Be honest: How would you rate the way you manage financial partners? For many businesses, the process of paying invoices from suppliers is fraught with inefficiency, delay, excess cost and errors.
A promising method for improving this is automation, says David Dreyfus, assistant professor of supply chain management at Rutgers Business School in Newark, New Jersey.
“Software can handle many of the mundane tasks that people are currently doing and flag those that have an issue, such as paying on time," Dreyfus says.
When routine payments are automated, Dreyfus says, it can free up staff to focus on the few invoices that have problems.
Learning to Better Manage Financial Partners
Rachele Collins is the financial management researcher at APQC, a Houston-based benchmarking organization. According to Collins, some of the benefits of automating accounts payable include:
● lower costs,
● increased productivity,
● increased opportunity for early payment discounts and
● improved tracking and oversight.
The Institute of Financial Management (IOFM) reports that firms with a high level of accounts payable automation process far more invoices per employee than those with a low level of automation.
"With significant automation (in which at least 70 percent of your invoices are received electronically, enabling workflow automation), a single professional can process almost 23,000 invoices annually. But when the vast majority of invoices are paper, even the best organizations struggle to hit one-quarter of that number," according to an IOFM online survey of 248 firms in May and June 2017.
You can start by automating just a handful of invoices and contracts and then grow to the amount of automation that you are comfortable with.
—David Dreyfus, assistant professor, Rutgers Business
“Bottom line: automation drives AP efficiency," says Jess Scheer, IOFM's executive editor.
And greater efficiency isn't the only advantage.
Businesses that automate accounts payable also find they are better able to control fraud and abuse and ensure regulatory compliance, he says.
Ways to Automate Accounts Payable
To start automating accounts payable, Collins recommends businesses assess their existing processes. That includes comparing internal performance to benchmarks and seeking feedback from suppliers and other stakeholders.
“It is also helpful to talk to their peers about their experiences and recommendations with automation and attend industry conferences, which are typically well-attended by various software vendors," she says.
Depending on what you learn, you may want to change the way you handle invoices before attempting to automate the process.
“Automation is an enabling tool," Collins says. “It is helpful to first have well-documented and standardized processes prior to implementing automation. You don't want to automate a poor process."
As part of an assessment, businesses may want to consider adding more accounts payable employees to help improve speed, reduce errors and get some of the other benefits that might be offered by automation, Scheer says.
“You have to figure out where it's cheaper to buy a tool or hire a second person," he says.
Dreyfus urges businesses considering accounts payable automation to take care when selecting a technology vendor. Many firms have begun offering cloud-based accounts payable solutions in recent years, he notes, and it can be difficult to sort out the competitors.
“You don't want to go with the cheapest," Dreyfus says. “Picking out somebody who's reliable and is going to be around in a year or two is really important when you have so many options out there."
It's also important to consider the full cost of automation, Scheer adds.
“It's not just buying the tool," he says. Implementing a solution involves up-front preparation to allow different information systems to exchange data, he notes. Workers who will use the system require training. Installation, integration and maintenance also add costs.
“Make sure you know what the total cost of ownership is and not just the initial fees," Scheer says.
However, it's not always necessary to make a large, irreversible commitment to manage financial partners by automating accounts payable, Dreyfus says.
“The good part is you can start relatively cheaply," he says. “You can start by automating just a handful of invoices and contracts and then grow to the amount of automation that you are comfortable with."
No matter what you ultimately decide, it's likely worthwhile to at least consider automating accounts payable to help manage financial partners. Many other firms are already doing it.
“Cloud-based automation is becoming more and more pervasive, accessible and affordable to organizations of all sizes," Collins says.
And, given the benefits of automating accounts payable to help manage financial partners, odds are that many more businesses will follow suit.
Read more articles on accounts receivable payable.
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