Combining AP & IT Forces
The Accounts Payable (AP) department is vital to ensuring overall corporate health and well being. Paying the bills keeps the lights on, as well as ensures and maintains critically important relationships with suppliers, keeping the wheels moving forward.
However, if we look deeper within an organization and its processes, digital transformation, which Gartner defines as “the process of exploiting digital technologies and supporting capabilities to create a robust new digital business model” is expanding its reach, often outside of AP.
It’s Called Digital Transformation, Not Digital Copying
The most important word in Gartner’s definition is new. Digital transformation is not about reproducing a digital facsimile of an analog process – that is just making extra work and more unstructured data. What digital transformation is really about is creating new digital processes to do things that are impossible in the analog realm.
Tiffany’s Blue Book, the first mail-order catalog in the United States, was first launched in 1845. Many others followed, but are Amazon or eBay merely a digital facsimile of a mail-order catalog? Of course not. Amazon and other successful corporations realized early on that the web and other digital technologies are able to deliver user experiences that simply would not be possible any other way.
In the case of Amazon, they are able to offer a far more engaging interaction than either a mail-order catalog or a brick and mortar retail outlet. They offer a continuously changing inventory for sale directly from Amazon and their partner seller community. This sophisticated supply-chain network is tailored to towards providing a simple, customer-focused purchasing experience.
ROI is King
So, why digitally transform AP? As with any grand initiative, and digital transformation is no different, Return on Investment (ROI) is critical when engaging in new projects. Leadership, finance and purchasing departments all demand this as organizations must justify the impact of any major projects in today’s increasingly competitive and cost-conscious market. Past ideology may have said, “How big is the check you want me to write?” while today’s common response is now, “How long will it take to start seeing a profit from this project?”
For most companies, AP is still a very inefficient process, with over 80% of organizations still using mostly manual processing and costing an average of $14.38 to process one invoice with up to 10.6 days (Ardent Partners “State of ePay 2018). Stack on errors or a potentially lost invoice to an already manual intensive process and these figures can quickly skyrocket. Luckily, for this 80% of companies, that there are better, faster and automated processes that can remedy these challenges to build the ROI case.
Put AI Into AP
Automating accounts payable processes can dramatically reduce the costs of processing invoices. Utilizing technologies such as Artificial Intelligence (AI) and supervised machine learning can be used for automated invoice recognition, i.e. recognizing a document as an invoice and the vendor from which the invoice is received.
Automatic identification of the vendor is important in automating accounts payable. Each vendor will often have their own layout. By learning each vendor’s layout, the system can locate and extract the necessary data on the invoice no matter where it is!
What happens if a vendor changes their layout? No problem. Want to add a new vendor? Piece of cake. If the system sees a layout it hasn’t seen before, it will intelligently interpret and if the confidence threshold is not met then it will ask for help. When the user confirms or corrects the location of the data, the system updates its intelligent algorithms so the invoice will be handled automatically next time.
Don’t Just Cut Costs, Generate Revenue
Leveraging digital technologies can help reduce operational costs and improve performance through accounts payable automation. This does not really transform the process but merely makes it faster and cheaper.
What about changing AP from a cost center into a profit center? Having access to more of the information contained the invoice and having access to it sooner allows you to do things you never could before. Imagine a $10,000 invoice that has an early payment discount of 5%, by having access to this information sooner allows AP personnel the option of generating $500 in revenue.
Being able to pay invoices rapidly has a tangible value to your suppliers and provides you significant leverage when defining payment terms. Offering payment of invoices within 48 hours may help negotiate favorable payment terms, such as a 5% discount. Such prompt payments may also encourage vendors to sign up with a Single-Use Account. A Single-Use Account or SUA is a card-based payment solution that acts as a check by providing a 16-digit virtual account number for each payment, which allows you to set each SUA with a credit limit that matches the specific payment amount.
SUAs not only streamline your payments, delivering payments to suppliers days earlier than a check or ACH payment, but enhance your cash flow and provide savings back to your organization in the form of a rebate. One customer did exactly this and was thrilled with the results.
For example, a 5% discount has netted the finance department $500 and a 2% rebate on the remaining $9,500 resulting in an additional $190. That adds up to $690 additional savings from one $10,000 invoice!
Partnering with IT
We should not look at AP in isolation, even if it is the easiest starting point for digital transformation. Organizations can look outside of finance to increase and impact performance.
Partnering with the IT department is a strategic next step. Similar to AP, the IT department supports most technology throughout the organization, making it a knowledge base for other automation use cases. Often, they may help an organization identify other line-of-business processes that can be modernized.
Other common departments functions could be the mailroom, contracts, legal or customer support – any department that handles a large volume of documents or data. IT will be able to have a strategic outlook on how new digital transformation processes will integrate with other systems company-wide, both at the business and infrastructure level. Smart Capture, Robotic Process Automation (RPA), intelligent workflow solutions and other digital transformation technologies have a role to play, but the IT function is critical in tying these technologies together to achieve the best possible business outcome.
According to the Gartner report, “Information and Technology Strategy for the Enterprise on the Cusp of Digital Business,” one of the five critical success factors (#4) for information and technology strategic planning is the embedding of information and technology strategy in business strategy. Gartner highlights the importance of having the success of information and technology “explicitly linked to business outcomes, rather than internal activities such as cost, project delivery or service levels.”
IT will continue to play an ever-increasing role in helping to realize the goals of an organization’s digital transformation strategy. IDC states that “by 2020, 30% of G2000 companies will have allocated capital budget equal to at least 10% of revenue to fuel their digital strategies.”
Why Stop? What’s Next?
So you have transformed your AP department into a shining beacon of digital efficiency, but why stop there? The pervasive use of intelligent automation using AI or supervised machine learning will not only streamline your processes, but it will give you a competitive advantage with the ability to respond to your customers faster and with higher accuracy rates. For insurance companies, automating the claims process can cut time by an average of 50% to 80%. Mortgage loan classification processing times get cut from 45 minutes per loan to under 5 minutes and a business outsourcing processing (BPO) firm saved 80% in labor costs. All of these examples set up their organizations for better customer success, loyalty and engagement. Any industry with a high volume of content can benefit from digital transformation processes.
Digital transformation strategies revolve around the means to access and use data. AP is a great place to start, but truly conforming to today’s digital landscape requires you to think big. If you’re looking at next steps, contact us with questions or request a short demo at info@ephesoft.com.