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Cristian Maradiaga

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Download a free copy of "Preparing Your AP Department For The Future", to learn:

  • How to transition from paper and excel to eInvoicing.
  • How AP can improve relationships with your key suppliers.
  • How to capture early payment discounts and avoid late payment penalties.
  • How better management in AP can give you better flexibility for cash flow management.

Accounts Payable Challenges: How to Achieve Real Automation

Accounts Payable Challenges - How to Achieve Real Automation

Chances are, your accounts payable (AP) team has a lot on its plate. They’re doing more than just paying the bills for the goods and services your company needs to operate and grow—they’re most likely working closely with suppliers to foster strong and healthy business relationships. Add in managing cash flow, tackling expense reports and loan management, and the need to work effectively with team members across business units as well as suppliers, and it soon becomes clear just how many accounts payable challenges your team is facing—particularly if they’re still using paper-based, manual workflows.

Hidden within these challenges, however, is opportunity. Basic automation can improve the efficiency of AP processes to eliminate the hassles that come with time-consuming paper-based workflows, but it’s only the first step. By identifying the most common accounts payable problems and addressing them with the right mix of technology and best practices, you can achieve true accounts payable automation and make AP a source of powerful value as well as savings.

Why Overcoming Accounts Payable Challenges Matters

The most common problems that plague the average AP department are the same as those that hamper productivity and efficiency in others: manual workflows and a reliance on paper (or, in some cases, last-gen tech, such as standalone spreadsheet applications with minimal or no integration with other software packages). Many accounts payable teams continue to endure sub-optimal efficiency, slowed by time-consuming tasks such as manual data entry, human error, and the delays inherent to paper processes.

In a 2019 survey, J.P. Morgan found 97% of financial professionals continue to pay at least some of their vendors with paper checks. Research conducted by Ardent Partners in 2019 found that nearly half (49.7%) of all invoices are still being sent and received on paper.

Handling paper checks and processing paper invoices isn’t just slow and inefficient; it can also be costly. Late, duplicate, erroneous and missing payments are all too possible with paper. Poor transparency and accuracy can create faulty data that compromises leadership’s ability to create accurate budgets and forecasts. Errors, delays and other mishaps can quickly strain valuable supplier relationships, too, leading to less favorable pricing and terms.

Add in the extra labor required to chase down exceptions, the high risk of both invoice fraud and maverick spend, and the costs created by late fees or missed early payment discounts, and it quickly becomes clear why so many chief financial officers (CFOs) are looking for ways to break free from these outdated paradigms.

In manual workflows, where data entry, rogue spend and documents created in a slew of different programs and formats are the rule, not the exception, errors are frequent, time-consuming, and often frustratingly difficult to solve.

The Most Common Accounts Payable Challenges

Moving away from what doesn’t work and toward what does is easier with a clear picture of each challenge faced when dealing with paper and manual workflows. Examining the most common payables problems in greater detail can help you decide how best to address each of them.

1. The Curse of Manual Processing

In addition to requiring more time to accomplish every task, manual, paper-based workflows also increase approval times. Bottlenecks can form in the invoice approval process caused by absent approvers or misdirected mail. Paper checks can similarly reach their intended recipients well beyond their due date—or not at all.

Slow, missed, or incorrect payments can lead to fees and delayed shipments. They can also damage your good name—and, worse still, your credit rating, meaning it will be tougher to get optimal pricing and terms from your suppliers.

2. A Mishmash of Matching Errors

One of the most important AP processes is three-way matching. Accounts payable staff compare each invoice directly to its corresponding purchase order and receiving paperwork to ensure all the details are correct and the invoice can be paid on time and in full. In manual processes, where data entry, rogue spend and documents created in a slew of different programs and formats are the rule, not the exception, matching errors are frequent, time-consuming, and often frustratingly difficult to solve.

The result is not only missing, inaccurate, or late payments, but much higher staffing costs and damaged supplier relationships.

Exceptions, Ardent Partners reports, are a major problem for more than 48% of AP teams. The average accounts payable department spends about a quarter of its time finding missing information and resolving supplier inquiries, and a whopping 73% of all invoice exceptions were directly linked to errors in invoice information that, in an ideal world, would’ve been caught and corrected before the PO was ever issued.

A related issue is payment of invoices without any matching at all. Harried AP staff may receive a notification that goods have arrived or services have been executed, and pay the invoice immediately without verification that the goods were of the quality, quantity, and condition expected, in the timeframe dictated.

This can lead to even bigger supplier relationship issues, wasted time and money, and production problems if materials and goods are missing, the wrong type, or damaged upon receipt. Paying without considering terms can also make it difficult to maintain sufficient working capital.

3. Rogue Spend, Invoice Fraud, and Theft

In addition to being slow, plagued by errors, and tedious, manual workflows are doggedly opaque. Relying on paper documents increases the risk documents will be inaccurate and incomplete—or simply turn up missing, with little to guide team members to a resolution.

The lack of transparency also opens the door for other costly threats: rogue spend (also known as maverick spend), invoice fraud, and outright theft. Without protocols in place to ensure every purchase has an accompanying purchase order, it’s all too easy to miss authorized purchases made “outside the lines.” Incomplete and inaccurate data hampers cash flow management, reporting, forecasting, and strategic planning. Worse still, team members can spend hours of precious time investigating these unauthorized purchases, as well as theft and check fraud.

These last two issues—fraud and theft—cost organizations about 5% of their revenue annually, according to the Association of Certified Fraud Examiners (ACFE). The total price tag for losses in 2020 came to $3.6 billion, and included not only check fraud but sophisticated, e-mail based invoice fraud and financial statement fraud—all of which are much easier to perpetrate with opaque manual workflows and inefficient paper-based processes.

4. Duplicates and Doubles

Paper invoices can, and do, vanish with unsettling regularity. Left unpaid, they wreak havoc with your supplier relationships and reputation. They also throw a spanner into accounting, where missing information compromises leadership’s ability to audit, forecast, generate reports, and develop strategic spending plans.

What’s worse than missing a payment? Paying twice. Data entry and routing errors, as well as unoptimized workflows can lead to duplicate payments on the same invoice, which can once again hamper cash flow management and financial planning while tarnishing your professional reputation.

Why Basic AP Automation is Only a Partial Solution

With so many of the biggest problems in AP directly connected to the inefficiencies of manual workflows, paper documents and last-gen software, it’s no wonder CFOs are making it a priority to move beyond paper with digital tools.

A 2020 survey of CFOs conducted by Gartner research found 82% of those responding planned to spend more time and resources on advanced data analytics and other tools in finance in 2021. Nearly two-thirds (66%) indicated they’d be looking more closely at workflow automation, including robotic process automation.

This enthusiasm is well-founded, since the benefits of accounts payable automation are clear and include, but are not limited to:

  • Increased spend transparency and control.
  • Lower invoice processing costs.
  • More effective cash flow management.
  • Better use of staff time and talent.
  • Lower overhead and staffing costs.
  • More efficient invoice processing.
  • Stronger fraud prevention.
  • Stronger vendor relationships.

Basic AP automation is a strong starting point for addressing the challenges that come with optimizing AP, but it’s the beginning of the journey toward true AP automation (and, in a larger sense, organization-wide digital transformation), not the end. Digital tools must be paired with best practices to reach their full potential.

Achieving True AP Automation

Choosing an effective, cloud-based and centralized AP automation solution will definitely yield immediate results for organizations upgrading from paper-and-pencil or spreadsheet-based systems. Knocking down data silos, eliminating paper, standardizing formats, and automating workflows will provide major demonstrable improvement (and value!) for AP teams of all sizes.

These benefits will be even more pronounced if your automation software is part of a more comprehensive procure-to-pay solution such as PLANERGY. Doing so will connect AP to its natural partner, procurement, centralize all your financial data, and more effectively integrate your processes and data with your existing software environment while centering both departments as value creation and strategic insight centers for your organization.

But to leverage the true power of digital tools, accounts payable departments need to develop and enforce some common best practices as well.

  • Engage the C-Suite for support in overhauling your spend management model to focus on:
    • Total visibility into, and control over, both direct and indirect spend.
    • Agility, resilience, and continuous improvement.
    • Strategic risk management.
    • Real-time analysis of spend data.
    • Collaboration and communication with internal stakeholders to consolidate spend strategically, reducing resource demand and shortening invoice processing times.
    • Supply chain optimization and strategic supplier relationship development.
    • Compliance and accountability.
  • Optimize your procurement workflows in order to provide clean, clear, and accurate data for your downstream payable processes, e.g. three-way matching.
  • Prioritize supply chain resilience. Assign preferred suppliers in all categories, develop contingencies based on analysis of potential supply chain disruptors, and coordinate with other business units to develop strategies that preserve business continuity.
  • Create and enforce a PO-only purchasing policy to improve efficiency and combat rogue spend, theft, and fraud.
  • Practice proactive cash flow management. Use data analysis to take full advantage of negotiated early payment discounts, preserve cash on hand, or delay payment as circumstances warrant.

Leverage AP’s Powerful Potential to Drive Value

Move beyond paper processes and manual workflows and take advantage of digital tools and integrations to upgrade to true accounts payable automation. You’ll save time and money, eliminate waste, and build stronger, more productive vendor relationships across your supply chain while helping to position AP as a source of strategic value for your entire organization.

What’s your goal today?

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