The accounts payable (AP) function plays a critical role in the management of cash and provides value beyond efficiently processing supplier invoices. Yet, when AP teams are “stuck” receiving and manually processing large amounts of paper invoices, the value gets lost.
With manual processes and lagging technology, each invoice takes extensive time, effort and resources — resulting in both visible and hidden costs.
Let’s discuss those costs and touch upon AP best practices, key considerations and the strategic impact a zero-touch approach will have on you and your entire organization.
The meaning of zero touch and how it can uncover favorable business opportunities
Zero touch automation has become a well-established term in business circles, used to describe automation of IT and data infrastructure. The approach is gaining ground in the telecom industry to extend automation beyond the prototype process and cover the entire maturation of building a better network technology.
In the realm of finance, AP automation presents a more streamlined, consolidated approach to invoice processing and reduces the accounts payable cycle from weeks to just a few days. The technology converts paper invoices into a digital format and captures the critical data that procurement and finance systems need - from purchase order matching and coding to paying for goods and services. To achieve a zero-touch process, it doesn’t stop at the AP function. It involves the whole purchase-to-pay process and being able to automate every step of the process.
How to transform your AP function into a strategic partner
Implementing AP automation has its advantages. One of which removes administrative and manual tasks.
Automation helps evolve the AP function. In the past it’s been focused solely on the transaction, which would entail invoice data entry, back and forth emails with suppliers and manual approvals. In the era of technology and now artificial intelligence (AI), skills of an AP professional involve identifying metrics to track and manage for maximizing benefits of automation. Key performance indicators (KPIs) can be developed such as how fast an invoice gets approved and the cost per invoice. These metrics can be calculated to benchmark process improvements along the way. The AP function can then focus on producing reports to help make cost saving decisions.
AP metrics that matter and tips on how to measure the key KPIs yourself
One obvious metric that is often overlooked is cost per invoice, which is not always on management’s radar. Calculating the cost per invoice involves taking all the cost components of the AP department divided by the total number of invoices processed. Having clear visibility into your “all-in” transactional cost not only helps answer many questions, but it will also enable better-informed decision making. According to IndustryWeek, a standard baseline in this area is $15-25 per manually processed invoice. In an automated world, this transaction cost can be reduced to less than $2.
If optimization is your goal, then straight-through invoice processing metrics need to be included. Understanding exactly how many of your invoices can be processed without intervention (zero touch) is key. After all, increasing this metric will allow your team to reduce the number of problematic invoices.
There is also high value on simplifying the business of procurement and cutting through the “noise” created by consultancies in the source-to-pay space. Helping an organization assess their current performance involves a methodology comprised of benchmarks and a comprehensive diagnostic approach, which involves efficiency, connectivity, cash management and compliance.
These benchmarks directly help organizations develop a compelling business case that a CFO will gladly approve. Individual organizations must choose the optimization drivers that reflect their strategy and direction. More often than not, organizations need to take a serious look at these metrics as a foundation for building a transformational business case moving forward.
AP automation and purchase-to-pay processing are business priorities that impact the entire organization and business case
The AP automation journey has many moving parts across management, and if universally-adopted by all, there are opportunities for everyone in the organization. E-procurement is usually the first area where automation is seen with converting supplier invoices electronically and document imaging. Furthermore, finance and procurement professionals rely on e-procurement solutions to enable buyers to issue order requests and purchase orders with a corresponding approval workflow that automatically assigns the purchase order to the right approver for quick authorization. The same applies when invoices are received. The approval process is quick and easy, ensuring automated two- or three-way matching is accurate for zero mistakes. Additionally, because AP can send timely or early payments, the supply chain isn’t disrupted for the organization and creates greater trust with suppliers.
Financial leaders benefit significantly from AP automation since it directly relates to the financial close, reporting, and on-going audits— providing greater compliance, control, process efficiency and cost savings.
By implementing both AP automation and a modern purchase-to-pay system, organizations can expect to reduce costs across their bottom line and overall financial performance. When creating your business case, calculating the ‘hard’ and ‘soft’ savings identified from the outlined metrics combined with the cost of technology investment can help determine the ROI from the deployment of a purchase-to-pay solution.
Make adjustments today and kickstart your business
Moving forward, zero-touch AP will follow paperless invoices, automatic invoice matching, automated purchasing and more, as we set our eyes for a New Normal.
With investment in digital tools, expert procurement advice and smart invoicing, any company can survive rough chapters of global business and begin improving toward a more successful and uninterrupted future.