Why Should You Automate Your Procurements?

Why Should You Automate Your Procurements

A question often asked – Why should we automate our purchases or procurements? What’s the need? Instead, we propose that you ask – Why shouldn’t we automate our procurements? What are we losing if we don’t? In the era of technology revolution like the present, automation empowers organizations. It gives the organization a breather from regular mundane issues to focus on more important and strategic issues. At such times, if an important process like procurement cannot be automated especially post E-Invoicing, then it will result in regrets as the organization would fail to reap the benefits of automation in procurements.

Procurements are an important function and need the attention of decision-makers. If planned and executed properly, it can save costs and result in savings also. Moreover, once automated, it can reduce the workload and time spent on repetitive activities. Automated procurements help in decreasing inventory holding and reducing obsolescence by correctly predicting the quantity and pricing of products in the case of the manufacturing industry. While this is just one benefit, many other advantages can be experienced by an organization automating procurements.

The GST Approach

Over the years, the industry and taxpayers have focussed more on the output side of GST – streamlining it, levying correct rates, doing compliances. While there has been some visibility on the Input Tax Credit (ITC) bit, the root of ITC issues i.e. procurements remains largely ignored. However, lately, there has been some attention given to procurements and their automation. The following are procurement-related issues that are generally faced by the industry:

Draconian ITC rules: In the recent past, it has been observed that the Government is determined to plug the issue of fake ITC. In this regard, the ITC provisions have been made stringent than ever. Considering that ITC is a by-product of procurements, the need to automate procurements becomes even more obvious. Seamlessly availing correct and legal ITC is the order of the day. Severe penal provisions could dent the reputation and cash flow of the company.

Working capital impact: Availment of incorrect ITC could lead to a negative impact on working capital. Reversals, interest, and penalties are unnecessary costs that no organizations would like to have in their books. 

Reconciliation issues: The mere foundation of GST compliances is reconciliation. Moreover, this has also created a ruckus for the industry and taxpayers as reconciliations without automation in place are terrifyingly consuming, both in terms of time and money. The reconciliation between taxes paid on procurements and ITC availed vis-à-vis tax deposited by the supplier is another gigantic task.

Vendor Payments: In case of non-payment of consideration to vendors within 180 days, the ITC with respect to such procurements would have to be reversed. Any unintentional delay in payments due to human error could prove to be expensive for the organization.

How Can Automation Help?

The new age organizations are recognizing the value of the investment in automation. Technologies like Robotic Process Automation (RPA), Artificial Intelligence (AI), and BoTs are now commonly seen as an integral part of the procurement function. Technology or automation can resolve the issues in the following manner:

Backward integration of procurement entries: Under this approach, the recipient or the buyer can integrate their systems for fetching suppliers’  e-Invoice details, followed by the creation of draft purchase entries and recording of the same. This can lead to automation of recording of procurement entries thereby ensuring consistency between the procurement data of recipient and sales data of the supplier. E-Invoicing which has become mandatory for most large businesses also contributes significantly to this approach.

Compliance: With the right technology in place, issues like reconciliations, ITC reversal on account of non-payment of consideration to vendors can be resolved. Moreover, this shall also result in lesser working capital blockages as interest, penalty, and ITC reversals would not be required. A general analysis can also be done using the software to check if any supplier is not complying with GST provisions, putting the taxpayer’s ITC in danger. Further, repeated reminders, emails, texts can be sent through the software to the supplier to furnish his GSTR 1 return and pay taxes as well.

Reporting made easy: Usually, a lot of data is fetched from the ERP system to prepare reports on procurements by the procurement team. Such reports can be used for varied purposes like business analysis, cost analysis, vendor analysis, etc. Making these reports and analysing them for any trend analysis, patterns, etc. can be done by the software and accurate results can be seen without any delay and effort. The software also helps in maintaining an audit trail to keep track of people posting, accessing, and editing any data.

Tracking of advances and taxability: The software can help the business in tracking any advances paid to suppliers and may prompt them to adjust such advances at the time of final payment. Moreover, in cases of services, where the taxability arises at the time of advances, the software can ensure that time of supply provisions are being adhered to, by the supplier. 

Conclusion

Automating procurements is not rocket science. It is an easy and effective way to meet the unique procurement requirements of an organization. With RPA, AI, and BoTs making life simpler every day for various functions of the organizations, there is no reason that the procurement team should not experience the benefits of this.

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