Over the last couple of weeks we’ve discussed payments automation as being the final frontier of Accounts Payable (“AP”) Automation, along with how electronic payments can be a source of value to organizations. This week, I wanted to delve into one of the biggest challenges facing AP departments with respect to payments, that being exceptions, or more specifically, problems with the actual amount being paid to suppliers. Similar to straight-though processing with invoices, payment processing should also be measured by how many exceptions or inquiries AP has from suppliers after payment is made. On the surface, one would be right to expect this number to be extremely low since for an invoice to be paid it has to be vetted through receipt, approval, and review processes prior to moving into the payments phase of the process where a file containing the ‘approved’ payment date and amount is transferred for execution. Sadly, this is not always the case.
The State of ePayables 2018 research study from Ardent Partners highlighted a data point that represented one of the biggest challenges (and hence opportunity for improvement) facing today’s AP function: 24% of the average AP staff’s time is spent working directly with suppliers to fix invoice, processing, and payment errors. Digging deeper into the data, we saw that 12% of payments are contested by suppliers. This is a serious problem, not to mention a very inefficient use of AP resources.
Manual, labor-intensive, tactical processes like these are one of the key problems holding AP back from transforming itself from being viewed as a back-office function to a value-adding, strategic partner to the business. Ardent Partners research has consistently shown through the years that manual, paper-based processes are inefficient and cost significantly more than electronic payments.
It comes as no surprise to anyone who has ever worked in, or with, AP that “Invoice exceptions are the bane of our existence” is an oft- repeated phrase. So is all lost? No! Not at all. To the contrary, reducing the amount of time and effort spent handling payment exceptions along with the sheer number of payment exceptions is an achievable goal. The good news is this problem is correctable and preventable through process redesign and technology adoption.
The first step to correcting this problem is to analyze the root cause of the payment exceptions. What’s causing these exceptions? Experience tells me there are probably two or three recurring problems that are to blame for the vast majority of them. Determine what they are, put a process in place to prevent or minimize them from occurring, and apply AP automation and ePayments technology to automate the process.
If you had to guess, where do you think most of the problems occur with payment exceptions? At the end of the process once the work has been done or goods have been shipped, or at the beginning of the process during onboarding and setup? Once again experience tells me that most payment exceptions problems originate at the beginning when contracts/terms are being agreed to and when suppliers are being onboarded. Typically when we think of supplier onboarding with respect to ePayables, we think of enabling suppliers to submit invoices electronically via a supplier portal or directly via one of the 50+ types of electronic formats such as XML, EDI, and CSV. eInvoicing, as we’ve discussed many times in the past, is an integral part of ePayables automation, but where it often falls short is that it usually only addresses suppliers being able to submit invoices electronically. The onboarding process does not include onboarding from a payment perspective, leaving the door open for exceptions to occur when it comes time to pay your suppliers.
The good news is that some P2P solution providers are starting to tackle this problem head on and have offerings in the market that address it. Tipalti and AvidXchange, for example, address supplier onboarding from both a payment and eInvoicing perspective. This no doubt will translate to lower payment exception rates and more productive AP departments. Are we ever going to get to be able to eliminate 100% of invoice handling and payment exceptions? Probably not. However, by rethinking current processes in place, and leveraging new and emerging technologies, we can significantly reduce the occurrence of payment exceptions from the greater than 1 in 10 we see today along with the nearly 25% of time in a day that AP spends handling them.
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