If you believe, as I do, that the objective of modern-day finance is to simplify operations and help organizations spend smarter, then their objective is also to simplify and optimize the AP process. But do the finance professionals have what it takes to do it?
And where should they look to for help if they feel in doubt? This blog post attempts to answer those questions and provoke further thought.
Invoicing – from the dawn of time to today
Since the dawn of modern finance, humans have been looking for ways to do things smarter and more efficiently. From Italian merchants learning double-entry bookkeeping from their Indian trading partners, to Duke Ellington’s hand-written IOU notes during a concert tour to the touchlessly processed e-invoices of today, our drive to simplify things is instinctive.
However, when businesses no longer know how to further simplify or optimize their processes, then comes the time to ask questions, to reach out for help.
Let me portray you the two extremes as I see them, and then discuss how to get closer to the better, latter option.
Two extremes of modern invoicing
On the one hand, imagine having a group of people entering data by hand as if it were the 1950s. When I first started working with one customer they told me to look up pictures on the internet of an office in the 1950s because their office allegedly looked like that: piles of paper everywhere, with rows of frantically-typing office workers inputting data into machines. Invoices were sent for signature in paper around a manufacturing facility spanning across an area of a square mile! While this is admittedly an extreme example you get the idea.
On the other hand, imagine a business like Heineken who has automated 97% of all their PO-based invoices. Or a company that pays 93% of their invoices on time, 95% of which are connected to a relevant PO or a contract. They represent the polar opposite.
The difference between these two extremes is down to automation
Multinationals with far-flung operations and supplier bases in dozens of countries are constantly facing the challenge of how to meet business requirements across multiple jurisdictions. Requirements not only include meeting VAT/GST regulations and complying with other local legislation; there is the requirement for visibility, consistency and comparability.
Even with the desire to simplify and improve processes on a global level, many organizations' data is buried away in siloes: in various enterprise resource planning (ERP) systems or multiple procurement and contracting solutions. The data was never generated to be used or analyzed later, let alone with the thought in mind that it might become an essential component of real-time business decision-making. It’s clear that this presents significant challenges of an administrative nature, and severely limits companies’ ability to make large-scale improvements.
Fortunately, there is a way to transform accounts payable (AP) from the old world (a data-input machine) to the epitome of paperless automation: a team that can identify and address exceptions, and add value back to the business. The key is to gain a tight grip on AP data, despite the challenges presented by scale and multinational operations. And in the face of multiple ERP and AP or procurement solutions in place, to have complete visibility of not only processes, but also direct and indirect spend metrics.
First: optimize and amalgamate all spend and AP-related data
Direct spend is often managed in ERP, MRP and Kanban systems. Even if direct purchase orders and invoices are in an electronic format, the automation rate is very low. At worst, there is no 100% view of the P2P process performance, let alone of spend.
The solution is therefore, first, to get all suppliers on board so that invoices come together in one place, regardless of where spend is generated; and second, to integrate all AP and procurement solutions together to not only report on purchase order-based spend, but all of the spend: direct or indirect, PO-based, contract-based on non-PO-based.
Once the data is in one place it’s easier to decide how to automate activities and so release employees to focus on more valuable services like data analytics, which is where true value is generated.
Secondly: use data to shine a light on problem areas
A good example comes from a UK retail conglomerate with whom we have worked. They did a 4-month project to focus on only two key performance indicators: spend under management and on-time payment performance. Over time they were able to quadruple spend under management and add 33% points to their on-time payment performance. I also remember a financial organization from North America who reduced their invoice cycle time from over 17 days to less than 6 days, and removed on average over 3 tasks per invoice processed as a result of continuous improvement.
How was all of this possible? Usually, once the spend information is brought together from all of the various procurement systems and automatically categorized, regardless of whether it was based on POs or contracts, or whether it was unmanaged spend, trends and root causes are revealed. The data points out both procurement and AP inefficiencies, both from value and process standpoint. And since all people across the whole enterprise have the same data, filtered to the level they need to know, and their KPIs are always up to date, they can solve inefficiencies in AP operations and reveal insights to procurement that weren’t available before. And, more importantly, they create a foundation to drive future improvements over time.
Automation releases time for analytics
Another one of our customers, a Canadian healthcare organization called Mohawk Medbuy, was rewarded with a national analytics excellence award because they were able to automate repetitive reporting. By moving away from reports and focusing on dashboards they were able to analyze committed spend, predict future spend and do the same with late payments as well as payment plan compliance.
In short, to continue to meet our instinctive human drive to make processes simpler and better requires investment in both people and tools. It is not possible to scale AP by just adding more people. Organizations need to identify better ways of working, and invest in automation to ensure efficiency and scalability. As a final example, Boels Rental, our customer in Benelux, aims to process 1 million invoices in 2025 with the same team of 25 people that they now have in place. How? By adding automation, not headcount.
In 2013 PWC Australia reported that, “most finance functions struggle with information management issues, with respondents reporting that 50% of management time is spent on data gathering versus analyzing data”. Although this trend will have shifted over time the responsibility has shifted, too, to the AP function to provide insights to senior management and leadership, which can lead to business improvement.
Put a purchase-to-pay suite in the middle of 100% spend analytics
Successful organizations centralize supplier information, indirect procurement, accounts payable invoice receiving and automation around one Procure-to-Pay suite. They gather process and spend analytics from various ERPs and other adjacent - integrated - procurement solutions from 100% of their suppliers and 100% of their users. This in turn, provides 100% spend analytics and can be supported by 100% paperless invoices: all of them in the cloud.
To find out more about how to turn AP into a value- and profit-engine, download the SSON report. While it was written for shared services the insights featured in this report extend far beyond SSCs, to everyone with the desire to improve their financial visibility and control and go beyond e-invoicing and efficiency.
Download the report to find out more.