AP Control Panel: Accounts payable automation improves your bottom line

Throughout this accounts payable series, we’ve said it many times: AP can and should be more than just an invoice processing machine.

Given the high percentage of cash that passes through AP’s hands and the potential it offers for saving money — possibly even turning a profit — organizations that don’t recognize and act on this information are passing up a rich opportunity. Worse, they’re putting themselves at a disadvantage to competitors who understand the power that AP can bring to bear.

We used data acquired from a survey of more than 300 AP professionals who reported on three main areas of their organizations’ AP functions:

  • Operations
  • Working capital
  • Compliance and security

We explore this data in detail in the whitepaper Accounts Payable Is an Organization’s Secret Weapon for Improving Financial Health. In it, our overall findings include:

  • Organizations with higher invoice volumes tend to have greater levels of AP automation
  • More and better AP automation tends to offer greater organizational transparency
  • However, not all automation does an equally good job of providing insight into AP operations

Does more volume equate to more automation?

It only makes sense. At a point, processing invoices manually becomes unrealistic for large organizations.

Some of our respondents process upwards of 10 million invoices a year. It’s hard to even imagine a department large enough to manage all that work by hand, much less doing it efficiently and effectively.

This graph tells an interesting story. While there is a correlation between significant invoice volumes and more AP automation, the difference isn’t as striking as we would expect.

Even though high-volume organizations probably have automation solutions, they are not doing as much straight-through processing as they should be, and instead require a human touch somewhere in the process. Effective AP automation should process most invoices without manual intervention, requiring only a quality audit of a selected sample of payments.

Where are the benefits of automation?

As we mentioned earlier, we analyzed three main areas where we would expect an automation solution to provide transparency: Operations, working capital, compliance, and security.

Each of these areas is important. Respectively, they offer insight into how well AP is performing; the status of key financial issues, including discounts; and how well the process adheres to policies and regulations, including control of access to AP permissions.

The graph below summarizes the data in each of these areas relative to degree of survey participants’ automation.

This paints a clearer picture of how automation helps AP. The more automation accounts payable has, the more it tends to know — in every area measured.

Is all automation created equal?

To get a better understanding of how solutions differ within respondents’ organizations, we looked at responses only from those who reported having a significant level of AP automation. We measured three specific transactional features and three features associated with a greater focus on business intelligence.

Transactional

  1. Viewing and tracking individual invoice statuses
  2. Accessing notes, correspondence, and changes to specific invoices
  3. Real-time reporting for individual supplier spend

Business intelligence

  1. Reporting percentage of early payment discounts captured
  2. Tracking days payable outstanding metrics
  3. Controlling access to accounts payable permissions

Here’s what we found:

While there are many variables at work here, we can observe two main things:

  1. Most survey participants with significant automation have access to both transactional data and business intelligence; however, there’s a percentage who are still on the low end of both scales
  2. A large percentage of those whose automation solutions provide a high level of transactional data fall down on the job of reporting the business intelligence information that’s key to AP’s ability to help manage the company’s cash

It’s worth noting that the zig-zag nature of the two graphs seems to indicate that where a solution may do well at one aspect of reporting, it often doesn’t do as well on the other aspect.

Finding the AP sweet spot

Every organization is different in terms of invoice volume, AP processes, and general operations.

While it’s clear that automation is key to maximizing how much control AP has over payment accuracy and timing, it’s also fundamental to knowing how the business is spending its money and how well it’s capitalizing on its cash flow.

Discount management is particularly critical in helping a business make the most of its money. In addition, being able to control access to AP functions, maintain compliance, and pay invoices accurately and timely prevents the organization from being subject to fines and penalties, being victimized by fraud, or having to go through the often-unsuccessful task of attempting to recover incorrect payments.

Because AP operations differ so much, it’s imperative that your AP department has the right solution to help manage the organization’s money. The task of finding the right solution depends not just on how you manage AP today, but rather how you manage it to better serve the organization’s goals and anticipated growth, now and in the future.

A robust AP software solution should be liberating. It can help reduce errors, tedious manual processes, and payment delays. This frees AP personnel to better manage the company’s cash through discount capture, payment accuracy, and improved forecasting. But the tool needs to be able to supply that information as well.

There’s no denying it — automation is here to stay. As a business grows, transparency into its AP operation needs to keep pace. That’s the purpose of a good solution that meets the organization’s current needs as well as its future needs.

Ready to learn more?

The Institute of Finance and Management

The Institute of Finance and Management

The Institute of Finance and Management (IOFM) was founded in 1982 and since then, its mission has been, and continues to be, to align the resources, events, certifications, and networking opportunities it offers with what companies need from the accounting and finance functions to deliver market leadership.

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