Forget Jack-o-Lanterns, Consider These 5 Scary Accounts Payable Process Facts

Forget Punkin Chunkin...This Is Getting Real...

Yeah, if you have kids, they’ve probably been buzzing in your ears for weeks about what costume they’re going to have this year.  Then again, if you’re a candidate for parent of the year, you might’ve been at your local retailer in the 11th hour picking through the dregs of the once vast costume array.  I mean, most kids don’t want to be a zombie pirate or Rocket the raccoon (no offense Guardians of the Galaxy, you’re just not as popular as other Marvel franchises).  Granted, certain scary costumes hold perennial appeal, but in today’s piece, it’s appropriate to look at some things which are scary, ugly, and downright noxious in the Accounts Payable process.  If this post had to have a title from a Zeppelin song, it would have been What Is and What Should Never Be.

So, in all their gory detail, here’s a shortlist of five things that are downright frightening about the Accounts Payable process.

1. The average number of invoices with errors is approximately 3.6%(per IOMA).  Now, that number may not seem like a ton, but consider if you organization has $100MM in payables pumping through it over the course of the year.  If $3.6 MM was paid to the wrong vendor, or for the wrong invoice, or in the wrong amount...you get the picture.  The sum of these errors equals a total nightmare for reconciliation in the accounts payable process and unnecessary extra work to unscramble the eggs.

2.  The industries with the highest average cost to process an invoice are Non-Profit / Education at $16.78/invoice and Government at $15.86/invoice.  While this doesn’t really come as a surprise, it underscores the need for accounts payable process improvement across all manner of organizations.  With many corporate leaders having no actual clue to how much their inefficient invoice processing is costing them, it’s high time that they wise up to these ap process leaches and identify ways to make AP strategic and profitable (and no, that is not an oxymoron, it’s entirely possible).

3. Nearly 62% of invoice processing costs are made up of staff labor (per APQC).  The real issue here is how much time is needed to advance an invoice in process.  This includes data entry, data validation (matching the data from the invoice against disparate information like vendor master, PO table, and receiving data), GL coding, and approving.  The bottom line is that the accounts payable process is very fat from a time consumption standpoint and needs to be leaned out if you have any hopes of dropping your processing costs and improving your ap process cycles.

4. For the average company, over 50% of eligible early payment discounts go uncaptured because of inability to process invoices and execute payment in a timely manner (per Aberdeen Research).  This means that significant opportunities to pad the bottom line are squandered, again because of a grotesque ap process.  Ironically, it’s our belief that, given the option, most CFO’s and Treasurer’s would likely want to capture discounts as they tend to be free monies to the payer, when done properly.  This again is a compelling reason to pursue automation.

5. On average, only 32% of companies harness Accounts Payable process dashboards to monitor and optimize performance within their AP departments (per Aberdeen Research).  This only serves to underscore just how in the dark most AP and finance leaders are.  When you consider that most sales and marketing executives have rich insights into their customer and prospect pipelines you can understand that there is a definite gulf between investment in top line revenue generation systems and bottom line, back office systems.  This kind of thinking must be challenged, because AP automation need not be a financial boondoggle, but instead could be a transformative organizational profit center, that catalyzes further finance and operations improvements.

So, hopefully, in reading this you’re not too freaked out with the horror show that is the case in most accounts payable processes.  Given the many options and means available to improve in this area, companies can turn this function into an effective, efficient machine that becomes a critical, strategic asset to the health of the organization.