Throughout my career, I’ve worked with hundreds of companies looking to automate their Accounts Payable operations. Typically, the organizations are drowning in paper, suffering from manual, time-consuming, costly, error-prone processes with little or no real visibility into outstanding liabilities and limited to no cash management practices in place. When I’ve engaged these organizations they almost always are looking for someone or something to stop the pain. They are looking to solve their immediate issues, such as eliminating the paper, stop the incessant calls from employees and vendors inquiring about invoice payment status, help them to pay their invoices on time, and improve the overall invoice receipt, approval and payment process. Most don’t know now how much it costs to process an invoice, or how long it takes to process an invoice from the time received to the time scheduled and paid. Most of these companies want help solving their tactical problems and have given little or no thought to how AP can play a strategic role in their organizations.
Just this week, I spoke with a Midwestern company that fit this bill perfectly. Their AP operation is fully manual. Invoices are received in paper or .PDF format and then printed out. Invoices are “snail-mailed” around for approval and then “snail-mailed” back to the AP staff who must key the data into their ERP. When invoices are finally approved, they are put in a queue to be paid by check. These AP leaders also spoke of their auditors pressing them for better controls. They are looking to automate but when we spoke they were only concerned with the immediate pain felt in the here and now and had not really given any thought to how they might strategically leverage AP once it was automated.
An Eye Towards Becoming More Strategic
Beyond transactional efficiency, AP departments have the opportunity to serve as a hub for other stakeholders across the organization by supplying insights and knowledge that can arm key decision-makers with the data required to make strategic decisions. This, in and of itself, is a move beyond the “basics” of the function and is the foundation upon which next generation AP operations can move from a tactical organization to a strategic one. There are three areas directly linked to AP processes that are the most accessible, most prominent, and most impactful ones for AP teams to pursue. They are (1) cash management, (2) supplier management, and (3) business/data intelligence. Let’s take a look at each one.
(1) Cash Management
Cash is, and always will be, the lifeline of an organization. And with today’s market conditions, cash management is more important than ever. Those enterprises that are able to optimize their working capital are invariably among the most successful businesses. To succeed here, Treasurers must harness the collective strength and ability of the entire finance organization to help drive internal process efficiencies and optimize working capital. Automating the AP department is the first step towards better cash management. Once AP is automated there are a number of solutions on the market (such as SAP Ariba, C2FO, Tradeshift, and Coupa) that can help organizations optimize the cash tied up in Accounts Payable as well as Accounts Receivable. At Ardent Partners, we believe that one of Treasury’s largest opportunities to impact cash and the financial performance of the enterprise lies within the AP department (also AR).
(2) Supplier Management
One differentiator for Best-in-Class organizations is that they view suppliers as an asset, and treat them as such. Suppliers should be regarded as a source of knowledge and expertise to be leveraged for a competitive advantage and mutual gain. The most successful organizations are the ones with the best supplier/buyer relationships. How Procure-to-Pay (P2P) teams approach their 360° supplier relationships and the results derived from them will have an increasing impact on enterprise operations and overall performance in the months and years ahead. Best-in-Class organizations also realize that both Procurement and AP are responsible for optimizing supplier relationships. When dealing with suppliers, how an enterprise manages the purchasing process is just as important as how it manages the payment process. Strong collaboration between AP and Procurement is critical to ensuring a successful relationship.
(3) Data Analytics aka Business Intelligence
There is a wealth of data contained in the AP process, not to mention the entire P2P process that is just begging to be mined. Best-in-Class organizations long ago realized this, and have been taking advantage of the data at their disposal. Managing liquidity is paramount for all organizations, and leveraging the data in AP can help you maintain strong control over your cash. Spend analytics done in procurement is critically important but so too is the analytics of data within AP. The data presents AP a deep well of untapped financial and business intelligence that can be extracted. The first step to gaining access to this data is to automate your AP department. When the AP department has been automated you are now able to provide insight into cash flow planning, outstanding liabilities, aging reports, payment terms transformation, days payables outstanding (DPO), detecting and preventing fraud, etc. Organizations that take a data driven approach to AP put themselves in a better position to manage their cash flow, accelerate P2P performance, and ultimately drive more value to an organizations bottom line.
Final Thoughts
Above, I’ve laid out a few of the many ways that AP can begin to transform itself (and its perception) from a tactical department to a more strategic business partner to the organization. Everyone is familiar with the saying that people are limited by their beliefs. Companies are no different. Those that view AP as just a transactional hub that only needs to be automated to improve operational efficiency, are selling themselves short and missing out on the real power and value an automated system can provide. Organizations that view AP as a strategic asset put themselves in a better position to be successful and do a better job managing the lifeline of every organization.
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