Unfortunately, Back Office teams do not have the most automated processes or the necessary technology to handle accounts  payable (CxP).  The process becomes more acute the larger the organization, given that thousands and thousands of invoices must be processed, accumulating outstanding amounts in an exorbitant manner.

The result of this is that savings are lost due to a slow and inaccurate process from the generation of the purchase order to payment. Fortunately, some data shows that CFOs of companies in developed economies are paying more attention to fixing the deficiencies in this process.

As an example, a study by the Hacket Group shows how financial leaders now understand that they need to “focus on activities that generate more value, such as continuing to look for inefficient processes that can be eliminated with automation.” Another study by Ardent Partners shows how 69% of financial leaders with reference to CxP recognize the need to have “smarter systems that generate greater efficiencies” as one of their strategic priorities.

Taking a closer look at the obstacles and solutions to CxP transformation, we found that despite the challenges CxP teams face, achieving transformation is not only possible, but has predictable and lasting positive returns.

Obstacles for Accounts Payable Teams: Exceptional Billing and Increasing Volume Chaos

The leaders of the CxP teams have important responsibilities not only from the point of view of spending but also from supplier management. This includes meeting contractual terms, handling different types of taxes, and ensuring that suppliers can see their resources in a timely manner.

It is common for the Purchasing – Procurement area to seek and negotiate favorable conditions with advance payment to the supplier with significant discounts.  The CxP team receives orders, converts them into invoices, and advance payments are never made . The reason for this is that most of the process is manual and is recorded on paper. Even for those organizations in which there is a digital invoice – which is usually stored on a drive – it is difficult to reconcile the purchase order with the invoice and verify that the invoice actually corresponds to what the company received. After this it’s business as usual:

Suppliers complain and the adventure begins to find, correct and issue the correct invoice. Then they ask by mail, calls and in person (pre-pandemic) several times a week the payment status.

In this situation , the company loses the negotiated discounts because there was never advance payment  and the relationship with the supplier begins to deteriorate (not to mention the communications between internal teams that speak of the co-responsibility that it has with the Purchasing team). .

The expected result could not be different:

On the one hand, CxP teams are required to accurately process thousands of exceptions and to do so with systems that do not have that type of functionality. On the other hand,  there is no tolerance for error when most of these processes are done manually , with information flowing through emails, shared folders and other ways that do not generate complete traceability of the process or the information.

The change in billing

The standard process for issuing billing is that it exists in  “three-way matching”  where an invoice is approved if it has the complete purchase order data and the receipt of the good is in accordance (in the case of goods). Tasks as simple as automating payment approval, a dashboard with pending payments, and generally tracking invoice status  can significantly reduce bottlenecks and generate efficiencies within CxP teams and suppliers.

For the supplier, the information should flow in an organized manner in a single system from the purchase order to payment, so you will always know the status of your invoice. The organization, for its part,  can establish business rules that allow those involved (Purchasing and Treasury) to quickly and intuitively consult these states.

This tangibly allows for improved budget control, avoidance of penalties for late payments and the appropriate use of financial discounts for timely payment. In the end, automation is made for repetitive tasks that free up CxP team resources for strategic tasks that generate value for the organization.

Recommendation on Automation

To choose the system or software that helps you automate this part of the process, keep the following in mind:

1. Where possible,  cloud-based software that is easy to use  and allows you to generate visibility into your invoices for further review, approval or reconciliation.

2. That  allows you to track invoices  not only for your internal teams but also allows them access and consultation with your suppliers, in order to offload transactional tasks.

3.  Integrations with the ERP.  The ERP contains much of the accounting information necessary to track CxP, but its inflexibility means that automation remains halfway, if it only remains in the ERP. Therefore, software that generates bridges between accounting information and the visualization of the information that you need to visualize is desirable.

4.  Choose systems that allow you to go step by step . It is important to detect which steps of your process can be gradually automated.

In the end, what is sought is for the CxP team, like all other areas of the organization, to gain its value as a strategic member that allows generating financial recommendations to capture more value for the company.

The ROI of automating accounts payable

According to GEP Publications, the cost from the generation of the Purchase Order to payment can be reduced by up to  76%.  On average, according to Arden Partners, in multinational organizations in developed countries, the process from Purchase Order to payment can cost an average of US$12.88, with an automation process the cost can decrease to US$2.56, over the course of 1 year. , which shows significant savings.

In addition to reducing cost, economies of scale can be generated that come with the acceleration of the CxP process despite exceptions. The additional benefit is that  with automation you can identify the most common exceptions for which you can generate your own business rules , which reduces exceptions by a third compared to those organizations that do not have automation of their processes. of CxP.

Finally, the real ROI is increased when you consider that you should not spend time searching, correcting and issuing the same invoice, apologizing to the supplier and avoiding unnecessary conflicts with the purchasing team. This is how the target savings of internal CxP and Procurement teams are achieved consistently, sustainably and jointly.

Source: Article based on GEP Publications.