HomeBlog Is Your PO Process Costing You Precious Marketing Dollars?

Is Your PO Process Costing You Precious Marketing Dollars?

August 08, 2012 | By Craig Moore

Marketing regularly loses a portion of its budget to an insidious financial management process known as “Open PO Reconciliation.” It’s not unusual to see b-to-b organizations lose 5 percent or more of their budgets to the reconciliation monster. However, with just a bit more attention to detail and building a good relationship with the finance team, this money can be recovered and utilized.

Marketing regularly loses a portion of its budget to an insidious financial management process known as “Open PO Reconciliation.” It’s not unusual to see b-to-b organizations lose 5 percent or more of their budgets to the reconciliation monster. However, with just a bit more attention to detail and building a good relationship with the finance team, this money can be recovered and utilized.

Here’s what happens in many organizations: In order to purchase something, a marketer must first open a purchase order (PO). Essentially what then happens is that the marketer estimates the cost of the purchase and opens a PO in that amount. This causes funds to be committed and set aside. What could go wrong with that? Keep reading.

When the vendor submits an invoice, accounts payable matches the PO number on the invoice to the PO in the system; if the invoice is less than or equal to the PO amount, the vendor is paid. The best case is when the vendor submits an invoice and the amount exactly matches the PO.

Here’s where marketing squanders its budget: If the PO amount exceeds the invoice, allocated funds to pay the PO are not fully consumed in the invoicing process. How does the finance team know that the balance set aside is actually leftover money? Finance may presume that another invoice is forthcoming from the vendor. Then, when eventually closing the PO, it may return the leftover funds to a general fund – not to marketing.

How does marketing prevent this from happening? A good relationship between marketing operations and finance, combined with establishing a PO review process, can really pay off. Marketing operations and finance should regularly review the status of open POs and determine if work is complete. This should be done mid-quarter and again near the end of the quarter. The mid-quarter review will determine if POs can be closed and if funds can be reallocated to marketing. The late-quarter review will identify the POs that must remain open and should be accrued.

While a number of accounting rules come into play regarding how released accruals can be utilized, there’s also a great deal of discretion that can be applied. With the right level of communication and trust between marketing and finance, the marketing organization can easily recover the lion’s share of the accruals. The key takeaway is that marketing needs to participate in this process (not just leave it to finance), as this is the time when remaining funds can still be redirected into other marketing activities.

Craig Moore

Craig Moore is Service Director, Marketing Operations Strategies, at SiriusDecisions. His three decades of experience span such areas as marketing operations, partner marketing, strategic alliances, product marketing and management, software development and entrepreneurship. Follow Craig on Twitter @cramoore.