Digital Transformation: Spotlight on Accounts Payable Automation

What’s inside

Businesses across industries face some common dilemmas. Should they automate their operations or not? If they go the automation way, how do they identify and prioritize the functions to automate first? 

Experts opine that the accounts payable function is a strong contender for automation when compared to other business functions. Why?

Digital transformation of the accounts payable (AP) function has proven to: 

• Demonstrate value to businesses
• Reduce strain on employees
• Improve customer and vendor relationships
• Deliver positive ROI – in quick succession

These visible positive outcomes make AP an excellent starting point for successful digital transformation. AP automation success stories deliver outcomes like reduced costs, streamlined operations, fewer hours spent on the phone with vendors, and a happier and more productive workforce. 

In this guide, we will delve into the importance of AP function in an enterprise and why digital transformation of AP (or AP automation) is a necessity in today’s digitally-driven business environment. Let’s get cracking.

What to expect

• Accounts Payable – Industry best practices
• Why digital transformation of accounts payable is of supreme importance
• How the digital transformation of AP helps businesses
• AP digital transformation – methodology

Who should read

• Vice-President (Finance & Accounts)
• CFOs
• AP Managers

Accounts Payable: Challenges 

Accounts payable lies at the core of all day-to-day finance functions. In the current business landscape, the role of AP is way more than just paying bills. Today, the AP function comes under constant pressure to ensure mindful spending, controlled overheads, and sensible procurement. Finance leaders are cognizant of the pressing need for the AP process to be efficient enough to tackle payment issues and delays. 

However, manual or paper-based AP processes pose numerous challenges such as:

• Assimilating invoices received in multiple formats (e-mail/PDF/ paper invoice), with non-standardized data, from various sources.
• Manually capturing data in the ERP system is a cumbersome, time-consuming task, and prone to errors.
• Manually matching invoices against POs and contracts often results in endless dispute resolutions in case of unmatched invoices.
• Tracking the concerned personnel for resolution and approval of disputed invoices impacts man-hours costs.
• Manual intervention to resolve duplicity errors, data entry errors, etc. increases labor costs.

Key drivers of AP automation

These challenges coupled with the below-listed factors make ‘accounts payable’ a strong candidate for automation.

• Payment errors 
• Security breaches
• Low cash flow visibility
• Dependency on manual labor
• High-volume of paperwork
• Redundant processes 
• Unforeseen situations like the pandemic/natural disasters re-enforce the need for paperless processes for business continuity
• A shift toward remote work culture
• Change management of AP function is easy
• Cloud-based subscription service hence no CAPEX involved

AP Digital Transformation Process, a pathway to success

Your organization is ready to take the plunge toward digitally transforming its AP function. However, chances are rife that some mistakes made along the way may result in an ineffective, not so desirable transformation. What are these mistakes and how to avoid them?

• Not getting key internal stakeholders on board 

Make sure to involve all key company stakeholders in the decision-making process before implementing automation. Discuss your plan with them, the benefits of automation, and how it will change the company’s day-to-day working. Take feedback and input.

• Not assessing your requirements holistically

Assess your current processes (this includes calculating the effort and money spent on manual processes), identify the pain points, and make a list of the desired outcomes from this automation. Failure to do so may result in you implementing a system that does not solve your biggest problems.

• Integration with your existing software

You will most likely have an ERP system and other software where you are entering invoices manually. You must ensure that the new AP automation system integrates smoothly with your ERP. If this doesn’t happen, you are bound to face added challenges. No matter what the provider says, test the AP software with actual invoices and your current system. 

• Not focussing on future software needs

As a business evolves so do its needs. Many organizations only focus on the immediate benefits that AP automation will give them. This can prove to be a costly mistake. Not assessing future (think 2-5 years ahead) requirements may make the automation redundant if the software roadmap does not align with the future growth goals of your business.

• Not training enough people

Not training enough people on the new software exposes you to innumerable risks. The trained staff member may be on leave. Or they may misuse the system and there is no one to challenge any error/fraud that may happen. When implementing a new software make sure all members of AP and related departments within the finance function are trained on the software. This avoids dependency on a few staff members.

AP Automation: The secret to better ‘spend management’

Digitization of your AP function does much more than increase process efficiency. When an organization thinks about the digital transformation of its finance function it is not just about automation, it is more about making better data available to finance teams and transforming the ‘spend management’ process. The desired outcome of such a transformation has more to do with mindful sourcing and procurement, transparent accounts payable processes, and assured expense reduction.

Now a look at some facts and figures:

The global accounts payable automation market is expected to be worth USD 4.7 billion by 2026. Wondering why? AP automation solutions can reduce costs for businesses by up to 75%. Manual labor accounts for 90% of AP processing costs, and these employees spend nearly 30% of their time collecting data. Automating the process also helps save time, enabling businesses to focus on other work aspects like smart budgeting, mindful procurement, and more.

Other benefits of AP automation include:

• Significantly fewer errors
• Swift invoice approvals and payments
• Complete control and visibility of expenses
• Enhanced productivity
• Better relationship with business associates, suppliers, and all external parties
• Seamless integration with existing ERP and other systems

Identifying the right AP automation solution

• Collaborate with a specialist 
• Assess your risk appetite and choose someone who is:
• A specialist having a deep understanding of the AP function
• Can provide a ready to use and customized product suite
• Identifies other related areas that require change and checks if your service provider has the capability to accommodate any other requirements you may have in the future
• Provides training, onboarding, and after-sales support
• Provides a solution that integrates with your existing systems.
• Do thorough research on what your peers and competitors are doing

Myth buster and going forward

Accounts Payable automation is perceived to be costly, complex, and meant for large businesses and administrations. As a result, most enterprises limit themselves to manual processes that disrupt their accounts payable function and cash management in the long run. However, the right accounts payable automation solution hosted in the cloud is an apt choice for all enterprises and can be customized to fit their needs. They can resolve pain points by bringing together the cloud, machine learning, deep learning, and big data, with a focus on user experience and design to simplify the overall solution, making accounts payable digital transformation a smooth ride.