Making the Digital Value Chain Work for AP Professionals 4 challenges facing AP departments, and how technology can solve for them
by Barry Thompson – Vice President, Enterprise Sales
While companies’ sales and revenue generation efforts seem to receive most of the attention, expense accounting—specifically accounts payable (AP) may have even more potential to generate consistent, ongoing value by controlling and optimizing the flow of money. Every dollar your company saves in the procurement process goes directly to bottom line. And significantly, new developments in the digital value chain are making it possible to manage outbound expenses more efficiently and cost effectively than ever before. However, certain challenges must be overcome if a company’s AP professionals are to drive this type of transformational change. In my experience working with and for enterprise companies, I’ve seen the challenges businesses face, and understand the initiatives necessary to address them. Here, we’ve identified four primary AP-related challenges companies are facing and highlighted new digital value chain technologies that can help overcome them.
1. Manual Processing:
There are still too many companies that rely on complex, manual AP workflows. Nearly half of small and mid-sized businesses still rely on manual invoice data entry—as do a surprising 22% of enterprise organizations. It has been estimated that roughly 80% of a typical AP professional’s time is spent on low-level tasks such as manual processing of requisitions, purchase orders (POs), invoice data entry and invoice matching. This leads to inefficiencies, errors, delays, workarounds and frustration. Moreover, manual processes within AP promote inflexibility and decreased agility, which can be extremely detrimental to a company’s ability to compete effectively in an increasingly dynamic digital economy.
2. Disparate AP workflows
A surprising number of companies are functioning with multiple, disparate methods of generating a requisition or a Purchase Order (PO). Such disparate processes are wasteful. A PwC survey found that inadequate accounts payable processes and systems result in 27% of the average department’s time spent on waste and activities that could be automated. Most of the methods have evolved as employees find workarounds to frustrating, archaic and inefficient AP processes. As employees will find creative and “off-the-books” ways to fulfil an urgent need, they only compound an already cumbersome AP process, leading to maverick spending, excessive stock, increased risks and even fraudulent activity.
3. Resource Pressure
Like all parts of an organization, AP professionals are being asked to do more with less. They are charged with more transactions, more vendors, more contracts, more exceptions and a greater volume of requisitions, POs and invoices to process with the same resources. This is particularly true in fast-growing and emerging companies. In one company we studied, the AP department had an 82% employee turnover rate, three times higher than the rest of the company, and nearly double the national average. High turnover leads to a demoralized and underpowered AP staff that is more likely to incur process errors, hiring burdens, inefficiencies and unnecessary costs.
4. Lost Opportunities and relationships
As part of the digital value chain, AP professionals play an increasingly vital role in maintaining strong business partner relationships. Companies that have inefficient AP processes can experience the loss of important external business relationships, which can result in missing important terms and discounts or other cash-flow critical opportunities. These opportunities are simple, available and have a direct impact on the bottom line—in other words they are too important to lose.
How can technology solve for these challenges?
Technology is at the heart of the digital value chain and leveraging the right technology at the right touchpoints can help companies overcome the challenges above. The APP2P Network compared a manual AP operation with a highly automated one and found the average monthly cost to process 5,000 invoices is 85% less with automation. Without an automated AP process, 84% staff time is spent on transaction processing.
Some of the specific technologies driving the AP value chain are:
- AI: Artificial intelligence is being used to automate many of the lower-level tasks — freeing up valuable AP resources to focus on higher-level strategic tasks,
- AP robots: Robotic process automation (RPA), or AP Automation is a technology tool that is driving digital transformation for AP processes. AP managers are now able to focus on critical tasks such as demand forecasting, error reconciliation, maverick spend, approval/exception resolution, predictive and “what-if” analysis, as well as executive reporting and analytics.
- Optical character recognition (OCR): One of the major pain points for AP managers is dealing with the mountain of paper invoices. It can be tedious and time consuming to enter those invoices manually.OCR is being used by businesses to capture the critical information on invoices and streamline the process.
A retail-industry client of ours provides a real-world example of the value of technology in the AP and procurement functions. The company saw revenues explode from 2012-2017—up 250% year over year. Then the new tariffs hit. Revenues fell dramatically. But spending kept accelerating. While the tariffs lasted, the only way to address the pending doom was to seriously focus, for the first time on AP. The company’s old system was inefficient, weak, error prone and required duplicate data entry. The company needed a digitally-led transformation that would fundamentally change their outdated practices and disciplines. They implemented a comprehensive, end-to-end procurement management solution that is helping them disrupt their old businesses model and reengage with vendors and markets in pursuit of the next level of business performance and growth.
And this client is not alone. In fact, 49% of organizations have adopted AP automation in 2019 as compared to 22% in 2018, according to a Levvel Research 2019 Payables Insight Report. That’s an incredible 27% increase in less than a single year.
Putting the digital value chain to work
To realize the benefits of the digital value chain, businesses must shift their focus to software as a service (SaaS) and cloud-enabled software. These digital solutions are flexible and agile applications that are relatively easy to implement, configure and update. With speed and scale as key factors in growing existing relationships and winning new business, organizations need more from their AP and procurement applications than ever before, including using the most current and advanced systems available.
About the author:
Barry is responsible for our enterprise sales. With over 30 years of global experience in strategic software sales, he is a proven leader and recognized authority in the software industry having worked in South Africa, EMEA and North America. Learn more at www.paramountworkplace.com.