Managing an accounts payable department can prove to be quite demanding, but with the right tools it can be rewarding and profitable. Accounts payable is often looked upon as a subordinate department, expected to cut costs while increasing performance, visibility and supporting its company’s strategic goals. These goals often conflict, curtailing an AP’s ability to meet them or even show progress.
For an AP organization to flourish an Electronic Invoicing/ AP Automation initiative is necessary. First let’s look at some of the challenges that an AP department needs to address for a successful implementation:
- Invoices come in many shapes and sizes – XML, EDI, fax, email attachments etc.
- What type of ERP system is being used? Being able to decipher how invoices are matched and are entered into an ERP system is vital. Determining the best way to enter information is important. All information is not the same.
- Are discrepancies resolved by matching data from invoices? Is there a complete audit trail tracking workflow information at all times?
Now let’s look at 6 ways that AP Automation can impact an organizations efficiency:
- Invoice Processing Costs Improve – Not all AP departments are the same. The cost of processing an invoice can range from $6 to $26 per invoice. According to a May 2012 Aberdeen Group report, an efficient Accounts Payable Department spends close to $2 to pay for an invoice. After implementing an electronic invoicing/AP automation solution, most AP organizations have realized a significant savings, close to 60-80%.
- Improves Cash Flow – End-to-end AP automation can more accurately detail cash on-hand and project immediate requirements. By using Dynamic Discounting, an automated AP organization can offer suppliers faster payment in exchange for a discount. A 10 percent discount for payment in 30 days or a 20 percent discount for payment in 15 days for example.
- Increases Duplicity – EIPP (electronic invoice presentment & payment) processes reduce and in some cases even eliminate the opportunity for fraud. In particular, this prevents an unscrupulous employee from creating a phony supplier and stealing from the company by using false invoices to direct money into personal accounts. Automation also reduces the costly need for audits since human error has been reduced already.
- Increases Customer Satisfaction – Manual AP means there’s a different process for each invoice format. This decentralizes the processes, which means that paying the bills on time is determined by the slowest division. By automating the process, suppliers can actually ‘see’ where their paperwork is in a single, centralized system and have a reasonable expectation of payment.
- Improves Internal Quality – Identifying the right data to capture and resolve discrepancies ensure process integrity. Data capture software automatically populates company databases to make one viable system. Accounts payable automation provides data for improving metrics such as cost per invoice, receipt to payment approval time and discounts captured versus discounts offered. By using these metrics, AP and other organization managers can improve not just the AP division, but other areas of the company as well.
- Provides Resiliency – Automated AP divisions require fewer resources. Company
managers can use manpower on higher-value work and move limited funding to other areas of the company. The automated AP process also allows AP and other mangers to move more quickly to support suppliers and other customers if they have a problem on their end.
AP Managers should start building their cases now. They need to gather every bit of data (internal and external) that shows their current process; the good and the bad. Next, they should use success stories from rival companies to show exactly what the benefits will be. Managers also need to get their suppliers involved.
Getting the funding may be a challenge, but it’s worth the effort. AP Managers that want to keep their company (and therefore their division) growing understand that reducing costs without impacting customer and supplier satisfaction is the key.