It is generally agreed that ePayables automation includes three distinct processes – 1) Receive, 2) Process, and 3) Pay. There is value to an organization in automating each part of the process, and some organizations, when they start an Accounts Payable (AP) automation project, know exactly how, and in which order, they are going to proceed.
However, over the years, I’ve encountered hundreds of organizations looking to automate their AP function that want to know ‘where should we begin?’ Some companies want to know if the ‘big bang’ approach of overhauling all three processes at once makes the most sense. Others want to know if they should start with getting their suppliers to send electronic invoices first or if they should outsource the scan and capture of paper invoices. Still others want to know if they should focus on automating the payments process. So, where really is the best place to begin? The reality is they all make sense and there is no bad place to begin. Each part of the process brings its own value and benefit to an organization. However, saying that they all make sense isn’t answering the question of ‘where to begin?’ Before weighing in and giving them my opinion on the matter, I find it is always best to ask some questions about their particular pains, challenges, and goals with the AP process. To find out what is the impetus for them to be looking at automating AP at this specific time and place. This is usually very helpful in advising on where to begin.
As I mentioned above, it is easy to make a case for starting with any of the three steps in the ePayables process, as they all have value. However, when pressed, my personal recommendation is for companies to begin in the middle by automating the approval processing (workflow) of invoices. Here is my rationale. Let’s assume an organizations’ entire AP process is manual. Say the organization decides to first automate the delivery and receipt of their invoices so that invoices are sent electronically and received immediately, rather than taking days or weeks to receive in AP. This is great, and the organization has saved days or weeks of processing time. But if the approval process is still manual, all they have done is speed up a bottleneck. If processing invoices takes weeks or longer, which is not uncommon in manual shops, chances are the AP department is still going to struggle to get those invoices paid on time.
At the other end of the process, what if an organization decides to automate their payments first, and starts leveraging digital payments such as ACH and virtual payments? Is there value? Yes, without a doubt. However, if the delivery, receipt, and approval of invoices is still manual there is a good chance those invoices are taking weeks, or longer, before they are ready to transfer for payment. Any early pay discounts have probably long since passed and you may in fact be looking at fees for late payment.
Now let’s take a look at an approach that first begins with automating invoice approval. An invoice arrives at the AP department. It could have been delivered by snail mail, attached to an email as a PDF, excel or other format, faxed, delivered electronically (such as edi), or in any other manner. The job of the AP department is to get those invoices into the AP automation solution. The AP department may have OCR technology to help capture some of the data, or it may be manually entering information into the AP automation solution. Once the invoice data is in the system, the AP automation solution can automatically route the invoice around for approval in an expedient manner. The approval may happen automatically if a 2- or 3- way match can be successfully completed, or the approval may happen automatically if pre-set business rules can be applied. In these cases, invoice approval happens almost instantaneously. For invoices that can’t be matched and require exception handling, workflows are applied, and the invoices can still be automatically routed around to the proper approvers. According to Ardent’s 2017 State of ePayables benchmark research report, Best-in-Class AP organizations take 3.5 business days to process an invoice, compared to 12 business days for all others. That’s almost two full weeks faster, and significantly improves the likelihood that invoices can be paid on time.
AP automation makes sense regardless of where you and your team start. Any comprehensive plan should include the receipt, processing, and payment of invoices. Automating each individual stage will provide significant benefits, while automating all three parts of the process will yield even greater benefits. If you haven’t yet started your AP automation journey, there is no better time than now to begin.
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