In the past, the Accounts Payable (AP) department was viewed as a necessary cost center. Yet, best-in-class companies understand that by refining AP processes and technology they can realize significant cost savings, drive up the number of transactions processed and reduce errors.
The Why of AP Transformation
CFOs, Controllers and accounting department managers need to be able to accurately evaluate how their teams are performing. Companies often look to benchmarking surveys or their process partners to get insights on how their internal finance processes stack up to other organizations in terms of cost-efficiency, transaction speed and error rates.
Recently, APQC, an authority in benchmarking, best practices, process and performance improvement, and knowledge management, released a survey of 997 organizations concerning the costs of AP processes. The member-based organization calculated the metric based on “the annual process cost divided by the total number of invoices processed annually.”
The result makes a strong case for investing in automation. Why? Manual labor is still rampant in the AP process. APQC notes that manual labor accounts for 62% of total AP costs. This need for human intervention is triggered by PO, shipping and receiving data errors, and invoices requiring employee involvement.
When this all shakes out, laggard AP departments spend two and a half times more than top performers spend on invoice processing.
The How of AP Transformation
Today, AP has become a significant strategic component in successful enterprises. By leveraging AP strategically, they can achieve additional savings by utilizing discounts and avoiding penalties.
AP operations can fulfill a more strategic role in the enterprise and realize significant cost reductions while increasing efficiency when you deploy these improvements:
Centralization & Standardization—Key to realizing significant improvements in AP functions is consolidating and creating consistent processes. Unifying multiple geographic locations has a three-pronged effect: 1.) It reduces variations within AP processes; 2.) It eliminates redundant costs; 3.) It provides stronger internal control over the overall AP process.
Digitalize—Invoice data entry and other aspects of the average AP process are both low-valued and labor-intensive. OCR technologies, e-invoices, EDI are some key initial steps to digitalizing the intake process, and avoid drowning in paper. For faster, more efficient and direct AP processing, automated workflow technologies, RPA and more advanced business process management (BPM) technologies can stitch together all the transactions steps and build business (matching, routing) rules around them. This allows for “hands-free” automated purchase order matching.
Optimize—After the initial gains in transaction speed, reduced costs and decreased errors have been realized, it’s important to not get complacent. Once a new benchmark is set in terms of veracity, volume or velocity of AP transactions, ongoing work is needed to not only monitor existing KPIs but to constantly look for new ways to improve the process.
Do your AP processes, benchmarks and KPIs measure up? We’d be happy to offer a free assessment of your current practices.