As I mentioned last time, we are dedicating this week to ePayables by presenting a “course” – ePayables 101 – that is intended as a reference and on-going resource for the stakeholders and other professionals who intersect with AP, but are not permanently a part of the function. Think of it like an Executive MBA course, except of course, the price is right.
Ardent Partners defines ePayables as those solutions that automate any part of the accounts payable (“AP”) process. While ePayables is not a primary focus for most Chief Procurement Officers, increasingly CPOs are getting involved with accounts payable. While I’m not sure that AP belongs under procurement, I am sure that the majority of AP departments would benefit from some (or any) level of executive sponsorship and that the majority of AP departments present a compelling opportunity for process efficiency and general effectiveness.
Over the next week, I will post a series of ePayables 101 articles that will present what we believe are the primary challenges and opportunities that exist within the typical AP department, the steps that should be taken to begin or accelerate an AP transformation, and the realizable goals and objectives of a successful AP department.
ePayables 101 – The Challenges
Although the term “P2P” (procure-to-pay) was quite commonplace in the late 90’s and early 00’s, solutions that actually managed a seamless Requisition-to-PO-to-Invoice-to-Payment process were basically non-existent. Today they exist, but are not, as yet, prevalent within the enterprise. As more enterprises gain awareness regarding the opportunity that exists within their AP departments, more groups will invest resources to improve AP and ultimately automate the function by deploying ePayables solutions. Once that is accomplished, the next logical step will be to join procurement and AP processes and systems with comprehensive P2P coverage (either via a single closed-loop systems or a series of solutions that link together to cover the overall process). And yet, despite a pretty straightforward value proposition, paper invoices and paper checks flood the system. Here are a few of the major challenges or obstacles that have impeded significant advances in the AP marketplace.
Lack of supplier invoicing standards – If you are a typical multi-billion dollar revenue company, you will probably have more than 10,000 suppliers and depending upon your business, your industry, and the maturity of your sourcing and supplier rationalization programs, you could have a number much closer to 100,000 suppliers. The variance in sophistication and differences in processes within the accounts receivable departments of a supply base can be extraordinary. The differences expand exponentially as a supply base grows in size or is more global in nature or speaks different languages or sends invoices in any number of different ways – mail, email, fax, web-based, etc. (Sidebar: Think about your own supply base and the differences within it – how the bill (i.e. invoice) you get from the phone company is very different than the “bill” you get from your 15-year old baby sitter.) In business, there are no standards for the structure and format of an invoice – invoices contain generally the same information, but how that info is presented can vary significantly. I’m not suggesting that the development of standard invoice formats is possible; I am suggesting that the lack of these standards presents a fundamental issue to those AP departments working in a paper-based world, processing tens of thousands of invoices each month. This problem extends to enterprises that deploy ePayables solutions as they must invest significant effort in enabling their supply base.
Lack of invoice processing standards – Ardent Partners views invoice processing in three steps: (1) Receive (2) Process (3) Pay. Unlike strategic sourcing with its five or seven-step process, invoice processing lacks an industry standard or generally agreed upon process. Prioritization of invoices, approval workflows, supplier segmentation, and exception management, are just a few examples of areas that lack a set of clearly-defined, industry-wide best practices, to the detriment of all, particularly those enterprises that have the resources and engagement to begin an AP transformation. This gap leads, at least in part, to the next issue.
Lack of a standard technology approach – The ePayables solution provider landscape [Sidebar: If you are looking for a document to walk you through the landscape, I suggest this report from Ardent’s ePayables SMARTSet] is amazingly fragmented, as are their approaches for what is a relatively straightforward process: Receive – Process – Pay. This means that the dollars invested in educating the marketplace on ePayables, in aggregate, do not tell a clear and focused story on the best way to automate the function. One example of this challenge is the enterprise document management solution providers that position themselves as robust ePayables solutions while simply capturing an image and using email to route and approve that invoice image (better than nothing, but not effective AP automation). What this has done is create a view held by many enterprises that their document management system is a top-shelf solution to AP automation and that they have solved the AP problem, when the reality is far from it.
Lack of an executive presence with AP – I think it is a safe bet that the rise of a “Chief Payables Officer” is unlikely. Many of today’s top accounts payable leaders, those who have the clearest view into AP operations and what is needed to improve them often fall below the level of manager within the corporate hierarchy. Even when the leaders sit at a director level, they lack a large voice in the overall enterprise and have difficulty making the case for change. The recent (and for many enterprises, ongoing) credit crunch has stirred the interest of many finance and procurement executives in cash management – this is a positive for the function. More interest is needed.
While these are far from the only challenges facing today’s AP teams, I believe this list gives you a sense of the kinds of large obstacles that they face. Check back tomorrow for part 2 of the ePayables 101 series.