In this multi-part Blog Series, we’ll look at how companies can transform their AP operations from a back office function to a strategic asset that can boost productivity, profitability and innovation beyond AP and Finance. Our first blog in this series explores the typical pains companies experience that lead them to looking for a better way to do things.
For multi-function tool manufacturer Leatherman, it was concerns over its ability to grow their business overseas. For agricultural cooperative Elevator Co-op, it was concerns over keeping up with seasonal business cycles. For Small Mining Development, LLC, is was the desire to transform their finance operations from a distributed to a centralized model. In each case, accounts payable was identified as an obstacle to achieving business goals for revenue growth, profitability and customer satisfaction.
In each case, process automation transformed accounts payable from an obstacle into a solution that supported their organizations’ strategic goals.
Identifying the Symptoms of AP Process Problems
If you sense that your organization has AP process issues, but need to define them to make a business case for change, here are some pain points to consider and quantify to build internal support and secure budget approval.
1. Invoice Approval Cycles are Too Long
Research shows that companies with manual AP processes requires weeks on average to approve an invoice. When the process includes mailing an invoice to a remote location before it gets to accounts payable, that cycle time can be longer, and increase the chances of lost invoices and processing duplicates.
2. High error and exception rates
Invoices with errors and exceptions are the most costly invoices to process. Ballpark estimates range from 2X to 10X for the cost to process an error/exception, compared to a clean invoice. Focusing AP staff on exception management leaves little time for driving suppliers to a networked payables process, where validation rules in the network can handle invoice exceptions for you.
3. Low percentage of early payment discounts
Often a consequence of long invoice processing cycles, the inability to capture early payment discounts effectively increases the costs of manual AP processes. AP automation allows companies to optimize cash flow and early payment discounts.
4. Lack of Timely/Accurate Cash Flow Management
A lack of timely accrual data as a result of manual AP processes often means that companies lack reliable visibility to their cash flow-further limiting their ability to maximize returns from early pay discounts, while having a deeper impact on the financial health of the organization.
How Does Your Organization Compare?
How many of these symptoms plague your organization? In reality, applying accounts payable automation to relieve even ONE of these symptoms can produce a significant return on investment while having broader and deeper impact on the performance and profitability of your organization.
In our NEXT AP Automation Blog, we’ll explore tips for taking ownership of an AP process automation initiative and getting buy-in from an executive sponsor.