The State of ePayables Chapter 1: The Rise (and Rise) of Accounts Payable

Ardent Partners’ “State of…” reports are always some of the most anticipated research of the year, and The State of ePayables 2022: Mastering a Key Function at a Critical Time is no exception. In this blog series, we explore each chapter individually to give each topic adequate breathing room.

The report, framed in the context of a “late-stage pandemic” environment is, as usual, comprehensive and insightful as to the current condition of business in general and, in chapter one, Accounts Payable in particular. Ardent’s feeling is that the true impacts of the pandemic disruption and aftermath haven’t really been felt yet, and that they will be playing out for years to come. Considering the current significant operational, financial, and supply chain challenges businesses are facing, there’s a lot of truth in that.

While “uncertainty fatigue” has taken a toll on companies, the lingering and future impacts on accounts payable and AP processes can be ameliorated by addressing the current challenges AP leaders face, which will go a long way toward achieving their top priorities, as well.

In this Chapter One review of The State of ePayables 2022: Mastering a Key Function at a Critical Time, we look at Ardent Partners’ assessment of accounts payable through the lens of a SWOT analysis.

Accounts Payable Rising: The Strengths

One of the great lines in the Ardent report is “Perception Performance Is Reality” when describing the rising profile and recognition long overdue for AP. Although the desire among AP leaders to scream “it’s about time!” may be overwhelming, it’s enough just to have the strategic credibility and actual impact on business results and the bottom line.

That being said, according to Ardent Partners the current state of accounts payable is pretty excellent. This critical financial driver had its hands firmly on the wheel all during the pandemic, helping companies power through the unknown with stability, business continuity, and resilience. As a department and a function that plays a lead role in balance sheet health by managing cash flow to maximize working capital, AP — in Ardent’s words:

“…is succeeding in driving real value to the business…that can…1) improve/support supply chain resiliency, 2) deliver impactful gains across multiple functional areas, 3) improve the bottom line, and 4) positively impact working capital.”

All this demonstrated performance in the face of adversity succeeded in making Accounts Payable a pandemic MVP (an award shared very deservedly by Procurement, a crucial AP ally – more about that later). In fact, a whopping 66% of businesses now consider Accounts Payable “very” or “exceptionally” valuable to the organization, double what it was just six years ago. By any benchmark or metrics, that’s impressive.

There is now an increased visibility of AP departments and understanding among the C-suite of how much direct impact AP has on cash flow, cash management and forecasting, working capital, and supplier relationships. The goal now for Accounts Payable is to leverage that enviable position of organizational strength to maintain access to key stakeholders and bigger budgets to keep their rising momentum going through ever more efficient and effective performance.

Accounts Payable Rising: The (Big) Weak Spot

Manual processes, manual processes, manual processes.

As the Ardent Partners ePayables report makes clear right up front, “the pandemic underscored the fact that manual processes impede efficiency and visibility and can threaten business continuity and organizational resilience.”

While Accounts Payable has made great strides in moving away from manual processes and paper-based inefficiency (and risk), there is still a long way to go. This lingering adherence to manual labor — what Ardent politely calls “the persistent paper problem” — is without a doubt the Achilles Heel of AP departments. Consider the following:

The perennial top spot was usually “having too much paper,” which is interesting that Accounts Payable departments don’t consider it a major challenge anymore. Because it is. Even though manual processes and paper no longer occupy the top challenge as in previous years, the reality is that the AP function is still too manually based, with arguably all the major challenges above being a direct result of that lack of AP automation. Invoice processing, supplier payment processes, processing costs, purchase order matching – all of it can be made faster, more reliable, efficient, and with minimized errors and exceptions.

Not only are these manual processes creating lengthy approval and payment times (damaging supplier relationships), but they are also risk and error prone which dramatically boosts the number of exceptions that AP teams have to deal with. This bogs down the entire department in slow, repetitive work that keeps everyone from adding strategic value — and adding to disenchantment instead. Not a great motivational strategy.

Accounts Payable Rising: Opportunity Knocks

If nothing succeeds like success, then Accounts Payable is in the ideal position to build on theirs through smarter, focused strategies for surmounting what Ardent Partners refers to as the Hurdles to Success in 2022. As the report states, “AP teams must respond with technology- and program-led initiatives to reduce the time and cost of processing invoices and payments.”

Curiously, the report also notes that the B2B payment process has not been a priority for most AP organizations. One would think that “payables” and “payments” go hand in hand, but until recently this wasn’t the case. At some point the lightbulb went on, and there is now wider recognition that “there is significant business value hidden in every B2B payment that an enterprise makes.” This is equally true for paper invoices

Not surprisingly, optimizing business payments means digitizing the payments process: 24% of AP departments report that making manual check payments is an impediment to success. When you stop to think that checks, in one form or another, have been around since the Roman empire, maybe it’s time to move on and try something new. Ardent Partners’ years of research has consistently shown the high cost and inefficiency of using paper checks, but according to the Federal Reserve, 18 billion checks per year are still being written. Not all of them are B2B payments, but there’s no real need for any of them to be.

The AP’s Top Priorities in 2022 chart in the Ardent State of ePayables report, is a very useful – and telling – snapshot of where AP leaders’ heads are at the moment. Like Ardent’s interpretation of AP’s Top Challenges, it could be said that all these priorities are eminently achievable with the elimination of paper-based and manual processes, replaced with a healthy uptake of digitization and process automation — the adoption of robust, solution software, and/or technology-enabled managed services.

This harkens to a significant point found in other reports and discoveries in Corcentric accounts payable research, i.e., that Accounts Payable departments need to think and act holistically when it comes to processes – purchase order matching, invoice processing, electronic payments, etc. You can’t automate just a portion and expect to achieve significant impact – you’re just pushing the same problems around till they flare up somewhere else. It requires full visibility and real-time access to invoice and payment status and data.

The whole is the sum of the parts, which means, at the risk of regurgitating cliches, the AP process chain is only as good as its weakest link. At the moment, that’s manual processes. There is a major opportunity to maximize cost savings, optimize and streamline processes, and eliminate tedious manual tasks by transitioning to holistic digital business processes and new technology.

Accounts Payable Rising: The Threats

See “Manual Processes” above.

All kidding aside, see “Manual Processes” above.

What Ardent Partners wrote about how manual processes “threaten business continuity and organizational resilience” cannot be overstated in the current global business, economic, and geopolitical environment. Businesses must be able to weather all manner of known and unknown disruption challenges, and that necessary agility will be completely undermined if Accounts Payable does not get out of the back office and on the fast track to automation and digitization.

As we’ve stated for years, risk management is everyone’s job. Manual processes open the potential to payment fraud risk, human errors, and delays, and greatly increase the potential for AP professionals to burn out at a time when talent shortage is a major concern. Plus, it’s just a more expensive way to do business when companies are desperately trying to cut costs.

Accounts Payable risks enormous capability and credibility damage unless a digital transition is adopted soon. That’s not a threat, but a foregone conclusion.

Accounts Payable: The No Normal

Even though Ardent Partners used the term “new normal” in The State of ePayables 2022: Mastering a Key Function at a Critical Time report, the phrase has become trite beyond all meaning over the last couple of years. This is as true for Accounts Payable and ePayables as everything else.

As the planet continues its efforts, both in creativity and severity, to shake off humanity like fleas off a dog, what’s “normal” today will not be tomorrow, except for the growing need for more creativity and resilience. Forget normal, just be prepared instead.

While the state of Accounts Payable is in a great place — at the moment — like everything else in the world, it’s also in a state of flux. Flux brings uncertainty, which leads to volatility and a perceived increase in risk. And in risk lies opportunity.

For Accounts Payable, those opportunities will be made real through capitalizing on the function’s role as strategic financial intelligence hub and cross-functional collaborator. The only way to do that is through a cultural and technological embrace of digital transformation.

Now is the critical time.