This guest blog was contributed by Ted Ardelean | 3/4/14
As CFOs and other financial decision-makers examine their business performance in 2013 and revise their business plans for 2014, they may want to take a closer look at their accounts payable (AP) function. Because AP works in tandem with procurement, receiving and business units, improving this department’s function has the ability to affect a company’s entire procure-to-pay process.
In fact, if performing optimally, the AP department has the potential to evolve into a strategic business enabler that can reduce costs, strengthen compliance and increase control. Key characteristics of an improved AP function include 98 percent or better on-time payment performance; a centralized and paperless process; and delivery of ongoing metrics for consistent measurement and alignment.
In November 2013, Canon Business Process Services wrote a report, “High-Performance Accounts Payable: Three Key Drivers to Success,” based on recent AP survey data from Ardent Partners. From this research, we garnered the following three main tips AP practitioners can use to transform their departments into these high-performing business functions:
1. Think strategically about your in-house and outsourced support. AP practitioners should concern themselves with accuracy, compliance and relationships with suppliers and internal managers – not with Optical Character Recognition (OCR) software, data extraction, workflow and automation. Those tasks are much better delegated to a managed service provider and team of experts. Furthermore, our research indicates that companies that at least partially outsource their AP operations reap numerous benefits, namely 25 percent lower cost per invoice and 27 percent shorter cycle time.
Keep in mind that there are some AP functions that yield higher returns when outsourced than others. For example, outsourcing front-end invoice imaging and data conversion – in which the service provider receives the invoices and then scans and uploads them into the appropriate document capture system – allows organizations to achieve significantly lower cost-per-invoice and faster processing time. The exception rate in an outsourced AP process is 32 percent lower than that of an AP department that does not outsource AP.
An organization can obtain even greater benefits if the service provider captures data from the scanned invoice using OCR, and then validates and deposits the data into the client’s ERP system, eliminating the need for manual data entry.
2. Centralize invoice receipt. Implementing a process in which suppliers send invoices directly to the AP department adds a layer of control to the entire AP process – and also has the ability to save significant time and money. Through our research, we’ve found that when AP departments adopt this centralized structure, the cost and time taken to process an invoice are reduced by 20 percent and 43 percent, respectively. The efficiency with which invoices are processed increases by nearly 50 percent, as does the percentage of invoices that are processed in a touch-less manner.
3. Leverage AP process automation. AP process automation involves capturing and extracting data, routing invoices for approval, matching invoice data and resolving discrepancies. Advancements in workflow automation technologies are continuously improving the AP process, and it is our view that setting up and maintaining AP process automation is a task best left in the capable hands of a managed service provider.
Our research indicates that for organizations who deploy AP automation, cost per invoice is reduced by $5, invoice cycle time is reduced by 3.5 days, and an average department’s staff can process 117 percent more invoices during the same timeframe. All of these benefits add up to significant savings for companies that process high volume of invoices.
Here is an example of the transformation an AP department can undergo when the practices above are put into action: one of our clients, a global cosmetics company, adopted an outsourced process that includes centralized invoice receipt and AP process automation. Now, if an invoice is scanned and all data fields match with the company’s database, the process takes 30 seconds. The company’s cycle time from receipt to payment averages two days compared to its previous average of 45 days.
This company’s story is a case in point of how these tips can serve as a roadmap for AP practitioners tasked with improving their AP departments in 2014. On their own, strategic in-house and outsourced support, centralized invoice receipt and process automation will improve any organization’s AP department. However, when these initiatives are deployed simultaneously, the positive impact is much greater.
Ted Ardelean is a marketing director for Canon Business Process Services, Inc., a leading provider of managed services and technology that enable organizations to improve operational efficiency while reducing risk and cost.