It is a new year, and in the evolving world of business, where more organizations are automating their processes, it is a wonder why accounts payable (AP) departments lag behind other functional areas in process automation. While manual, paper-based AP processes can “work” for a business, they do not work well enough for the modern organization. One result is that more executives are taking a hard look at their internal business processes in an attempt to increase efficiencies and cut costs. If AP leaders can understand and track the current state of AP operations and understand what is important to finance executives when they evaluate AP performance, it can go a long way in setting up their department for future capital investment and automation.
In the world of continual business improvement, it has become a standard for AP groups to work to deliver on current targets while also trying to improve upon them in the future. To understand the key obstacles that are facing the AP department, it is important to first consider the current state of the AP function. With a comprehensive understanding of the current processes, AP leaders will be more able to define and attack the most impactful opportunities. Ardent Partners developed its ePayables Framework to help AP departments understand and improve the various sub-processes within AP by segmenting them into manageable pieces. Developing a view into the activities of each area can help better position the AP team to set standard operating procedures and to develop best practices.
While a great starting point for AP teams is to have a clear understanding of their current state of operation, it is also important to gain visibility into AP operational metrics. The ability to improve upon the business process is impossible without first creating and understanding baseline metrics from which they can determine their level of improvement. Our recent research studies have found that only 44% of all organizations possess the ability to measure key AP metrics. Collecting and presenting key AP measurements to executives will go a long way in establishing baselines to build upon for securing budget for improvement.
Another valuable strategy for AP departments to execute is to understand how executives evaluate the department’s performance. During our research survey, we found that 75% of AP departments are evaluated based upon the volume of their activity. This includes both raw number of invoices and payments processed. But it was interesting to see that only 36% of enterprises evaluate AP around financial metrics and that only 31% evaluate on the function of compliance. This is pretty indicative of the fact that many enterprises do not understand the value that AP can provide in these areas. If more enterprises are able to be evaluated along these avenues, they may see the real value and impact that the function can provide.
The trend of continually improving business processes in order to create efficiencies for any business operation will not yield. And with cost reduction being a top priority for AP teams in the year ahead, we expect that more enterprises will examine why they have not automated their AP processes. Years of research covering the Best-in-Class AP departments has shown that automation is the best tool to achieve cost-cutting. The strategies included above can help gain the executive support needed to pursue the proper capital investments for AP automation.
Want to learn more? Download the Ardent Partners 2016-2017 ePayables Tech and Innovation report (registration required).