From the dawn of commerce to the modern digital age, money has been the lifeblood of business. Historic inflation countered by central banks created a credit market in 2024 where borrowing costs for businesses can be as much as two to four times higher than they were just a few years ago. Modern CFOs, treasurers, and other finance executives charged with allocating capital and managing liquidity have examined their operations and understand the relatively large amount of money that is overseen and impacted by their accounts payable (AP) operation. In today’s market, cash is still king, but a Best-in-Class AP operation played correctly can be aces.
The link between AP and overall cash management has never been more important. When and how invoices get paid can have a huge impact on an organization’s cash flow, liquidity, profitability, and supplier relationships. It is crucial that AP provides intelligence around cash management in a timely and accurate way, and that it also incorporates real-time information into the optimization and execution of vendor payments. This can lead to a more nuanced cash management approach as well as improved financial planning and better forecasting.
While AP’s potential impact on cash is huge, its purview (and opportunity to deliver value) extends across the source-to-pay (S2P) cycle. In the wake of Meta Platforms’ huge success in defining 2023 as the “year of efficiency,” many corporate boardrooms have compelled their executive leaders to launch their own efficiency programs.
If they have not already been engaged, AP leaders will soon be tapped to streamline operations, enhance transparency, and optimize resources. Inevitably, this will push more AP teams into the digital realm as they pursue technology-driven makeovers this year. Through efficient invoice processing, proactive supplier engagement, and dynamic cash management, AP teams can drive process efficiencies, safeguard liquidity, and consistently create value. And yes, artificial intelligence will play a big role. Before delving into the almost-mandatory discussion of AI’s transformational impact, let’s examine the current state of AP.
How Strategic Is AP?
The “state” of accounts payable is strong, perhaps as strong as it has ever been with rising awareness of and increasing impact by the function. But there is still work to be done.
A business function cannot claim to be truly strategic if it is operating without a plan. Strategic planning serves as the compass guiding organizational success. As enterprises navigate dynamic shifts to their business, agility serves to separate market leaders from laggards. Throughout the pandemic, a large number of AP departments delivered value by reallocating resources and adapting pragmatic responses to challenging situations. In those tough times, alignment with business goals and objectives was paramount. It is no less important today. Despite that, the state of strategic planning within AP departments in 2024 remains varied.
Perceptions Changing
The perception of accounts payable as simply a back-office function within finance is waning. Enterprise executives are realizing the strategic role AP plays supporting overall financial health, ranging from managing cash flow to optimizing working capital and even maintaining supplier relationships. One sign of AP’s evolution is the prevalence of a strategic plan to maximize its enterprise and supply chain value.
In Ardent Partners’ 2024 ePayables survey, respondents were asked to describe aspects of the strategic plan within their AP department. The responses not only illustrate that AP is becoming more strategic but that the planning and execution of accounts payable objectives is an enterprise priority.
Strategic Plan Breakdown
First and foremost, 73% of AP respondents report operating with an AP strategic plan — a significant shift from 15 years ago when AP teams lacked strategic plans and organizational influence. This is excellent news as it means AP is either executing against higher enterprise objectives or specific departmental goals, or both. Of the 73% citing the use of a strategic plan, 36% report operating with a multi-year plan versus 37% operating with an annual strategic plan. A multi-year plan is ideal when AP pursues a transformation where several milestones over years are established. Using a strategic plan helps departments operate cohesively and with a sense of purpose; without one, teams are flying blind.
When developing an AP strategic plan, 37% of respondents say the chief financial officer (CFO) or other finance leaders review and approve their plans which serves as another sign that AP is viewed strategically in the enterprise. It is encouraging to see that so many CFOs are spending time thinking about the goals and objectives of AP and possibly its broader reach outside of finance. While nearly 40% is a positive number, there is room for substantial progress going forward. Aligning AP’s objectives with overall finance goals can gain the CFO’s attention and help expand AP’s impact.
The greater disconnect with the AP strategic plan is reviewing and discussing it with accounts payable staff. Only 36% of respondents report that the strategic plan is communicated to the AP team that must execute it. This can create big problems by allowing a misalignment between day-to-day activities and organizational goals for 64% of AP teams.
It also has implications for AP leaders and their ability to reach strategic targets. AP is a team sport that requires communication, collaboration, and execution to deliver value.
Taking Ownership Is Critical
To maintain their momentum, AP leaders and their teams must take ownership of plan development and communicate the strategic imperatives. It is also critical that performance metrics of individual team members are aligned to the larger strategic plan, ensuring an ongoing focus to value creation in accounts payable. AP is a strategic function in the enterprise — time to own it!
