All That's Wrong With Accounts Payable Today (And How to Fix It)

Unfortunately, in the back office, there’s no greater example of systemic process and technology roadblocks than in accounts payable (AP). Through no fault of the AP department, the promise of productivity hasn’t gone beyond digital-PDF invoices and email.

When the largest global companies are processing invoices by the millions a year, the backlog is staggering. The result? Missed savings opportunities from a slow and inaccurate invoice-topayment life cycle.

Luckily, new data reveals that attention is shifting toward fixing what ails AP. CFOs are realizing they need to act. A Hackett Group study¹ says finance leaders understand the need to “focus on more value-adding activities, such as continuing to look for process inefficiencies that can be eliminated through automation.” A separate study from Ardent Partners finds 69% of AP and finance leaders recognize a need for “smarter systems that drive more efficiencies” as the top strategy for AP teams to reach the next level of performance².

Here, we take a closer look at the obstacles and solutions in AP transformation. Despite the challenges AP teams face — and there are many — AP transformation is not only possible; it will have predictable and lasting returns.

AP TEAM OBSTACLES: INVOICE EXCEPTIONS AND VOLUME CREATE CHAOS

AP managers have very important spend and supplier management duties. They include complying with contract terms, managing regional taxes at a global scale and ensuring strategic suppliers are paid on time.

Let’s say, for example, procurement sources and negotiates beneficial terms, and contracts for early-payment discounts with a supplier. That process takes half a year to nine months or more. Sound familiar? The orders come in, the invoices flow through AP … And then? Everyone waits. Payments are never on time.

Why? Because so much of the work is manual and a major portion of it is based on paper. But even for those organizations where email or digitally available invoices exist, there is still the matter of matching invoice information to purchase orders — and verifying what is being billed is what was received.

Suppliers complain. And so begins the game of invoice chasing.

Where is it? When will it be paid? There’s little to no visibility into the status of payments.

Bye-bye discounts. Expected savings never see the light of day.

The challenges for a more efficient operation are two-fold. First, AP teams are under pressure to handle exceptions using out-of-date systems that don’t easily connect or communicate with each other or with their supplier’s systems. So, it requires individuals to sort it out. With hundreds of thousands or even millions of invoices a year, the time to process adds up. Second, this human intervention is often challenged by inaccurate information. It often requires data to be re-entered from one system to another. Mistakes occur. Reconciliation is incredibly time-consuming.

Why? Because so much of the work is manual and a major portion of it is based on paper. But even for those organizations where digital invoices are used, there is still the matter of matching invoice information to purchase orders — and verifying that what was billed is, in fact, exactly what was received.

Bottom line: It is a super slow end-to-end invoice payment ecosystem. “Touchless” AP? Sixty percent of the Ardent Partners survey respondents say invoice and payment approvals take too long — making it the topranking challenge. Other challenges include the high percentage of exceptions (48%), a lack of respect within the organization (33%) and too much paper (31%).

On top of this slow process, managing supplier relationships is often a shared duty between procurement and AP. It can be tricky to keep suppliers happy when invoice information is so scattered across disparate systems.

LOOKING CLOSER: INVOICING IS A PROCESS PRIMED FOR CHANGE

Many core financial and procurement processes are in dire need of process automation. In downstream procurement, for example, up to 85% of use cases can be automated, studies show³. An example of this is three-way invoice matching, where an invoice is approved only if its details match the associated purchase order and goods receipt⁴. Tasks as simple as automating payment approval routes and sending automated emails for outstanding payments can meaningfully reduce bottlenecks and create efficiencies internally and with suppliers.

Tangible, strategic benefits from AP leaders and teams are central to an efficient AP process. Improving budget control, using card rebates and avoiding costly compliance penalties — this is what you need your AP team to focus on. The larger the enterprise, however, the more complexity there is, and more suppliers to manage.

Automation can simplify the majority of rote, repeatable activities. It frees up AP resources to let them focus on strategic, valueadding activities.

THE RIGHT TECHNOLOGY WILL HELP YOU BECOME TOUCHLESS

Automation is the central lever for shifting AP gears into a higher mode of productivity, process efficiency and accuracy. The goal is to become touchless — meaning the process is as fully automated as possible, so the AP team can make early payments with discounts as the norm and eliminate any chances for data entry mistakes or system errors to slow down invoice payments.

But what’s behind that automation?

Advanced artificial intelligence and machine learning working in concert with optical character recognition scanning technology. These technologies help automatically ingest and extract the most relevant and useful data from invoices. They will also match paper- or digital-based PDF invoices to POs, eliminating a major time-eating aspect of invoice and payment processing. Advanced AI and ML automates the rejection of bad invoices, detects duplicates and auto-routes invoice mismatches for resolution.

What’s more, the best machine learning technologies can actually get smarter the more they are used. Pattern recognition in a highvolume invoice operation is incredibly fruitful.

And what’s on top of the automation? Cloud-native software with easy-to-use and configurable dashboard functionality that automatically routes invoices for review, approval or further reconciliation. It’s visible. You can track it. You can report status on invoices with the click of a mouse. What if suppliers could track and see the status of their invoices with your AP team? The right kind of transformative AP solutions have that ability.

AP software also needs to be able to work efficiently with other financial systems. At issue, however, are legacy AP and ERP systems that are not primed for the digital age. They are relied on for important complex financial and accounting tasks. But they can be difficult to integrate with AP systems and lack the immediacy of today’s user-centric software.

Transformative AP technology has the ability to work internally and externally — and integrate effortlessly. It also gives complete traceability with reporting metrics that make it easy to share with executives across departments. When fully realized, AP transformation has the ability to elevate AP from the back office into a more relevant contributor of strategic financial KPIs and targeted company objectives.

HOW TRANSFORMATION TRANSLATES TO A RETURN ON INVESTMENT

The term “transformation” can be misleading. This isn’t about changing the entire AP functional landscape. Even with the best technologies, there will be a few complex exceptions that require AP team intervention. But they will be significantly reduced by automated processes. It’s in that process reduction where savings — and harmony — will be realized.

Transformation is really about finding those areas that can quickly help AP teams ramp up the scale and cycle time of effective AP work. In short, transformation creates the opportunity for return on investment.

Here’s one way: Individual invoice costs can be reduced by a whopping 76% on average, according to Ardent Partners⁵. Without automation, the average invoice cost is $12.88. But with “best-inclass” automation, that cost drops down to $2.56. Over the course of a year, that is significant savings.

Beyond invoice cost reduction, there’s also the economy of scale that comes from speeding up AP work altogether. Yes, exceptions will still have to be managed. Empirically speaking, those companies using AP automation have a third of the exceptions of their nonautomated peers, per Ardent Partners (same study). That’s time gained back for the AP team. Time not spent chasing invoices, apologizing to suppliers and managing conflict with procurement. That’s savings from early payment discounts being met again and again and again. There’s the real ROI.

Transform at your pace. But use automation to transform how AP is perceived as a strategic value for finance. The time to make an impact with AP is here.

1 “Balancing Cost Reduction with Adding Value,” The Hackett Group, 2020

2 “The State of ePayables 2020: Ensuring Continuity, Building Resilience, and Rising to the Challenge,” Ardent Partners, 2020, as retrieved from https://cporising.com/2020/06/24/now-available-the-state-of-epayables-2020-market-research-report/

3 Jacob Karmehog and Erik Lӧfnertz, “How Digital Technologies Will Impact the Procurement Process and Organization” (master’s thesis), Chalmers University of Technology, 2018 as retrieved from http://publications.lib.chalmers.se/records/fulltext/255153/255153.pdf

4 Barry O’Brien, “Automating 3-Way Matching in Accounts Payable,” SoftCo, 26 February 2018, as retrieved from https://softco.com/blog/automating-three-way-matching-in-accounts-payable

5 “The State of ePayables 2020: Ensuring Continuity, Building Resilience, and Rising to the Challenge” Ardent Partners, 2020, as retrieved from https://cporising.com/2020/06/24/now-available-the-state-of-epayables-2020-market-research-report/