The State of ePayables – Chapter 2: Achieving AP Mastery

This is the second blog in a series based on sections of the Corcentric-sponsored Ardent Partners report, The State of ePayables 2022: Mastering a Key Function at a Critical Time. The first blog assessed the current state of Accounts Payable for both its strengths and weaknesses. The second chapter of the report, as well as this blog, addresses the priorities, challenges, and opportunities that exist for AP teams and the AP process today and how to move forward.

Here’s the good news when it comes to transforming AP into a fully automated and digitized function: “Within the next two years, nearly 68% of businesses state that they will have automated the complete P2P cycle.” This is according to the latest Ardent Partners report, The State of ePayables 2022: Mastering a Key Function at a Critical Time.  

Now here’s the bad news from the same report: “Just over half of all invoices (51.9%) are received electronically.” This means that nearly half of the business leaders surveyed note that their organizations are still tied to paper invoices and legacy processes that keep AP departments from achieving optimum efficiency and being able to transition that function from a back-office cost center into a value-added role in strategic activities.

The report notes that this second point is puzzling since technology has become both more affordable and easier to use. Add to that a pandemic that has created things like supply chain issues and a remote workforce, and it’s easy to see how reliance on paper and manual processes are detrimental to the efficiency, speed, and accuracy of payments.

AP automation is a necessity, not a luxury

Accounts payable’s major function basically boils down to three steps: receiving, processing, and paying invoices. How they handle these three steps determines whether an AP organization moves towards best-in-class status or remains a laggard, costing the company in both time and money. The report makes it clear that automating each of the steps (invoice receipt, invoice processing, and invoice payment) must be a part of a broad-based digital transformation across the entire source-to-pay continuum. Not doing so can result in a lack of real-time visibility, minimal data capture, loss of early payment discounts, higher invoice exception rates, and the potential for negatively impacting supplier relationships.

Ardent Partners has been publishing these e-Payables reports for 17 years and, as the technology changes, so do the metrics and benchmarks. While many organizations have introduced automation and digitization into different steps in the invoice approval workflow, it’s been done piecemeal, but that is evolving. Finance leaders understand that a holistic approach is the only way to fully streamline and optimize the payables function. The use of electronic invoices has seen a considerable bump in a short amount of time. In their 2019 report, Ardent Partners research noted that 42% of businesses had implemented an e-invoicing solution; that number jumped to 57% in the current report. Investment in e-payments solutions has also grown, going from 47% in the 2019 report up to 56% in the current effort. The graph below shows the current and planned usage of technology.

When organizations automate their invoice processes, they can realize invoice processing cost savings of 40% to 90% compared to manual, paper-based processing. The more steps that are automated, the greater the savings and the closer to AP mastery the AP team comes. That’s especially true when it comes to electronic payments. As the report notes, “While many AP departments remain focused on the front end of the process, more groups are realizing that e-payments solutions (which can tailor B2B payments to specific suppliers utilizing a variety of electronic means, including ACH, commercial payment cards, virtual cards, wire transfer, etc.) are vital to completing the full cycle of P2P.”

Overcoming the cash management gap 

The steps to full payables optimization include not only the invoice approval and payments functions; they also should include cash management, supplier onboarding, spend management, and exception management. Too many companies are quite far from realizing that optimization, as the report notes that only 13% or less of businesses, on average, have fully automated these vital functions. Of these, cash management is essential if AP operations are going to be able to achieve “next-level” results and gain greater control over their cash flow and working capital.

With so many issues companies face today, being able to manage cash by taking advantage of the many cost savings and revenue producing opportunities becomes more important than ever. Yet, the report shows how far the majority of companies are from realizing the benefits. Only corporate card programs were undertaken by the majority of respondents (68%). But virtual card programs, which have greater fraud protection than do corporate cards are only being utilized by 30% of organizations, while 43% indicate that they have no plans at all to implement this option. When it comes to discount capture, companies seem to be willing to leave easy cash on the table, since only 38% are taking advantage of this, while another 38% have no plans to move forward in this area.

The “Extreme Technology Adoption Plan”

To set up a successful e-Payables framework, the Ardent Partners report doesn’t only list results of their survey, it also offers a plan for companies to follow in order to increase technology adoption throughout AP, realize stronger ROI when it comes to that adoption and utilization, and hopefully, move the AP group towards best-in-class performance.

• • Be honest about change – People are resistant to change, in any form, but companies shouldn’t sugarcoat how big a move this technology will be. The important thing is to make it clear to all key stakeholders and users that the result will be a “new, streamlined, and standardized approach to an activity, enabling important things like visibility and reporting.”
  • Try innovating the organizational chart –  As technology plays a more expansive role in the accounts payable function, there needs to be a centralized technology operations team of solution experts that understand not only the technology but also the needs that it answers. The reality is that not everyone in the AP department is using every application within the technology, so different employees will need different types of support and guidance. A specialized team within the function will result in faster resolution of any concerns or questions.
  • Keep it simple – The more steps in an automated workflow, the more complexity will be added. So, when planning what solution or system to implement, the report suggests the project team should ask “what is the absolute minimum number of steps or actions needed to complete an activity or task” and then design a system that does exactly that. In this case, simpler is smarter.
  • Get CFO support and a message – Some within the organization will always have complaints about change, want to maintain the status quo, or try to blame it on the system. Here’s what your CFO should say to everyone within the team, “Yes, but we still need to use the system.” No elaboration needed.
  • Mandate usage on a schedule – Over the course of 3 months, a percentage of the staff’s activities must be completed in the new tool: 50% should be completed in Month 1; 75% in Month 2; and 90% in Month 3.
  • Link usage to bonus eligibility – When a staff knows that non-compliance or a failure to complete the 50-75-90-day plan stated above will get in the way of receiving a bonus, you can rest assured that no one wants to be “that guy” – the one who stood in the way of bonuses.
  • Prepare the staff for “growing pains” – Any time you introduce new technology, there is a learning curve. Let the staff know that the first three months will be intense. Give AP leadership a role to play in this first quarter by assigning daily duties and responsibilities that will assist the project team in making the implementation a success. The larger organization should also be informed that disruption is possible over the quarter.
  • Failure is an option – Not really, but mistakes will happen. Employees need to know that, as long as they are making the effort to utilize the system and meet the schedules, management will support their efforts.
  • Adopt, adapt, and improve – The report says it best when discussing this point, “When it comes to getting full value out of a technology investment, these three words boil it down perfectly:
    • • Adopt – Mandate usage
      • Adapt – Adapt the organization to the new system
      • Improve – Ensure the staff is committed to using the solutions and management must be committed to making them better.”

Technology is not going away; it’s just going to play a growing role in every function —and AP is no exception. To improve AP performance, AP leaders have to prioritize technology adoption over other considerations while still completing the day-to-day tasks. They need to make it clear to the entire team that these day-to-day tasks will be streamlined and made more efficient because of this very technology. Even though the ride may be bumpy, reaching the destination of full adoption will be worth it.