Taking the Path of Least Friction for a Successful Payables Strategy
Originally appeared in Spend Matters
Inefficient invoice processing is standing in the way of companies achieving their bottom-line targets. The cause is manual, paper-based invoicing systems, which lead to late payments, errors, internal process issues, disputes and damaged relationships with suppliers, among other headaches. In a word, “friction.”
It doesn’t have to be this way. New data is showing that digital AP solutions can eliminate these frictions and streamline invoice processing.
“The Payables Friction Index: Barriers to Invoice Automation,” a PYMNTS and Corcentric collaboration, quantifies the issues that businesses experience in processing supplier payments and explains how automated solutions can help ease the pain. The index is based on a survey of executives at 2,570 firms and measures friction on a scale of 0 to 100, with lower scores denoting higher degrees of payments friction and higher scores indicating more seamless accounts payable processes.
Takeaways from the Payables Friction Index
In a Rut
When it comes to making payments, it appears companies are stuck in their old ways. According to the Index, 80.8% of businesses still use paper checks to pay their invoices, but they’re not necessarily happy about it. In fact, only 51.3% of the firms expressed satisfaction with paper checks.
Paper checks take a long time to process and can lead to inefficiencies. On average, 42.3% of invoices are approved in between one day and one week. The more people involved, the longer this process takes. For example, almost 45% of invoices take a week or longer to process when five or more people are required to approve. That number drops to 37.9% when three to five people are involved, which ups the percentage of invoices (62.1%) approved between one day and less than a week.
Automated solutions can reduce the number of people involved as well as reduce manual tasks, leading to a faster, more effective payment process.
The Will to Change
Although most AP professionals agree that automation would ultimately allow them to do their job better, according to the report, the firms most willing to embrace these solutions have already established what they feel are efficient AP processes. About 71% of firms that reported having “very” or “extremely” efficient AP processes in place were interested in innovation, while just 32.5% of firms that reported having “slightly” or “not at all” efficient processes showed interest. The survey refers to this paradox as AP’s chicken-or-the-egg dilemma.
For those willing to innovate, eInvoices could, and have already been, the answer. According to the Index, 42.6% of all firms said they receive e-Invoices, and 74.5% have used them for processing. Electronic invoicing was also the top AP innovation priority among the firms surveyed. The No. 1 reason cited for wanting to implement eInvoices is to reduce manual processing, with a close second cited as minimizing the number of people required.
What’s the Score?
The average index score among the survey’s firms was 57.3. Top performers earned an average score of 74.3, while those on the bottom received an average of 36.5. According to the research, 29.3% (the highest share) of all firms fell in the score range of 50 and 60. Where it gets interesting is when you look at the average index scores as they relate to monthly invoice processing volumes. The more invoices processed per month, the higher the index score. “This is likely because the firms that receive the greatest volumes of invoices often have more established operations that deliver greater efficiencies,” the report notes.
The overarching message is that businesses of any size can remove friction from their AP processes. There is a lesson to be learned in the finding that the more successful the firm, the more likely it is to shift away from manual processes. Those in the $100 million to $500 million range realize that automation-based solutions can help maintain their income threshold. Everyone can benefit from this lesson: Removing friction is the first step to maintaining growth.
Download the Payables Friction Index: Barriers to Invoice Automation.
Matt Clark is the President & COO of Corcentric, a B2B fintech provider that offers source-to-pay and order-to-cash solutions.