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ASG Perspectives

Blog > November 2019 > Three Pillars for Effective Accounts Payable Automation

Three Pillars for Effective Accounts Payable Automation

An initiative to automate accounts payable (A/P) processes can provide tremendous business benefit. In an ineffective A/P function, according to the Institute of Finance & Management (IOFM), each payment costs twice as much to process as the typical payment in an organization that follows best practices.  Best-in-class companies spend an average of around $3.40 on processing each payment, versus an average of $7.90 per payment in a less effective A/P function.

These savings come from automation of A/P which can dramatically improve effectiveness and efficiency KPIs such as purchase order (PO) first match rate and invoices per full time employee (FTE). In addition, automation reduces the risk of human errors and missed payments, which strengthens the supply chain and can boost satisfaction ratings through faster payment processing, thereby increasing customer satisfaction. Automation offers relief from time-consuming manual processing, freeing up A/P staff to dedicate more time to managing exceptions and developing beneficial relationships with suppliers.

But a successful A/P automation project entails more than just deploying a software solution. Companies that embark on this journey must work to implement three important pillars to achieve the optimal result. 
 
  1. Centralize Content 
Decentralization and disorganization are the bane of any accounting process. According to IOFM, the more decentralized an organization is, the harder it is to process invoices quickly. Similarly, a lack of automation will hinder the speed at which an invoice can be processed. With centralized A/P processing and significant automation (in which at least 70% of invoices are received electronically, enabling workflow automation), a single A/P professional can process almost 23,000 invoices annually. But when most invoices are paper, even the best organizations struggle to process one-quarter of that volume.

The core problem is that the data leveraged by A/P comes from multiple source systems. A primary source is the company’s enterprise resource planning (ERP) system, but other systems reside with the sales staff or with external vendors, customers, transportation carriers, freight forwarders, manufacturing and warehouse facilities. If the information needed to streamline the management of exceptions is not centralized—with data from different source systems connected via unique identifiers such as vendor ID, account code and customer name—then it cannot be leveraged seamlessly to automate payment processing.

In addition, content that is available only as paper, PDF, image, etc., must be scanned to have critical data elements (e.g., date, account number, amount) electronically captured and metadata created, so they can be indexed and stored in a content repository and database. From there, the invoice and associated supporting content can be linked and processed via workflow. 

One global personal and healthcare products provider that works with ASG saved $8 million per year and cut the time it takes to process vendor invoices in half by implementing a data repository. This company handles 80% of its A/P transactions via EDI and ACH. But the other 20% of its transactions are paper-based. The company began using an intelligent capture imaging solution to scan vendor bills on the A/P side, plus all the other documents needed to resolve exceptions. Providing the A/P staff with easy access to these documents accelerated the processing of invoices and significantly reduced the amount of time dedicated to exception processing.

The best automated A/P solutions can integrate all kinds of information and content formats with their data repository—including Microsoft Word and Excel, PDF, email, video, scanned capture documents—and use a variety of standardized methods to exchange information in electronic formats (e.g., XML, JSON and EDI). They also intelligently index, archive and organize this content so that users can easily find the information they need. An effective automated A/P platform also includes auditing and reconciliation capabilities, which alert users to errors such as duplicate, short or delayed payments. On average, organizations that implement a highly automated A/P process can achieve PO first pass match rate of 90% of invoices.
  1.  Integrate with Core Systems  
Centralization may entail storing all critical accounting documents related to A/P in one place. However, within the typical enterprise, these documents likely touch several different systems. Staff outside of A/P may store some relevant documents in an ERP system or a content-collaboration platform, but other crucial information may reside in:
  • Paper
  • Vendor correct action requests (VCARs)
  • Supplier complaints or internal service failure notices
  • Freighted bills of lading
  • Sales contracts
  • Inspection certificates
The payables software solution must be able to communicate with all core systems that house relevant documents to ensure that no records become “lost in the loop.”

Integrating an A/P automation solution with the company’s content services platform (CSP) and ERP systems is a best practice. Disparate systems that function independently of one another and without effective integration will likely prolong accounting processes, while integrating systems and federating content can substantially reduce processing time.
 
  1. Unify Content Across Departments
A/P-related systems that first come to mind are unlikely to be the only software in the company that contain information relevant to A/P processes. All major departments within an organization—including marketing, the service desk, management, operations, manufacturing and legal—retain records that have a bottom-line effect on business operations. In our experience, A/P staff spend most of their time dealing with transactions that are not PO-based, or PO exceptions such as mistakes in amount, quantity, price, payment terms, etc. And in many cases, the information they need to resolve exceptions is not readily available to them.

Some automated A/P solutions can centralize enterprise content beyond the documentation that is typically considered central to payables processes. Often however, they fall short of their promise. When evaluating solutions to automate the payables process, consider how to integrate systems using standards-based REST APIs, low-code web-hook enabled content-centric workflows, and content federation to access content stored in repositories used in other parts of the organization. In doing so, determine how it might improve transparency and yield improved cost savings within A/P and the supply chain.

Automation Brings Content in Focus

There’s no doubt that good things happen when the money flowing into and out of an organization moves faster. When a company tightens its A/P processes, it eliminates the processing delays that result in inaccurate reporting, poor financial visibility, delayed business decisions, costly reruns and wasted money. IOFM has found that by applying best A/P automation practices, organizations can pay their non-PO invoices on time 96% of the time, compared to only 13% of those that are less automated.

Centralization, organization and automation are clear paths to best practices. When an entire organization is on the same page to capture, manage, federate and audit content—and when the systems that staff use work in concert across different departments and applications—the company enhances its opportunity to make more-informed business decisions and improve cash flow. The benefits from a highly automated A/P process yields paybacks in months, not years. It also provides better auditability for quicker and more positive compliance reviews. 

To learn how ASG helped one customer automate its Accounts Payable processes to reduce costs, improve service and reach compliance, read this customer case study. For information on how ASG’s Mobius Content Services delivers the automation capabilities to support each of the three pillars, visit this product page.