negotiating contracts, placing purchase orders, receiving goods, and making payments.
However, this process can be time-consuming, labor-intensive, and prone to errors, which can result in increased costs and delays. To simplify the procurement processes and streamline payment transactions, virtual cards have emerged as a powerful tool.
These cards offer a much more efficient as well as convenient tool that can be used to easily manage procurement processes and payments.
The 7-step procurement process
The procurement process is a vital part of any organization's operations, involving the acquisition of goods and services from external suppliers. A well-executed procurement process can lead to cost savings, improved quality, and increased efficiency.
To achieve these benefits, an organization must typically adhere to the following 7-step procurement process:
1. Identification of needs and requirements
Before a business organization can start procuring goods and services it must first identify what are its needs and requirements.
This involves determining what goods or services are needed in production processes or for daily operations for the organization and what quantities are required.
This step is critical as it sets the foundation for the entire procurement process.
2. Supplier identification and evaluation
The second step is supplier identification and evaluation. This involves identifying potential suppliers who can meet the organization's requirements and evaluating them based on factors such as price, delivery time, quality, and reliability.
It is important to consider multiple suppliers and select the one that best meets the organization's needs. You should also take into consideration the perks, offers, or discounts offered by suppliers.
3. Negotiation and agreement
The third step in the 7-step procurement process is negotiation and agreement. This involves negotiating with the selected supplier to agree on terms and conditions, such as price, delivery time, and quality standards.
The negotiation process can be complex and requires skilled negotiators to achieve a mutually beneficial outcome.
4. Purchase order
The fourth step is one where the purchase order is issued. The purchase order document is intended to formalize and make official the agreement between the organization and the supplier regarding the purchase.
This document typically includes the details of the goods or services to be purchased, the price, and the delivery time.
5. Order placement and delivery
The fifth step is order placement and delivery. This involves placing the purchase order with the supplier and monitoring the delivery of the goods or services.
It is important to ensure that the supplier delivers the goods or services according to the agreed-upon terms.
6. Invoice processing and payment
The sixth step is invoice processing and payment. This involves matching the invoice with the purchase order and ensuring that the goods or services were received as expected.
Payment is then made to the supplier, typically within an agreed-upon timeframe.
Related read: What is accounts payable management, its process and how to automate it?
7. Contract management
The final step is contract management. This involves monitoring the performance of the supplier, ensuring that agreed-upon terms of purchase are met adequately, and managing any issues that may arise.
It is critical to effectively manage the contract to ensure the procurement process does not face any unexpected hiccups.
Challenges and complexities with traditional vendor procurement process
Time-consuming
One of the significant challenges of the traditional vendor procurement process is that it is time-consuming. Manual payment processing and compliance with regulations can be time-consuming, which can cause delays in the procurement process.
For example, the process of creating a purchase order, receiving and processing invoices, and making payments manually can take several days, weeks, or even months.
Chances of payment fraud
The traditional procurement process is also vulnerable to payment fraud and duplication of contracts. Fraudulent vendors can create fake invoices or duplicate contracts, which can result in overpayments and financial losses.
These fraudulent activities can also damage the reputation of the organization and erode the trust of its stakeholders.
Data management issue
The traditional vendor procurement process can also pose data management issues. The manual processing of invoices and payments can result in errors and inconsistencies, which can affect the accuracy of the data.
These data management issues can also make it challenging to track the status of the procurement process, which can lead to delays and other issues.
High administrative cost
The traditional procurement process can also be costly due to the high administrative cost that is typically associated with manual labor.
The traditional process involves several manual tasks, such as creating purchase orders from scratch, manually processing invoices, and making payments, which can require a significant amount of time and resources.
Vendor management
Vendor management can also be a significant challenge in the traditional process of procurement. Managing multiple vendors can be complex and time-consuming, and it can be challenging to ensure that vendors comply with organizational policies and regulations.
Trying to juggle working with multiple vendors becomes even more strenuous if you are a small business with limited time and resources.
Payment disputes
Payment disputes can also arise in the traditional process of procurement. These disputes can arise due to a variety of reasons such as pricing discrepancies, delivery issues, or quality problems.
Resolving these disputes can be time-consuming and can delay the procurement process.
Addressing these challenges and complexities requires organizations to adopt the best practices in payment processing.
This includes automating vendor payment processes, implementing effective spending and fund controls, and building strong, favorable relationships with vendors and suppliers.
Getting a financial solutions provider on board can be a good idea in this context.
How can virtual cards work within the system to eliminate the challenges?
Virtual cards can be an effective solution to streamline the vendor procurement process and eliminate the challenges associated with traditional payment methods in business.
Here are some of the ways in which using virtual cards can help overcome these challenges:
Streamline payment processing
Making business payments via virtual cards can significantly simplify the payment procedure and minimize the possibility of delayed or missed payments.
Unlike traditional methods like wire transfers and checks that may require several days to complete the transaction, virtual cards can make the payment almost immediately, resulting in reduced workload as well as savings in terms of time and resources.
Faster payments
Virtual cards can help strengthen vendor relationships and improve cash flow by enabling faster payments.
Vendors appreciate prompt and on-time payments, and virtual cards can help organizations make payments quickly, resulting in better vendor relations and improved cash flow.
Issue vendor-specific virtual cards
Creating and working with specific virtual cards for each vendor you work with can offer much greater control and visibility into vendor-specific expenses.
This will help organizations track spending more accurately, reduce the risk of fraudulent transactions, and improve vendor management.
Set spend limits and controls
Virtual cards can help organizations set limits and controls on spending, ensuring that vendors comply with organizational policies and regulations.
Setting these limits and controls can help organizations prevent overspending and reduce the risk of payment disputes.
Simplified compliance
Virtual cards can help simplify compliance by automating the process of tracking and reconciling expenses.
This can help organizations ensure that all company expenses are compliant with regulations and policies, reducing the risk of non-compliance and associated penalties.
Automated reconciliation
The automated reconciliation feature of virtual cards can help companies save time and at the same time reduce accounting as well as administrative burdens.
Integrating virtual cards with procurement and accounting systems can make expense management much easier for companies.
Why should you choose Volopay cards and invoice management systems?
Volopay cards and invoice management systems are the ideal choices, especially if you are looking to streamline your procurement processes.
The cards offered by Volopay come with the right set of tools that are designed to make business expense management much more efficient.
These include features such as instant payments, cross-border payments, vendor management, subscription management, multi-level approval workflows and so much more.
The vendor procurement process becomes particularly easy with Volopay given that you can issue an unlimited number of virtual cards at no additional cost. This means you can keep a dedicated card to manage each of your vendors.
FAQ's
Yes, Volopay cards can be used for cross-border transactions.
No, there is no limit to the number of vendors that can be added to Volopay.
Volopay will allow you to make a vendor database and once the profile is created you can start sending the payment.