Why it’s time to streamline accounts payable

Howard Frear wonders why a routine purchase still generates so much paperwork – and, all too often, endless back-and-forth over email

1 October 2018

Paper-driven accounts payable (AP) processes are still with us, even though the date on the calendar says we’re approaching the third decade of the 21st century.

That’s a problem because having such a central business process clogged up with paper has a negative impact. After all, in a paper world, an invoice can sit in an inbox for a week, go missing altogether, or data is wrongly (manually) entered into the system, resulting in additional employee hours, frustrated suppliers and poor financial control.

In a recent report information management professional leadership group AIIM took a global look at the current AP state of affairs, with finance, banking, and insurance making up a third of the organisations who took part. What it found: 27% reported that their average time for invoice data entry, validation, and approval using paper is 3-5 days. Only 25% said processing takes less than three days, and 22% less than day.

And given that AP processing is at maximum only 80% automated in 39% of organisations (and 23% say their AP processing is less than 25% automated), clearly there is an automation and efficiency gap waiting to be filled.

It’s not like businesses aren’t aware that there could be big pay-off for them from going paperless here; it’s very often the case that accounts payable teams and CFOs appreciate the issues that manual paper-based processes can lead to.

The problem is that they still aren’t automating enough processes at scale. Part of the issue is that it’s often an education process with accounts payable teams and FDs around the potential of technology. They appreciate the issues that manual paper-based processes lead to, but they can’t see how automation can necessarily remedy the situation.

This disconnect is becoming critical, because in the information age, all organisations have to be digital. Anybody that eschews digital will simply get left behind, exposing themselves and their shareholders to needless extra operating expense, inefficiency and a lack of competitiveness. The real question is how we remedy this disconnect, and make progress towards the end automation goal. The good news: practical and cost-effective ways to improve our paper-clogged AP situation with modern technology are available.

The straight line through

To automate, firms need to first understand what their processes are, plus start to think about how to go about achieving best practice. After all, a poor manual process translated unthinkingly into new workflow can only lead to a weak, even broken, automated equivalent. Here are some best practice tips for making your streamlining AP project a success:

- What are your operatives doing at each step along the invoice journey? There may be an important difference between the way those at the highest level of the firm and those at the operational level see matters. Be aware that those views need to be reconciled before any progress can be made in deploying any technology.

- Make getting rid of the drudgery of handling invoices is priority number one. You need to be able to quickly and easily extract data from invoices. The best way of doing this is through accurate, time-saving OCR (Optical Character Recognition). With OCR in place, this data will then be used to automate other functions such as the accounts payable process and can thus be a real game-changer.

- Eradicate ‘I just need to see it’ or ‘it needs an extra level of approval’. What can often stymie such a move is when firms think they need to plan for a very large amount of exception handling. This sort of thinking means human back-up remains a big part of the accounts payable process, and automation cannot really take flight. But actually – there just aren’t that many exceptions. Businesses should factor in perhaps 20% or less invoice exceptions in practice. What’s more, businesses can now assign systems to deal with some of these invoice exceptions as well.

- Buy in from your people. Finally, sit down with the operational users, quizzing them on what happens on a day-to-day basis, checking if that is consistent with how the organisation wants to move forward. Only when that that work is complete can processes be fully mapped, improvements identified and acted upon. A system based on your assumptions of how the system should work won’t map onto reality and so won’t get buy in from the users.

- When an invoice comes in, it transitions through the system without any human touch. If the invoice meets all the business rules automatically, which it should if there’s a purchase order system in place, then it gets paid according to the agreed rules and it goes out. You should also be able to extend workflow to support three-directional matches between orders, payments and delivery, integrating your core ERP system into invoicing operations.

Putting it all together

You want streamlined Accounts Payable because speed of transaction is the engine of your business – and it’s where all the action is going on from a cash generation and a cash management point of view. It’s also the best way for you to be able to ask – and answer – such fundamental operational questions as: Can I manage my cash better? Can I know where our money is at any point in their procurement cycle? Can I do this better?

If you start going down this route of travel, you can be assured that the engine of the firm is working well – and a lot of the strain on working capital just goes away.

Paperless, automated AP working will also help cement the kind of friction-free supplier relationships you want, increasingly critical in today’s highly competitive financial services environment. Of course putting a great electronic process in place can reduce the burden of your compliance work, too.

The end result is that you save your financial services firm time and money while maintaining accuracy, security and boosting your environmental footprint. This has to be a digital win-win situation, with your firm finally free of the last impediments to working at truly 21st century speed – all those remaining clunky, manual Accounts Payable processes.

 The author is director of sales & marketing at Enterprise Content Management specialist EASY SOFTWARE UK

The issues discussed here are from an EASY whitepaper, ‘Streamlining Accounts Payable’.

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