Capital, control and collaboration: transform your AP processing to deliver strategic value

The Institute of Finance and Management (IOFM) released a report sponsored by Tungsten Network: ‘3 Ways Transforming AP Processing Delivers Strategic Value to the C-Suite’. The report identifies three key areas of consideration for senior executives when considering Accounts Payable automation: capital, control and collaboration.

Sluggish revenue growths and economic volatility on an international scale may make the modern CFO particularly risk-averse, but 68.9% of senior finance executives interviewed by IOFM ranked improving visibility into cash flow as their top priority.

In that light, how could you ignore the promise of increased visibility over organisational spending, discount and savings opportunities through spend analytics, as well as the prospect of robust procurement relationships delivered through an optimised Accounts Payable (AP) process?

Capital concerns

The report confirms a few things that we already knew, a major one being that late payments are putting a huge number of small and medium-sized companies (SMEs) at serious risk of going out of business.

Manual Accounts Payable processes make it difficult for buyers to process invoices fast enough to facilitate timely, much less early, payment of approved invoices.  Over half of the unpaid invoices owed to SMEs are overdue.

As a result, nearly a quarter of UK SMEs alone are staring down the barrel of going broke, and since SMEs make up 99.9% of all private sector businesses in the UK, this matter is of no small concern. The UK government introduced the Prompt Payment Code in 2012 in an attempt to mitigate this problem, and are currently reviewing proposals to make it mandatory for large companies.

It probably won’t shock you to learn that 32% of SMEs use bank loans to boost their operating capital or that 10% have used loans from non-bank lenders.

Perhaps more surprisingly, the same study found that 26% of SMEs are tapping friends and/or family for working capital in the form of debt investment, equity investment or the receipt of operating cash from family offices.

Invoice finance represents an agile, elegant solution to this problem, given the inherent flexibility of a solution like Tungsten Network Early Payment. It is also clear that the market is growing, with 34% of businesses having used supply chain finance and the industry itself has more than doubled in size since the global recession of 2009.

But isn’t this just a problem for suppliers? Clearly not.

Buyers need their suppliers to stay in business and these procurement collaborations are (or ought to be) of paramount importance, in that a high level of churn in your supply chain can raise the costs of goods or services. It seems buyers are recognising this, with 41% of them planning to deploy invoice finance programmes.

Control issues

Ultimately, inefficient AP processes cause the problem. IOFM references research that indicates highly automated organisations manage over 90% of their spending, whereas more manual operations have less than 25% of their spending under management. If you’re processing your invoice data digitally, it makes it much easier to collate and analyse information about what you’re buying and from whom.

Automation is very much a cash control strategy for both buyers and their suppliers.

Furthermore, those buyers who discount the value of paying their suppliers early may not have properly considered the possibility of early payment discounts. The digital era has delivered a deluge of data, and dynamic discounting is just one of the possibilities it throws.

Large buying organisations are inundated with data; the trick is filtering out the dross to leave only the useful nuggets of information. Nuggets like the price variance of identical products or an opportunity to pay an invoice early and receive a discount. If you’re able to easily interrogate your invoice data, this product data is readily available to you.

Best-in-class businesses with a high level of automation cut their procurement costs from $10.04 per order in 2009 to $4.80 per order in 2013. Conversely, businesses with no automation pay $18 per order, according to The Hackett Group.

It’s no wonder 40% of organisations identified improving AP reporting and analytics as a top priority when they deliver 2.2 times the payback of traditional business intelligence products!

Collaborative efforts

Tungsten Network’s business model is based on the relationships between buyers and suppliers. Strong relationships are essential, and when you’re trying to build something robust, you don’t want your foundations to be made of paper.

The strain that late payments and unconsummated contractual obligations put on a buyer-supplier relationship is difficult to accurately estimate. What can be said for certain is that using a best-in-breed solution to automate your processes dramatically reduces (by 60%) the need for suppliers to chase up buyers for invoice and payment status.

You can also say with certainty that the average automated system is far better at spotting invoice exceptions and data discrepancies than your average human, which suggests that companies can collaborate more efficiently when their processes are automated and aligned.

Even within your company, the benefit of a collaboration between AP and Procurement can be massive. Whether by identifying dynamic discounting opportunities or developing an impregnable procurement strategy on the basis of dynamic spend analysis software, the impact of such a collaboration can be considerable.

Conclusion drawn

International uncertainty and stagnating revenues are inhibiting growth. In this context, efforts to streamline your own processes can often deliver the greatest benefits. Download the report and start developing your AP automation strategy today!