Another great article from Vishal Patel, the research director in charge of all ePayables research at Ardent Partners. He is also the editor-in-chief of Payables Place, a site that is dedicated to covering the AP automation space.
The Value of AP
Similar to what the procurement profession experienced over a decade ago, we are beginning to see a shift within the AP profession. The main reason for this shift is “automation” which is enabling the AP function to be more efficient and allowing AP staff to focus on more strategic objectives (since many of the tactical activities have become automated). Most AP groups have a very real opportunity to create value for the enterprise. However, to get to that point, AP must go through a transformation that changes the way they think and transforms their processes and systems – this is similar to the one procurement has experienced (or is still experiencing, depending on your world view).
AP has the ability to add a real value when it is operating in an automated environment; fully manual environments can be difficult and make it time-consuming to extract invoice and payment data and utilize that info to analyze spend or forecast cash flow. Automation can allow AP to focus on more strategic activities and help to improves supplier relationships while providing better visibility into invoice detail that can help improve contract compliance. Detailed, accurate, and aggregated invoice data also allows for better spend analysis, helping procurement to understand buying behaviors and trends in a much better way. For example, if there is a rash of maverick spend, procurement can analyze invoices and understand why items were bought off contract and seek a remedy.
Furthermore, ePayables solutions bring business rules, automated matching and validation, and a more control and greater accuracy, reducing errors and discrepancies. When problems do show up, automation can help resolve them more quickly since the buyer and supplier are already connected on a platform. Reducing errors helps to improve the overall invoice cycle time, which has an impact on the ability of AP to capture early payment discounts. Identifying errors where pricing does not match a contracted rate will help to reduce savings leakage; this is much more likely when there is a linkage between AP and procurement processes and systems.
Working capital optimization and supplier relationships
Yes, AP has a part to play in improving these two important areas. Using ePayables (or AP automation) solutions introduces more efficiency and better collaboration and access to information. For example, ePayables solutions can help AP establish the appropriate approval and processing checks to help suppliers that consistently have invoice exceptions improve their invoicing so that invoices from that supplier are processed more efficiently. With automation, suppliers also have access to the status of their invoices and payments relieving AP staff of having to constantly respond to inquiries. Taking a perspective more in line with this site’s readership, ePayables solutions can allow procurement to better monitor and measure invoice performance and accuracy and in doing so, help them to understand the total cost of working with a particular supplier.
As far as helping to optimize working capital, as AP groups begin automating their processes and gaining (and sharing) real-time access to invoice and payment data, they are in a better position to influence and support the cash management strategies that treasury and finance wish to implement. In manual environments, the inefficiency and lack of visibility make it all but impossible to leverage any of the valuable data that lies within AP. Data that can be utilized to support financing programs such as supply chain financing as well as activities that can have a more immediate impact such as capturing early payment discounts.
Those of you that struggle with you internal invoice processing should look to see the level of automation within the AP department and then ask, are we getting all of the value we can from AP?
