For manufacturers, having an effective procure-to-pay (P2P) tax platform is critical to ensuring they are remitting the correct amount of sales and use tax on purchases. However, some older tax solutions aren’t built to catch on to the nuances that exist between application of sales and use tax on a sales transaction versus the purchase transactions. This often results in overpayments or underpayments. At scale, this can be an expensive oversight. We've got four things manufacturers should know when it comes to your options for a P2P Solution.
But first, let’s cover our bases.
What is a procure-to-pay system?
A procure-to-pay system, sometimes referred to as a purchase-to-pay system, is an integrated process created to support end-to-end transactions. This process is full of objective and subjective determinants. Structured and unstructured data that can be leveraged to determine the true nature of a transaction, which ultimately drives taxability.
It begins with goods and service requisitioning and ends with ready-to-pay files uploaded into your accounts payable system. There are a lot of moving parts within this process and it requires a high level of teamwork between tax teams, IT, procurement and account payable teams. Without this collaboration, there is a significantly increased risk for discrepancies. In turn, your audit risk increases as well.
Payment Discrepancies Happen…
The process of tax research and updating financial systems uses a considerable amount of time and resources from in-house tax and IT teams. A typical P2P process can be filled with paperwork, process gaps, compliance issues and back and forth. It’s time consuming and can be complicated. Even if the system is digital and frequently updated, it’s not always precise enough for today's ever evolving tax landscape. Meanwhile, tax authorities are increasing audit activity.
Getting tax calculations wrong within this process not only drains money from your business, but it can also incur tax penalties and interest, increases your audit exposure and more.
Procure-to-Pay Tax Automation Platform
Integrating a tax platform automates sales and use tax and value added tax determination to improve the accuracy of taxes paid and accrued. How? Through a rule-based calculation engine. It applies a constant tax logic across the procure-to-pay process, ranging from the requisition and purchase order page to the invoice reconciliation and approval stage.
This eliminates inconsistencies and human errors within the system. Adding a tax platform for your procurement process will reduce the burden and cost of continuous in-house research. Moreover, there will be less IT support needed to implement tax changes as this can now be managed by tax specialists.
Integrating a tax platform can maintain consistent tax coding which results in a reliable and repeatable process. Furthermore, you can coordinate that single tax solution to your financial systems across the board for scalability and centralization.
You may want to consider automating your procure-to-pay process tax platform if:
- It is a challenge for your in-house team to keep up with the constantly changing tax
- Inefficiencies arise due to errors in tax coding decisions
- Increased audit activity reveals tax errors in procurement
- You are dealing with insufficient tax functionality in your ERP
Now that we've covered the basics here are four things for manufacturers to know when it comes to using a P2P solution from the benefits to the differentiators.
1) Benefits of a Tax Platform in Sales & Purchasing
Create a Simplified Process
When utilizing a single tax platform for sales and purchasing you will see improved tax accuracy which will result in reduced audit risk. Not only will you spend less time on tax research and content maintenance, you will also experience a more reliable AP process with consistent tax coding.
Improve Supplier Relationships
Connecting with all of your suppliers about shared data and documents becomes simple. It will also increase on-time payment performance by providing real-time visibility on transactions.
Increase Control and Minimize Risks
Improve strategic decision-making by providing a comprehensive view of your suppliers and spending from a centralized place. Through this you will be better able to control expenditure and minimize risk by having access to data and visibility.
2) Finding the Right P2P Tax Automation Platform
When it comes to finding the right P2P automation it’s imperative you ensure your choice is flexible and built to handle the nuances that accompany sales tax compliance.
The primary goal of an effective P2P tax platform should be to eliminate errors and ultimately avoid underpayments or overpayments of tax. The focus needs to be not just on the sales side of the business but on the procurement side as well.
Keep in mind, most tax solutions don’t calculate a “variance”. Many tax platforms calculate the tax, but don’t compare it to what the vendor charged. In fact, only CereTax returns the “variance” calculation to identify the over/under payment.
3) Usage matters
Oftentimes, usage variables involved in the P2P process are overlooked. Purchase-side taxability is more complex because usage variables are more subjective.
This subjective side lends itself to overpaid or underpaid tax. Vendors don't always know the usage variable when it comes to their customers' purpose of purchase, and often the vendor will default to taxing the good or service which often results in overpayments.
This subjective side lends itself to overpaid or underpaid tax. Vendors don't always know their customers are using the products they’re selling, often the vendor will default to taxing the good or service which results in overpayments.
4) What Sets CereTax Apart
When a company is audited by a state auditor, 90% of the examination will focus on a purchase transaction. Same with a reversed audit looking for refunds, the examination will focus on that low hanging fruit on purchase transactions.
They want to know where you overpaid or underpaid taxes. Whether it’s an overpayment or an underpayment, it’s an expensive problem to have. At CereTax, we saw this recurring common issue and wanted to solve the unique problem that exists in determining taxability on purchase transactions.
We have been able to help leading manufacturers who were utilizing an old legacy solution. They were dealing with inaccuracies, lack of control over the rule configurations, risk associated with outdated content, and high cost of their old solution. We have been able to help these companies essentially eliminate the manufacturers audit risks and put them in complete control of their rule configurations.
To efficiently map transactions to the tax solution, it requires properly configured infrastructure that can tax-sensitize them. This significantly reduces errors, leading to substantial savings during audits and refund reviews with consultants. Want to see our process for yourself?
See how it works, here!
Give us 30 minutes and we will show you CereTax’s indirect tax solutions can save you countless hours and reduce risk when dealing with sales and use tax.