Hey AP: Time to Shake Off Your Ball-and-Chain Image
Reading a recent APP2PNetwork white paper, I was struck by how little respect accounts payable departments across America get. Citing an Institute of Finance and Management (IOFM) AP Key Performance Indicators Study, accounts payable “topped the lists as the most time-consuming, laborious, and paper-intensive finance and administration function, ahead of burdensome activities such as accounts receivable, payroll, tax, and audit and reporting.”
Come on, really? Ahead of accounts receivable? Well, yes, unfortunately.
Here’s the other thing that caught my attention: it probably isn’t the fault of the people populating these AP departments. How do we know? The way the APP2PNetwork paper laid it out, the problem lies not with people but with systems.
The most telling information were a few statistics that highlighted the wide chasm between best-in-class AP departments and all the rest. It seems best-in-class designees have a whole lot of things going on that others don’t. These advantages add up to some surprising (disturbing might be a better word) statistical differences. For example, according to IOFM’s Accounts Payable Department Benchmark and Analysis Report, 84 percent of an accounts payable staff’s time is spent on transaction processing. That leaves only 16 percent of the day for anything else. Yet another statistic quoted in that same white paper had best-in-class accounts payable organizations averaging 3.6 days for processing invoices as opposed to 16.6 days for everyone else. (Per Ardent Partners’ ePayables 2015 – Higher Ground report.)
How can these discrepancies be so wide?
IOFM explained the difference using four benchmarks:
- Percentage of invoices processed straight-through. Best-in-Class companies were able to save enormous time and labor by enabling invoices to go from receipt to approval without human operator intervention.
- Invoice approval cycle times. Best-in-classers got this done on time, so that invoices could be paid on time. This translates to not only fewer late-payment penalties, it makes for a happier relationship with the vendor.
- Alignment between accounts payable and procurement. By getting AP and Procurement functions on the same page (make that system), communication improves, leading to fewer errors and better purchasing decisions.
- Percentage of early-payment discounts captured. It turns out that about 80 percent of vendors out there either are willing or already do give early payment discounts (MasterCard Creating Payments Energy report). Who knew? A lot of AP departments, that’s who. But how many are able to take advantage? Very few.
So, are these best-in-class AP departments doing something the rest aren’t? Working more hours, maybe? No. They’re working smarter, by using AP Automation. IOFM concluded in its white paper that automation is instrumental to improving on all four criteria listed above. Simple as that. By embracing AP automation, your AP department can be seen as a valuable contributor to the company’s success, rather than a drain on it.
And there you have it. If you want respectability, stop working so hard. Get automated.