While inefficiencies in the accounts payable process are often taken for granted and accepted as a cost of doing business, the reality is that the analysis, optimization and automation of AP processes can provide a great case study for broader BPM initiatives within any organization, with plenty of precedent for success.
An inefficient AP (accounts payable) process can:
These problems are largely internal process flaws and inefficiencies that can be addressed via BPM and improved with relative ease, based on well-established best practices.
The most common AP pain points that can be resolved through process improvement (aided by automation), include:
1. Manual entry and human errors
One of the most tedious and attention-demanding tasks in AP is keying in the data for entering, approving and paying a vendor invoice. Not only does this seemingly simple task eat up a lot of resources, but it also opens the floodgate for the errors. If your organization relies on paper documents at every stage of the AP process, the likelihood of manual errors rises exponentially.
The easiest way of reducing the manual errors is through automation. For instance, using a Purchase Order system can help to digitize and automate most of the steps in the AP process, which leaves little room for human errors. Not only does this help save time, money and effort, but it also minimizes the possibility of manual errors.
Where paper or electronic documents still exist, intelligent capture systems that can extract transaction data and then use it to inform business rules for document matching and approval routing can significantly reduce or even eliminate this problem.
2. Challenges of information management
A single purchase often requires the management and storage of a lot of structured, transactional data as well as the management of unstructured data in the form of documents, including invoices, receipts, bills of lading, purchase quotes, etc. That data and those documents are often maintained in separate systems. Storing and maintaining this data to support the transaction and to maintain an audit trail for compliance purposes can be a real challenge.
Often, storing and managing data and documents in disparate systems can result in duplicated effort and inefficiency.
3. Changing expectations from the AP department
There used to be a time when the accounts payable process was viewed as a separate area of service, isolated from other financial and accounting areas. Not so anymore. Today, it is essential for all finance stakeholders to access information of all the F&A functions in one place. Owing to this need for consolidated information, AP is more than just recording and reviewing transactions. But manual, inefficient processes make the task of searching and analyzing information extremely difficult.
Taking a holistic approach applying BPM principles to AP can not only enhance the AP functions but also add more value to the overall financial reporting and cash management. By combining analytics and digitization with an optimized accounts payable processes, you can gain a much better visibility on corporate financial performance.
4. Overly Complicated P2P Processes
Purchase orders start at various levels in a large organization. These may require the approval of several authorities. When there’s several departments involved and the chain of approvers is long, things not only get complicated but also slow down the payment process and drive up the costs of internal communication. A purchase order may end up passing through 5-6 people and the information can distort in the process, leading to decisions based on inaccurate data. Often, companies who analyze these processes discover that fewer levels of oversight and approval are needed when there is greater overall visibility and control.
5. Inefficient (or unreliable) payment process
Late payments to suppliers can have bitter consequences: the supplier may block your account or may impose penalties for late payments. Duplicate payments that result from poor process control and visibility may impact cash flow and have a negative effect on the credibility of your finance function.
6. Cyber fraud
Without proper systems, processes and controls in place, organizations are increasingly at risk from fraud—digital or otherwise. Reducing exposure to the risk of fraud can be incorporated into automated AP processes in ways that process cycle times and effort, while increasing control, visibility and auditability.
The First Step in an Ongoing Process
By taking a step back, analyzing and reviewing AP processes to target these specific pain points, organizations can establish best practices not ONLY for accounts payable, but also for how they examine other business processes as candidates for optimization.
For more information about business process management and AP automation, visit the Artsyl resource page at www.artsyltech.com