Right around the time I left Ariba to enter the analyst ranks in mid-2006, Ariba began making a big push into accounts payable automation which surprised me given my context and background (at that time) which been squarely focused on strategic sourcing and to a somewhat lesser degree, on procurement. But Ariba was on to something big and ironically, less than six months later, I began following the space. Soon, I began leading our coverage of accounts payable automation and helped coin the term “ePayables” (in early 2007) while developing an approach to covering the space that helped this newer research coverage area become larger than the more traditional sourcing and procurement practice (still my first love and focus on this site) that I also led.
I define ePayables as those solutions that automate any part of the AP process. While ePayables is not a primary focus for most Chief Procurement Officers, increasingly CPOs are getting involved with accounts payable. I’m not sure that AP belongs under procurement, but 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.
Earlier this year, I laid out some top strategies for AP departments and highlighted some of the top solution providers in the space. You can also select the Tag ‘ePayables’ or the “Procure-to-Pay” Category or use the search function (Sidebar: I am going to come back next week with a primer on this site’s design and navigation). Over the next few Fridays, I will develop an ePayables Primer in a series of articles that seeks to present the 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 an AP department.
ePayables Primer Part 1 – The Challenges
Although the term “P2P” (procure-to-pay) was 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 opportunities that exist within their AP departments, more groups will invest resources to improve AP and ultimately automate the function by deploying ePayables solutions. As enterprises begin to go down the automation path, it will make sense to consider procurement and try to connect procurement and AP processes and/or systems in a more comprehensive P2P approach. Despite a pretty straightforward value proposition for ePayables solutions, 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, your number of suppliers could be much closer to 100,000. 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 often 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 almost universally accepted 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 number of solution providers that automate some level of the AP process is amazingly fragmented, as are their approaches to 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 AP leaders sit at a director level, they typically lack a large voice in the overall enterprise and have difficulty making the case for change. One change in this area has been driven by the recent (ongoing, for many) credit crunch which stirred the interest of many finance and procurement executives in cash management – 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. Back next week for part 2 of the ePayables Primer.
Postscript: As a trial, I have set the hyperlinks in this article to open in new windows. I hope you don’t mind. I include links in these articles to enhance the arc and context of a story, sometimes to emphasize a point or make joke. I don’t expect every reader to click every link, but the links are intended to improve the reading experience. I hope they do. Please email me if you have any thoughts on our approach – good, bad, or indifferent.
