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The Role of Finance in Vendor Management

In a traditional business structure, Vendor Management and Finance are two separate departments, working alongside one another within the organization. While this works, it isn’t the most efficient and effective way to handle operations.

Though the two business functions are different, the relationship between the two is highly intertwined. The vendor management function is about day to day execution, and the finance function is all about keeping the balance sheet in the black.

For the best possible outcomes, the two departments must work together and align their goals. Organizations that allow the departments to function as partners give themselves a competitive advantage and often see improved business performance.

The Role of Finance in Vendor Management

Finance sets spending limits and budgets for the vendor management team, and the vendor management team aims to reduce compliance and conformance risk, while trying to save money when and where possible.  Using a standardized Vendor Management platform (either in-house or via an outsourced VMS partner), that includes document management and benchmark analytics allows for a balanced approach to managing risks and costs.  Finance provides spend management reports, revenue reports, and other critical data that demonstrates overall company health. Vendor Management should use these reports, along with opportunities to review and optimize vendor contracts to facilitate day-to-day decision-making processes, along with longer term vendor life cycle management.

Vendor Management and CFO Collaboration

When the leader of the Vendor Management team (which may or may not be the CPO) and Chief Financial Officer collaborate, and use an optimized document management system, everyone has access to the information they need, when they need it, from end-to-end. Both sides of the organization can easily consider the status of any contact or invoice, at every stage of the journey, from initial negotiation to contract approval, invoicing, and payment.

Finance can use the information to make sure they’re getting all possible discounts and increase profits by securing early discounts through early or on-time payments. Vendor Management can use the information to know which vendor relationships are the best, so they can continue to reward the vendors that perform optimally, minimize company exposure and save the company money in both the long and short term.

Procurement Should Demonstrate Return

Beyond working together on technology surrounding the document management system, the vendor management team should be willing to demonstrate the return on investment their actions provide. By showing the finance department positive impact of their choices – whether it be in the form of cost reduction, mitigating risk, or other compliance and conformance achievements, the two departments can work much better together.

Establish Clear Responsibility Parameters

To facilitate better collaboration between vendor management 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. This ensures no one is left fighting over who leads what and everyone gets credit for the role they play.

If your business is currently operating in a silo structure where vendor management and finance have little to do with one another, smooth collaboration won’t happen overnight. Encourage the groups to come together and discuss ways the two departments can help make one another’s lives easier, and then begin implementing strategies.  

About Limitless Technology

Limitless Technology, LLC has been managing complex indirect spend and vendor documentation since 2006 for some of the largest companies in the USA saving them millions in costs.

Through our Billing Optimization and Vendor Management Solutions proprietary platforms we utilize technology, processes, expertise, time, and resources to improve our client’s bottom-line.

Limitless Technology manages your vendors, so you can manage and grow your business.

For Additional Information Contact us at:

Phone:             407.330.4466