At CloudX we understand the dilemmas most finance and accounting leaders face prior to embarking on an accounts payable automation journey: organizational mandates from the top brass to be followed, constant pressing project and reporting deadlines, tight budgets, constrained personnel resources, banking challenges, demanding and changing supplier bases, and the beat goes on. Our hats are off to you because just capturing some of the difficulties you face is enough to tire us out, or at least make us reach for the second (or third) cup o' joe just to keep it together. We're not advocates of any kind of addictive substances but you have to have some coping mechanisms, right?
The goal today is to get you caught up with the accounts payable automation landscape so that you don’t have to operate so under the gun and so that you can be well informed and map out a plan to soar over the hurdles most accounting leaders face.
In today's complex supply chain, the rush of data and integrations has drastically shifted the nature of how business gets done. Transactional velocity between suppliers and customers has increased in quantum levels in some ways, and yet many business are burdened with outdated and outmoded processes that create drag on internal back office personnel and stifle productivity.
A prime example of this is the accounts payable process (hence the need for accounts payable automation). Though automation has been an en vogue topic for years, a relative minority of businesses have truly achieved optimal results in their pursuit of process improvement. As we explore accounts payable automation, it's necessary to understand the breadth of options to improving burdened areas like accounts payable invoice processing, as there are many.
For starters, a key concept to understand is that not everything electronic is synonymous with automatic. In fact, many businesses that rest their process improvement laurels on the ability to ingest invoices electronically, which has little to do with what accounts payable automation really could mean. Further, many business that receive payable invoices electronically simply output them into paper based documents after they've been received, and then interact with them manually. This doesn't necessarily defeat the purpose of receiving them electronically but it does nothing in terms of driving forward progress to the process and creating leverage over the process.
The key bottleneck still exists in that relevant data from the invoice must be gleaned from the invoice document and then ultimately reconciled into the back end accounting system after there is some sort of validation (matching) or approval within the accounts payable process. Accounts payable automation, when done correctly, should alleviate all of these items, thereby simplifying document flow, eliminating data entry, and obviating the need for manual validation. The goal should always be to optimize process to harness technology as a whole to make touchless invoice processing a reality.
All sorts of pressure drive savvy finance leaders to seek various accounts payable process improvement methods.
EDI has existed for decades and is absolutely the gold-standard for integrating disparate systems, though it's not without its own challenges. In many ways, EDI empowers an organization to bypass the other methods of accounts payable automation due to upstream bi-directional integration between purchasers and suppliers. Long considered the best option for enterprise level companies to tie together their supply chain relationships, especially with high volume vendors, EDI is a tedious methodology to foist upon your supplier base for the primary reason that it's difficult to set up and maintain.
Each individual EDI integration set up between a supplier and a customer requires technical efforts from both parties. This approach is easier to dictate when you're the 800 pound gorilla, aka big companies like Walmart, Costco, etc., but when you're not a multi-billion dollar concern, you're going to really have to gauge the amount of pull you have over your supplier base. For many small to midsize companies, this is an absolute non-starter because they have far fewer and potentially less capable IT resources, whose talents will typically be expended upon other projects.
This method is newer to the market than EDI and offers some great efficiencies as well. In this case, suppliers submit an electronic invoice, structured via some type of PO type file creation / exchange, typically leveraging a file structure like XML to deliver an invoice to the customer. The customer in turn interacts with this digital invoice via an E-Invoicing / P2P platform. Assuming they recognize the invoice as legitimate they can reciprocate and authenticate the transaction via a PO flip, essentially generating a purchase order dynamically via the platform to corroborate and match to the invoice.
This is fantastic because it affords the ability to the deliverer of the initial invoice the ability to bypass lots of manual process in terms of generating a hard copy invoice, placing it in the mail (and thereby eliminating the hard costs and time associated with mail delivery), receiving the mail, and any other downstream activities, such as scanning. Further, through E-Invoicing / P2P, you can automate some of the project / general ledger coding components because the data that is exchanged via the acceptance / authentication process dictates how the transaction must be recorded.
All is great with this, right? Perhaps not. Again, this approach in theory makes a ton of sense with one caveat: supplier adoption. Where the EDI approach necessitates technical acumen to deploy and maintain, and requires a unique integration method to the ANSII standard for EDI files, E-Invoicing requires adoption of a broader platform.
The fundamental issue with this is it requires change upon the supplier base, and this is inherently the reason that it has lagged behind in terms of adoption compared to traditional accounts payable automation approaches, which we will look at momentarily. So, in short, a great approach but one bereft of ease of deployment, and typically speaking, things that don't deploy well don't end well.
BPO rose to prevalence for many companies over the past two decades and the accounts payable process is one of the focal areas for many enterprise level companies. For many companies that didn't want to tackle the prickly underbelly of process transformation, economies of scale were realized by packing up the process and simply offshoring it to locales that had vastly lower labor rates. For many CFO's and Controllers this is appealing, though for others it's a decision that's fraught with peril because you're entrusting personnel often on another continent and working outside their indigenous language to accurately process your transactional data.
In many cases this creates friction on the supplier base in terms of relationship management and can often necessitate the need for advanced workflow in order to be able to triage problem transactions better through a hybrid approach of data crunching offshore and relational aptitude onshore. To some extent this approach has been brought into question through geo-political pressures as populist / nationalist appeals tend to orient around bringing business back onshore in an effort to retain / create jobs. For some people this approach is just a bridge too far and the lack of trust and oversight into the process is a leap of faith that can't be taken, though for others it works well.
Accounts payable automation refers to the approach whereby the company processing inbound AP invoices for payment leverages a nuanced technology approach to attempt to gain leverage over the process. By using a deep technology stack with several key tools, the goal of accounts payable automation is to eliminate data entry, automate approvals and matching processes, gain visibility, and expedite processing.
Accounts payable automation as an idea / service has been in effect for well over 10-15 years, though for many companies it creates a barrier to entry from a cost standpoint. When you consider the requisite technology stack to automate a transactional document process, you have to factor in several components. For starters, what types of documents are being processed? With regards to AP, you've got invoices, credit memos, checks, check requests, internal forms, supplier statements, etc. All of these are structured differently, supplier by supplier, though many have common brush strokes. Nonetheless, the tech needed to be able to intelligently read, analyze, and accurately assimilate the data off these documents is niche and expensive.
To get started on this road, you'll need Optical Character Recognition (OCR) engines with verification licenses, an electronic document management system with business intelligence and workflow capabilities, and integration to your back end accounting system / ERP. Additionally, if your ERP lacks the ability to execute multi-way matching this is a key feature for true automation that must be harnessed to gain full value in terms of obviating manual efforts. Finally, you need to access reporting in order to introduce visibility.All of these elements are required if you're trying to get a true accounts payable automation effort down.
You can also clearly see that there is a significant drop-off between leaders and followers in terms of adopting the more nuanced technical items oriented around automated data extraction and line level matching per Aberdeen Group:
Now, beyond this is the entire debate of where to place it. 10-15 years ago companies paid big bucks (six to seven figures) to bring these systems in-house with the added benefit of monster data centers / servers / and IT staff required to maintain them. Additionally, big license fees annually ensured an ongoing flow of high dollars out.
Today the shift is more to the cloud / SaaS platforms that offer the same tech without being wedded to the delivery model. The barrier here for many businesses has to do with the cost justification and need to manage intricate, disparate systems outside of the scope of their core business. For most small to mid, and even some large, businesses, this was impractical and would often lead to indecision or no-go decisions on their purchase and deployment. According to an Ardent Partners report from 2017, nearly 51% of their respondents have adopted this approach, but that still means nearly half have not.
Furthermore, there’s a glaring difference between the adopters and non-adopters of such technologies from a cost to process an invoice (CPI), time to process, and rate of early payment discount capture. None of this should be overlooked, because the automation factor, once introduced into your accounts payable process, can vastly alter your efficiency and serve as a catalyst to propel your back office forward and generate wins via savings and profit on a sustainable basis.
Check out this chart below per Paystream Advisors to see the difference between those who have embraced AP automation as an approach versus those who have lagged:
We have an admitted bias towards this approach because we believe it represents the best of all worlds. High technology placed in the cloud, managed by a dedicated team of technologists who understand the crucial nature of systems integration and who understand niche systems like OCR. This model enables a business to use technology tools to impact process without having to manage them themselves. Document process outsourcing also harnesses BPO attributes in terms of taking manual process out of the way, ie. OCR correction, or through things like data validation (comparing hand written document entries to get high rates of accuracy through quality control staff offshore), without having to entrust a foreign company with all the keys to your process.
Finally, because the tech stack listed above under accounts payable automation is made available in the cloud, the infrastructure costs are drastically lowered across the board and as such, the cost to enter the game is lowered affording many businesses the opportunity to engage. Many of these models are more pay as you go / for what you use than license oriented and are inherently justifiable.
Beyond the obvious accounts payable automation gains related to manual process improvement, another layer of value exists beneath the surface that is untapped and paramount. The area of integrated payables, which is tying together the payment stream as part of the overall process, is of tremendous impact for the visionary leader who will progressively and proactively work to align the front end automation effort with the back end goal of optimizing payments. Few other areas offer such low risk and high yield rewards that are sustainable in the manner that integrated payables does.
When looking at the B2B payments landscape facing most businesses, especially in the USA, a shockingly high number are still dependent on costly, time consuming, and outdated methods, like physical check. Part of the issue that we face in the USA is that there is no mandated governmental compliance towards a payment standard. This is not true in other regions of the world, where transactions are less encumbered directly as a result of governmental influence.
However, because a panoply of payment options are available in the B2B space, many businesses find themselves paying across a variety of methods. Some savvy CFOs and Controllers will recognize the inefficiency of paying with legacy methods and look to create value through payment streams, and it's to that we want to turn the attention now.
According to IOFM and Ardent Partners in a 2017 report, nearly 63% of B2B payments in the USA are now transacted electronically. The remaining 37% is transacted via check. While virtually all electronic payment methods are cheaper, faster, and more secure than a comparable check payment, the value they create and the costs they incur are vastly different, depending on types of payment.
Here’s a survey chart from Paystream Advisors that reflects the makeup of B2B payments as of 2017 in the US:
Clearly most businesses favor check and ACH, though there are alternatives that should be considered if you’re looking to elevate the strategic value your accounts payable process creates for your business.
Wire is a method of electronic funds transfer from one person or entity to another. Wires are known for their immediacy, finality, and accuracy, though they often cost a substantial amount per transaction to conduct.
An electronic network for financial transactions in the United States. ACH is a computer-based clearing and settlement facility established to process the exchange of electronic transactions between participating depository institutions. ACH is notably less costly than wire, while generally being easier and faster to deploy, though with less immediacy to the transaction settlement.
In some cases businesses harness credit card payments as an alternative means of payment or to gain rewards or out of necessity. Harnessing a single credit card for multiple payments is absolutely a risk prone approach and one that can't seriously be entertained by anything other than small businesses due to the multiple control challenges this incurs.
A newer and burgeoning epayment means that funds a single use credit card that can be tailored to fund either an individual or batch of invoice transactions. Such payments can run on various payment rails including Mastercard, Visa, and American Express. The added benefit to the payee is participation in cash rebates and thus the creation of a monetized and sustainable cash rebate stream into the business.
Any of the above options offers significant advantages to check, though from our perspective the most strategically advantageous one is the virtual credit card. We believe they best combine the controls, expediency, flexibility, and profitability that collectively create unparalleled business advantage. Further, all of these payment methods can be integrated into a front end accounts payable automation effort creating value across the entire spectrum of an accounts payable invoice transaction from presentment to payment.
If you've never performed an internal assessment of the value of your Accounts Payable process from an automation and payments standpoint, it can't be overlooked and must be explored if you're going to lead your organization into new areas of value.
We can't stress enough the difference of an automated AP process. For some it's the difference between operating in the dark vs the light. While that may be stark, it's the truth. Either you have access to dynamic process insights, reporting, audit trails and the like or you don't, and if you don't, then you're missing out, period. However, once you've introduced a solid accounts payable automation and integrated payables platform, you've got to take the next steps of optimizing value.
Most accounts payable automation and epayments platforms will enable you to run custom reporting through the platform and then export to MS Excel or Google Sheets for further analysis / manipulation. You can glean insight from payment trends to suppliers, close times, and even assess the efficacy of your own internal organization from processors to approvers and beyond.
This reporting can often be structured to run on a periodic basis, and one common example is the ability to curtail lengthy month end close and accrual processes because the latent data needed to quickly assess your departmental positions is native within a robust system and can easily be surfaced.
Dashboard views into your live process offer insight and impact that are beyond compare. Having full visibility into your process by your approvers, vendors, pending invoices by due date, or even invoices with payment discounts are all highly valuable metrics to be measured and managed. By being able to quickly slice and dice these and other types of information you can triage invoices in your AP process quickly to ensure that they are generating time and monetary value, while defusing invoices that would otherwise go against you and cause you to miss discounts and incur late fees.
Another example would be leveraging your pending invoices to drive epayment methods that reward you. For instance, you can leverage automation to offer faster payment to your supplier base in exchange for an accepted discount. Should they not choose to comply you can maintain the existing payment preferences they have according to your pre-negotiated terms. With optimization via accounts payable automation, you can enact these types of levers digitally and dynamically, thereby driving additional value far beyond strict manual process gains and in a way that fiscally boosts your organization performance.
There are many methods and approaches to consider when charting your optimal future course with respect to your accounts payable automation. However, if you're not currently satisfied with the level of efficiency, individual productivity, or profitability you've extracted from your current process, we'd recommend that you explore it further and we invite you to reach out to us at firstname.lastname@example.org. We can guide and inform (to the best of our ability) and help you on your accounts payable process transformation journey.
It's my pleasure to help clients transform their accounts payable processes through automation. I look forward to helping you elevate the standard of accounts payable for your business to be one that contributes strategically, operationally, and financially to the well-being of your business.
Chris Cosgrove CloudX, Inc.
Helping customers solve complex problems through technology has been my passion for years. I enjoy leading our development and operational teams in empowering customers to the get maximum value from our solutions.
Danny Teklehaimanot CloudX, Inc.
Peter Drucker, legendary management guru, once said "What gets measured gets managed." We want to give you the opportunity to measure your accounts payable process in the light of third-party, analyst data. By benchmarking your key performance indicators you can quickly identify how much of a difference accounts payable automation can make from fiscal, strategic, and operational perspectives for you. Sign up today!