Operational and Strategic Benefits in Automating Accounts Payable
Optimizing Accounts Payable (AP) processes and eliminating manual invoice processing tasks empowers finance managers to achieve bottom line savings – and derive strategic benefits vital to remaining competitive. The operational benefits are cost reductions and faster, more transparent, easier to audit AP processes. Strategic benefits include better spend control, enhanced early payment flexibility, and overall improved cash management.
The Evolving Role of the AP Function
Over the past decade, proactive finance managers have extended their AP team’s contributions beyond just managing back-office disbursements to providing more timely qualitative data for improved strategic decision-making. While still focused on achieving operational goals such as increased productivity, improved accuracy, and faster turnaround times, AP managers are also trying to deliver greater visibility for better indirect and addressable spend control, cash management, and supplier base risk management.
Despite widespread application of technology for core accounting and Enterprise Resource Planning (ERP) functions, a persistent pain point for finance managers is the fact that a significant number of invoices are still paper-based.
A detail-conscious AP staff’s best efforts notwithstanding, the manual processing of paper invoices is labor-intensive and error-prone: it includes opening and sorting mail, manual keying and data entry, searching for lost or duplicate invoices, and significant exception processing. Additional costs to the organization include onsite storage and associated real estate costs.
Manual processes not only create barriers to achieving many of the common strategic goals of AP managers (real-time visibility to invoices, enhanced early payment discount capability, avoiding late payments, and automated accrual reporting for faster period closes) but also carry the risks that result from failed audits and potential fraud.
For companies still processing paper invoices in distributed locations, these barriers to performance are multiplied. Additionally, these organizations also have to contend with the added costs of shipping invoices between locations and “desk float” associated with invoices stuck in the process in field locations.
Even outside of AP, the challenges of managing paper-based invoice processes affect other finance users as well as non-finance departments involved in the approval process. Without timely visibility into outstanding liabilities and spend details:
- CFOs find it more difficult to track and reconcile negotiated contract savings against actual spend – leading to potential loss of hard-won savings.
- Controllers cannot adequately measure and be certain that risk is being controlled.
- Procurement faces a “double whammy.” Executing sourcing process improvements, such as negotiating better terms, is inhibited when there’s a history of late payments and the absence of reliable, up-to-date information.
- Treasurers may be working from incomplete cash flow and working capital data, hindering their flexibility.
- Business approvers do not have visibility into whether AP actually received the invoices that they approved.
- Customer service departments struggle with responding to supplier inquiries on invoice receipt/approval status.