Accounts payable (AP) management is critical in managing cash flow — and it is a business function that has come a long way. Once a largely siloed and transactional role, today’s industry-savvy AP teams are leveraging technology and providing strategic insights to leadership across their organizations.
Back in the ‘80s: AP as a Transaction Processor
The practitioner of the 1980s was essentially a document processor. In this largely pre-computer era, paper invoices dominated. Key challenges included overcoming human error, navigating often convoluted approvals processes and managing large teams. In order to increase processing power, companies needed to add staff to their AP teams. Progress could be slow and unwieldy.
Upholding sound record keeping required large volumes of paper with folders, boxes, cabinets and storerooms needed to support that bulk. Generally, these records would rarely be touched again, unless they were recalled for a future case to resolve an issue or demonstrate compliance. Extracting additional data from records for other uses would be considered out of scope in most cases.
All of this added up to a busy, at times hectic practice. Each AP team’s quality of work and efficiency largely depended on a manager’s organizational skill. Not surprisingly, the AP department of the era tended to be a closed system; simply gaining efficiency was enough of a challenge to focus on.
1990s Tech Boom: AP as a Systemized Processor
As personal computing gained adoption in the 1990s, AP teams adopted software systems – a move that effectively standardized many aspects of the practice. Software systems helped to centralize the processing of transactions within many organizations, reducing some of the potential for human error.
Greater computational power and speed delivered efficiencies to AP teams which led to more transactions being handled by fewer people in less time. Just in time, too, as the World Wide Web emerged and opened to the public in early to mid-1990s.
On its heels, e-commerce innovators accelerated the pace of purchasing. Complexity grew and the risk of fraud and cybercrime naturally evolved to exploit new technologies as well, creating new vulnerabilities.
2000s: AP at a Crossroads
In the new millennium, the pace of innovation continued to accelerate. Mobile communications took root, dramatically transforming business and society. Suddenly, transactions became feasible nearly anywhere and between even more parties – including virtually all banks and financial institutions, payroll and payment innovators, vendors and suppliers, and every type of consumer.
Across commerce, AP practices began to lag behind the pace of advancement, with many remaining dependent on manual invoice processing or with limited or siloed use of available software.
Today and Beyond: AP as an Optimizer of Payment Strategy
The trend toward electronic transformation continues – with game-changing innovations such as blockchain/DLT, digital currencies or e-money and artificial intelligence (AI) among the latest disruptors. Today, the AP function within an organization must adopt best practices to keep pace with current threats and opportunities.
Unfortunately, many AP departments still face the burden of daily manual tasks. Staggeringly, 55% of all invoices today arrive as paper documents delivered by traditional mail. In B2B practice, the number is somewhat better, with 59% of invoices delivered and payments made electronically. Among suppliers, 75% of companies still submit paper invoices.
These findings, reported in “AP Metrics that Matter in 2019,” reveal that paper-based invoicing systems endure, worsening the existing pitfalls of an approach that was not designed to handle the pace and complexity of an interconnected commerce system.
Change is taking root, however. The report observed a significant distinction in the approach – and results – of the top 20% of AP teams. What do these best practices teams do differently?
They align payment and procurement.
Unified, streamlined work processes produce the best results. “Straight through” processing, which requires no human intervention, is faster and produces fewer errors; yet only 27% of AP teams practice it. For most AP teams, a quarter of staff time still goes to eliminating bottlenecks around invoice exceptions and managing long approval times. Aligning payment and procurement processes and linking the two teams’ efforts is essential, yet 32% have no link.
Payment process reporting software and supplier information management software are two examples of tools that continue the evolution of AP toward centralized, intelligence-informed practices. Early adoption of automated approaches is a key to success.
The report noted that for most AP teams, smart investment in AP automation (or e-payables) will be critical to their success. Fifty-nine percent of AP professionals believe that within two years, they will see full AP automation in the industry.
They consolidate and analyze data.
More advanced AP teams have transitioned from paper to digitized records with readily accessible data they can analyze to discover new efficiencies, recover losses, or realize discounts and incentives.
Consolidated data can benefit leaders across the organization, providing insights to form strategy and planning in practical ways. For example, data can be compared across categories, finding correlations to enhance asset management or to forecast cash flow and cash needs.
They fight fraud and advance compliance.
Eighty-seven percent of AP teams today either manage or support their organization’s fraud prevention and compliance activities. Leaders within the AP department who apply automated workflows and digitized records are finding effective ways to reduce fraud and increase compliance with cybersecurity standards and regulatory standards. Improved processes, faster response times, and the use of analytics (to detect suspicious patterns) can all make an impact.
Where to next, AP?
The evolution of accounts payable continues to face challenges familiar to its predecessors – eliminating the potential for errors, reducing the cost and accelerating the pace of transactions. Yet, AP departments are transforming the role by adopting powerful automation tools, utilizing their central role to benefit their organizations in new ways.
The next generation of AP teams are not only empowering their own departments with optimal P2P processes but are acting as strategic partners making an impact at the highest level of business operations.
Want to learn more? Download the AP Metrics that Matter White Paper to see the full report.