Every now and then I find it helpful to take a step back and consider what makes an organization or department able to achieve better results than its peers. Why is one enterprise more successful than another? Colin Powell – American statesman, retired 4-star general, and former U.S. Secretary of State, said “There are no secrets to success. It is the result of preparation, hard work, and learning from failure.” At Ardent Partners, our annual State of ePayables research report, defines success, aka Best-in-Class, as the 20% of organizations with the lowest average invoice processing costs and shortest average invoice process cycle times. But what is it that makes these organizations different?
What Does it Take to Be a Best-in-Class AP Organization?
At the core, every Accounts Payable (“AP”) department, at a minimum, is responsible for the receipt, processing, and payment of supplier invoices. Top performers derive real value from an optimized AP operation, which they run like a well-oiled, fine-tuned machine. According to Ardent Partners’ 2018 State of ePayables research report, Best-in-Class companies achieve per-invoice processing costs that are nearly five times lower, and invoice processing times that are over 2.5 times faster, than all other groups. Their invoice exception rates are 114% lower, and they have a 2.2 times higher percentage of PO-based invoices than their peers.
What are the Characteristics of These Best-in-Class AP Departments?
First and foremost, they have standardized processes and are technology-enabled. They are utilizing solutions like e-invoicing, matching, and auto-coding to such a degree that they’re able to process 65% of their invoices in a straight-through manner, a factor which likely contributes to their overall success. This means that these invoices are processed, set and scheduled for payment, or ready to be scheduled for payment, without any human interaction. Straight-through processing is brutally efficient – it’s the highest level of automation. Thanks to standardized processes, and the ability to leverage technology to a much greater degree than their counterparts, these top performers are able to drive down costs, speed up their processing, and have greater visibility which can help reduce the number of exceptions.
But Best-in-Class organizations don’t stop there – they are also focused on enabling and on-boarding suppliers. Because of this, more than 58% of their suppliers are using eInvoicing, which for many organizations is the Holy Grail, or the end game. These accomplishments position Best-in-Class organizations to better collaborate internally and externally. Visibility into invoices, and processing and payment efficiency also enable AP departments to derive and add value to their enterprise.
What Other Strategic Benefits are Best-in-Class Organizations Realizing through AP Automation?
Best-in-class organizations recognize that investing in AP automation solutions can have a major impact on how they manage cash. When you compare the money that you pay to suppliers as a percentage of your revenue, it is a huge amount of money. So the ability to begin to track that more — to have visibility into what you’re doing, and to make strategic decisions, such as timing payments based on that visibility — has a huge impact on working capital.
Conclusion
Those who believe that technology, in and of itself, will enable organizations to achieve Best-in-Class results are mistaken. Bill Gates, Microsoft founder, and someone who knows a thing or two about technology and success, said “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.” Best in Class enterprises have demonstrated their ability to drive superior performance across both traditional and contemporary AP metrics not simply by leveraging technology but by using it wisely, optimizing processes, and looking for ways to add value to their organization. Success does not just happen, it is the result of hard work and always looking for new and better ways of doing things. You can start the journey to Best-in-Class by challenging the conventional wisdom of what is possible for AP and go from there.
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