Accounts Payable and Digital Transformation: The Next Frontier

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Spend Matters welcomes this guest post from Anna Tujunen, head of product at Dooap.

Digital transformation, buzzword or not, is vital to the success of today’s business. In the immortal words of Microsoft CEO Satya Nadella, “Every company is a software company.”

It’s no longer an option to incorporate technology into company organization but a necessity. There is no other option but to go digital or go down with the past.

Many areas of business and development have been impacted by digital transformation, including HR, DevOps, asset management, and finance. It’s high time for accounts payable to join the digital revolution.

Why Accounts Payable?

Accounts payable (AP) remains one of the most inefficient and expensive functions within a company. The outdated paper process and lack of well-designed AP technology is costing companies dearly.

Aberdeen Group found in 2015 that the average cost to process an invoice is $15.61 and takes 9.7 days to process. Let’s just reiterate for impact: that’s $15.61 and 9.7 days of processing power to complete one accounts payable invoice.

Additionally, 26% of respondents in the Aberdeen Group’s 2016 study “Driving Speed and Accuracy in AP/AR: How the Cloud Separates Leaders from Followers” claimed that misplacing or losing paper-based invoices is one of the top AP pressures faced, adding to the amount of time it takes to close a single invoice. That means that more than one-fourth of participants in the study still use paper-based AP processes. This alone is astounding.

By going paperless and automating the AP process, organizations can save invaluable time and money on their accounts payable departments.

No one knows this better than AP managers themselves. According to a study from iPayables, long approval and payment processes and paper invoicing accounted for 40% of the leading frustrations faced by AP professionals today. Of those respondents, nearly 100% expressed that the solution is AP automation technology.

So why are AP professionals still having so many difficulties digitizing their function? For the most part, the department just isn’t getting the attention it needs to go digital. The technology is available and improving each day, but successful digital transformation in the AP function has to start with C-level executives and a clear effort to improve the system.

According to McKinsey Global Institute’s January 2017 report on the future of automation, nearly half of the activities that people are paid to do in the global economy can be automated by adapting currently demonstrated technology. This most certainly applies to accounts payable.

In order for the accounts payable function to keep up with the other silos of business that have been automated or digitized by technology, CIOs and decision makers need to work to implement paperless processes and automated software into the day-to-day application of AP.

Saving Time. Saving Money.

It’s clear that there is a large amount of inefficiency in the accounts payable process, and it’s costing organizations dearly. But how can automation software really help?

First, it’s important to note that this process doesn’t only impact the AP department, but the entire organization. The lifecycle of an AP invoice starts with a purchase order (PO) from someone in the organization. The purchase then goes through an approval process and a subsequent invoice is created for the approved purchase. This invoice must then be sent to decision-makers and reviewers within the organization for final approval and payment. Throughout this process, the invoice lifecycle has touched at least three persons within the organization and often even more. Not to mention the amount of time spent communicating between departments to ensure full comprehension of the invoice and where the company’s money is being spent.

Automated PO/invoice matching and approval cuts down on the time it takes for an invoice to go through this tedious process and streamlines the full lifecycle, from conception to vendor payment. Departments no longer have to spend time searching for an invoice when it’s all saved within an automation software tool and matching PO to invoice becomes a task for the machine, keeping human hands and minds free to do more meaningful work.

Recurring payments and those that are on an as-a-service basis can be tracked by the software automatically and require no additional handling from any department.

This empowers employees to focus only on invoices that require a statement from the person reviewing and approving, which can be done on a desktop or mobile application with some accounts payable software. A single invoice shouldn’t cost anyone within the organization time and money, especially not decision makers in the c-suite.

In advanced automation scenarios, machine learning software can also help the AP department input specific relevant data for an invoice in order to match it with previous purchases. Machine learning will allow the software to learn which accounts and dimensions have previously been used with a specific supplier.

By suggesting the matched information to the AP clerk for human approval, the software makes the process more fluid and improves quality control by decreasing human error.

The key here is making invoice handling as quick as possible with software that’s easy-to-learn and pleasant to use. If the automation software is difficult to use, organizations are right back to square one with postponed and lengthy tasks, again leading to excessive time and money spent on payments.

Automating the Right Way

A successful transition to AP automation doesn’t happen overnight or simply with the implementation of new software. True transformation also requires changes in business processes, employee and leadership behavior and, ultimately, the corporate perception of the AP function. Implementing a new technology may be challenging, but changing the people, processes and perception is even harder.

One clear way to make the transition easier and ensure successful employee adaption is to choose an automation software that’s intuitive, well designed, and responsive to human behavior.

This kind of AP software automates what can be automated and makes the manual tasks of approval and review easier with a simple and elegant user interface.

Additionally, integrated accounts payable tools that work seamlessly with existing ERP systems help new users acclimate by providing an environment and data set with which they are likely already familiar.

It’s important to note that implementing a new accounts payable automation software may require some employee training and a reorganization of workplace roles. But this won’t necessarily automate away the jobs of AP controllers and managers. Rather, this is an opportunity for AP department employees to develop their job descriptions and contribute more lasting value to the business.

In addition to employee training, an effort should be made to inform vendors of the correct invoicing addresses, and train them to include all the relevant information on the invoice including: purchase order number, cost center and/or name of the person who placed the order. This additional information in the invoice will allow the department to get the most out of their new automated capabilities and can make the transition to automation much smoother.

Ultimately, with an easy-to-use AP automation solution, executives and decision makers will also be able to see the true benefit of the AP function and where employee time should be spent.

The Role of Leadership

Understanding of digital transformation from the leadership level is crucial to the implementation process. While many aspects of digital transformation may be part of a small movement within the department, it will ultimately require an inspired, progressive management vision. The C-level and upper-level management will be the first piece of the puzzle for integrating digital transformation across often forgotten silos like accounts payable, and that will require a rethinking of roles, responsibilities and hierarchy.

It’s clear that digital transformation in the AP function is the best move for small and medium business as well as for the enterprise. Now we just need motivated, forward thinking decision makers to educate themselves on the tools available and move the pendulum in the right direction.

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