By Prasit Sengupta, VP AP Automation Product at Medius
Over the past twelve months, we’ve seen many organisations making tricky decisions about the way they operate in order to remain viable while navigating an uncertain future. To mitigate the financial risks brought on by the pandemic and maintain continuity, focus has been firmly placed on cash flow. The Accounts Payable (AP) team plays a vital role in cash flow control by ensuring supplier invoices are registered correctly, costs accounted for and cash flow reports are accurate and up to date.
While the impacts of Covid-19 has accelerated the digital transformation of processes across businesses, there are still too many AP teams spending valuable time on labour-intensive work, relying on manual processes to manage large volumes of paper invoices. Additionally, with organisations at different stages of their digital journey, no one is in the same position when it comes to the way they issue, process and make payments, leading to complexities in the type of invoices they need to deal with. This is putting even greater strain on AP, increasing the likelihood of late payments and decreasing process efficiency. According to the AP Association, this is leaving businesses open to unnecessary risk with 56% experiencing cash flow problems due to issues in AP.
For AP professionals looking to ensure the team is delivering more than invoice management and processing, we’ve identified some of the key things to explore right now to ensure best practices are being carried out.
- Tracking KPIs
Nearly all business functions use key performance indicators (KPIs) to measure performance and contribution to the overall business – Accounts Payable should not be any different.
A KPI for AP should be a quantifiable data point aligned to a business project; it should be specific, time-bound, agreed by all participating members and regularly evaluated. Some useful performance indicators you should be measuring include the average cost of processing one invoice, invoice lead time, automatic distribution percent and touchless processing. The increased usage of automated solutions has driven a more data-driven approach to Accounts Payable operations making KPIs available in real time, enabling teams to track process performance and compare to industry benchmarks.
- Streamline processing of PO as well as non-PO invoices
The accounts payable function manages the processing of invoices, from its receipt, through to coding and approvals, data entry into the financial systems as well as payment. However, not all invoices can be managed in the same way and understanding the difference between purchase order (PO) and non- HYPERLINK “https://www.medius.com/blog/po-vs-non-po-invoices-differences-invoice-approval-process/”PO HYPERLINK “https://www.medius.com/blog/po-vs-non-po-invoices-differences-invoice-approval-process/” invoice HYPERLINK “https://www.medius.com/blog/po-vs-non-po-invoices-differences-invoice-approval-process/”s is crucial to achieving a highly streamlined, and efficient AP process.
A PO invoice should include the purchase order number and details of good and services provided. When arriving at Accounts Payable, it will then be matched against the pre-approved PO, and in some cases a goods receipt note (GDR), to ensure all details correspond. This matching process can be highly automated using an AP automation solution. A non-PO invoice does not have a purchase order associated with it and is the result of spend outside a regulated procurement process. A non-PO invoice need to be reviewed, coded and approved by the appropriate budget owner within the organisation. Here as well there are opportunities to automate manual steps with a digital solution.
- Implementing a future-proof automation solution
Accounts payable software is often highlighted by analysts as a critical player in the market for financial digital transformation, with software ranging from basic bookkeeping to advanced automation tools. Even before the pandemic, AP managers were under pressure to make cost savings to support organisational growth – now it’s a matter of survival. This can often mean handling larger invoice volumes with the same or less staff.
To support productivity and efficiency, implementing processes for controlled, pre-approved spend and automation tools that will eliminate duplicate payments, and the costs of handling late payment fees is the best solution. Automation will help AP teams take ownership of the entire process, stay on top of invoice processing and facilitate approvals when needed. It will also help increase visibility of real time finance data.
Our recommendation is to invest in a scalable solution that can accommodate Artificial Intelligence (AI) as the technology becomes more readily available. From using machine learning to correctly capture invoice data to automatically match invoices to purchase orders to handle the process in a touchless manner, the possibilities for AI in AP are endless and will be a sure way to increase efficiency and productivity.
AP is critical to not only the financial stability of an organisation but also to maintaining strong relationships with suppliers, meaning it is important that the accounts payable team are adopting best practices. Whether this be regularly reviewing performance, gaining more understanding of the process, or keeping tabs on new technology that enters the market. It’s clear that underpinning the road to effective AP is automation.