Steven Covey wrote the critically acclaimed and highly influential self-help book entitled The 7 Habits of Highly Effective People. While we don’t have the requisite time to do the book in its entirety justice in this section, we do want to focus on Habit #3...Doing first things first. Said another way, it means prioritizing our activities in such a way that the important (aka high value) ones get the precedent in the course of our daily life. Too often these get brushed aside or are subservient to competing interests which may crowd out the truly valuable ones. This happens all the time when the important becomes slave to the urgent...think putting out fires instead of getting to work on things that will benefit and improve your work load and life in the mid to long term (things that will prevent fires from happening in the first place).
So, with that said, it’s little wonder that many finance leaders, when looking into improvements in their back office process are also kicking over rocks in the vein of finding ways to maximize the value of their people’s work, consider AP automation a means to many positive ends. How is that?
Statement of facts:
AP is one of the most paper burdened and onerous areas of the corporate landscape, necessitating copious amounts of data entry, validation, and matching.
AP tends to get lesser amounts of investment capital due to it being a back office silo, and non-contributor to the corporate bottom line (until virtual card rebate streams enter the picture).
The primary focus in terms of deploying automation in your Accounts Payable process is to identify the areas that can be automated right out of the chute. With respect to data entry, validation, and matching efforts, technology tools like optical character recognition and advanced logic can stem the conversion and analysis of data that is otherwise only available through a manually arduous effort. Because of this, many companies that are serious about getting beyond superficial improvements to their process will jump in with both feet and deploy a technology solution that addresses these components.
However, the challenge of introducing a technology robust enough to meaningfully resolve these issues is not just cost centric. OCR by default is an odd-ball technology, which has been around for some time, but has been mastered by few. Because of this, sourcing talent to manage it internally is dicey. Secondarily, OCR can saddle an organization with sizable front loaded investment when deployed in a traditional manner (server based). However, newer cloud-based SaaS approaches blend the data upload, conversion, validation, and release functions on a transactional costing basis, so many companies who are now embracing said technologies don’t have to swallow hard in the face of six or seven figure software price tags that are in some cases unjustifiable.
Our point in bringing this to light is to approach AP automation from the lense of what makes the most sense for your business. This would be to include driving cost reduction across wasteful or burdened process methodologies for starters which delivers time back to your people. Time, invested wisely, is your organization’s most valuable asset when harnessed properly. First, you’ll need less time to complete processing of your invoices and most automation initiatives of the sort we are referencing will typically yield 70% gains in processing cycle times. The reason being is that document delivery is electronic, data validation and entry is automated. There are still some manual components that may need to happen including exception handling, GL-coding, and electronic approvals (where automation may not be possible though in many cases it IS possible). With that said, some subset of invoices will still require troubleshooting due to pricing / quantity discrepancies or other legitimate issues. However, this newfound excess of time has two implications:
Reduced need for FTE’s to manage the same task
The capacity for FTE reassignment to higher order activities
Another consideration for AP automation, centers around payment optimization. You see, most companies are still paying vendors in increasingly antiquated means compared to the modern methods that are available to them. This means, many folks are still cutting paper based checks and placing them in the mail, making an already long process longer. The average invoice takes between 10-25 days to turn around and approve for payment according to recent data from Paystream Advisors. Cutting a check can add an extra 5-7 days for delivery and posting of the check, stretching out the time it takes to turn an invoice and receive cash to soul numbing proportions, but we’ll tackle this in depth in another section. Suffice it to say that, if you’re paying things manually you are not getting the maximum value out of our AP process and you should consider some newer methods for generating value out of your payables department. Automation in this area will free up your staff to not be beholden to check runs, envelope stuffing, and the like in getting your payments out the door.
While we’re not full blown advocates for staff augmentation, the facts are the facts. Post automation, you’ll need less resources to do the same job. However, this only the beginning point of achieving value within your payables life cycle. As we will uncover in an ensuing chapter, there’s far more valuable strategic roles that you can elevate your AP staff into, assuming you’re not content with cost reduction alone. Monetizing the process may be the most singularly overlooked component in terms of assessing the worth of AP automation. However, both AP automation and payment optimization hinge on the deployment of state of the art technologies to utterly transform our process. The good news is that for those who have the vision and fortitude to embark into the unfamiliar, the rewards for doing so will be great.