When baseball scouts evaluate baseball prospects, there are a variety of metrics they use to conduct a holistic assessment of the prospects potential. Common items like Batting Average, On-Base Percentage, or Earned Run Average are all bottomline criteria for determining eachs potential contribution to the franchise thats pursuing them. However, scouts also go well beyond that to look into particular nuances of eachs game does he have trouble with the curve, can he hit for power, is his arm strong or weak, does he have presence of mind while running the bases ? This continues and then you get into higher level questions like is this guy a leader, a showboat, a team player, a flight risk etc. At the end of their evaluation, they run through the list of statistics and percentages, comments, notes, study, and they make a recommendation to pass or act upon the prospect its essentially a very detailed form of counting the cost of their potential investment, and one that has wildly varying results. But that being said, the methodology could be applied to Accounts Payable automation when vetting whether or not it makes sense in your context of business.
Accounts Payable Automation Evaluation In a Nutshell
1. Cost Most every CFO, Controller, VP Finance, and Accounting Manager that has pursued Accounts Payable automation is at least somewhat cognizant of the fact that improved AP processing will mean a tangible difference in their bottomline. In fact, the more screwed up you are as an organization (in terms of your Accounts Payable process), the more significant the impacts of AP automation will be. So, one of the key parameters by which you should approach the subjective evaluation of whether or not it makes sense for your business to pursue this type of improvement is absolutely centered around cost. To that end, you should check out this eBook on unpacking the 7 Costs to Process an Invoice and what to do about them. And as baseline, you need to understand as a leader what every invoice is costing your organization to process from receipt through to payment. The most streamlined AP operations, according to recent survey data, suggests that Best in Class organizations are processing invoices in automated ways, for around $3.34/invoice. Contrast that to nearly $17 for the laggards and you have a broad range and potential for significant improvements financially. Also, if youve never gone through the methodology of costing out your Accounts Payable process, its an effort you really shouldnt put off, and you can use this as a resource too!
2. Productivity One of the themes of the continued economic malaise that many businesses find themselves in, is the forced position of requiring their staff to do more or handle more work load with less resources than they previously allocated before the macro economic issues set in. With that said, theres not a Finance leader Ive spoken with in the last five years that hasnt wanted to gain more productivity out of their staff, and the key issue here is providing the tools that are necessary to improve the process. Its kind of like Archimedes on moving the world he said, Give me a lever long enough and a fulcrum on which to place it, and I shall move the world. By giving your people the lever and fulcrum, sic tools, they can move their process out of the dark ages and into the automated ages. The byproduct of this is typically centered around massive productivity gain and processing time reductions associated with the elimination of base, manual labor, especially tied to data entry and data validation. This is a proven expectation of any noteworthy Accounts Payable automation platform and deserves to be one of the criteria by which you make your evaluation and recommendation to pursue/forgo AP improvements.
3. Risk While not many folks really like to think of the defensive as a good tactic for improving a business, there is something to be said about Accounts Payable automation in this area. Apart from automation, businesses are exposed to higher levels of risk than in organizations that have tight controls adherence and automation to support it. Vendor payment fraud schemes remain one of the most prevalent ways that funds are bled out of an organization through all kinds of manipulation. Additionally, erroneous duplicate payments, that are not malicious, are an additional means by which companies hurt their fiscal health. Finally, tax implication and compliance issues abound with the various tax forms and filings. Penalties for misfiled information can be excessive and a quick drain on profitability. Looking at strategic ways to make AP automation reduce risk and drag on an organization is a wise approach to wholesale AP improvement and should not be discounted.
Like any good baseball scout prepping for the upcoming draft, the key here is to do your homework. When you making high-impact decisions like when and how to improve AP, put in the due diligence to make a quality decision and analyze your process across these three areas. Then make a recommendation, with a supporting business case, for next steps.