The Automation-First Approach to Optimizing Accounts Payable

by Greg Handley

Even before the pandemic, the AP function was already a strong candidate for automation.

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The pandemic disrupted global supply chains and caused companies to rethink how to work with and pay each other. Among the afflicted finance functions was accounts payable (AP), which typically employs the largest headcount under the controller. According to a recent Workday survey, 59% of CFOs list cost containment as a top priority, indicative that finance transformation to optimize spend and drive productivity continues to be top of mind.

Even before the pandemic, the AP function was already a strong candidate for automation—with time-consuming manual processes and high risk of human error, the opportunity to improve quality and efficiency was significant. Now, with mounting budget constraints and an even greater focus on saving time so finance professionals can focus on higher-value matters, AP teams have been shifting rapidly and securely through automation. But how can busy CFOs and finance leaders optimize the supplier payment process through automation to improve efficiency without comprising quality and spend control? Here are some key considerations for an automation-first approach.

Embrace the universal challenge

One of the major challenges of the AP function is that its role comes at the end-of-the-line in the purchase-to-pay (P2P) process. When problems occur upstream, AP teams must first find and troubleshoot the issues by gathering data, seeking clarification, or getting approvals from professionals in other departments who have their own work priorities before they can even begin processing invoices. This follow-up work leaves less time for invoice work.

While some AP teams have outsourced or offshored work to lower labor costs, they may soon be left frustrated when costs don’t decrease as planned and upstream problems are still left to be solved internally. Instead, to improve efficiency, AP teams should focus on leading the charge to drive continuous improvement throughout the P2P end-to-end process. As a first step, there are two areas that can make the process work better for an organization: identifying pain points and implementing best practices.

Spotting the pain points within an organization’s P2P process is a critical first step to recognizing the main inhibitors to efficient invoice processing.  Some common challenges may include working with the data team to clean up supplier data, asking requisitioners to confirm a receipt, or requiring a buyer to make a call on a conflict between the order and the invoice. Many of these issues can be prevented from recurring if policies, processes and business rules are adjusted.  Addressing these pain points in a sustainable way frees up accounts payable professionals to focus their time in high-impact areas such as spend control.

Reviewing best practices and discussing how they can benefit an organization is another key step. Take a holistic approach and consider improvement beyond process to include organization and technology.  For any organization, it makes sense to focus in maximizing a straight-through-processing (STP) of invoices.  To do this, companies need alignment from leadership to invoke strict rejection rules and embed those rules and workflow in their P2P technology. Ideally, invoices that don’t meet certain requirements are rejected in the system and never seen by the invoices processors.  There is a direct link between STP and automation, as it is easier to automate invoices that don’t have disparities in data and other information. A holistic approach includes addressing STP from the following dimensions— policies and controls, process, performance measurement, talent, organization and master data, and enabling technology.

When optimizing the AP function, particularly for invoice processing improvements, using an automation-first approach can deliver impactful results quickly. Using technologies like Cognitive OCR (Optical Character Recognition) and RPA (Robotics Process Automation) can quickly eliminate significant manual entry time and input error. Positive automation results help create interest, focus, and the desire to achieve even more automation throughout the rest of the organization.

Getting started with automation

The first automation efforts in invoice processing should be viewed as the start of an ongoing process improvement journey and should include analysis to provide a better understanding of exceptions inhibiting STP and automation. The benefits of the automation and the findings from the analysis can be used to build energy around measuring and fixing exceptions throughout the P2P process.

The alternative to an automation-first approach is a traditional process analysis, where current state is documented to arrive at a future state process. This method generally takes longer and results in more incremental, less transformational improvements.

An automation-first approach is faster, more impactful, and highlights how each stakeholder, such as a requisitioner, buyer or receiver, can have a positive impact on STP and automation results.

After initial automation results are measured and exceptions analyzed, a formal, continuous improvement program should be launched. Automation is a journey, not a one-and-done project, so it should constantly be evaluated and adjusted.

Dashboards that track and trend exceptions by stakeholder are a good way to manage positive, permanent and evolving change, especially when dealing with changes outside of finance’s direct control. Financial impacts should be estimated to help encourage cross-organizational improvements. However, dashboard production shouldn’t become the main effort. Starting with low-tech, simple measures are often sufficient. Over time, AP teams may want to become more advanced and make sure they have a systems architecture that supports the automated production of this kind of workforce analytics data and visualization. Systems that integrate both HCM (hours) and Financials (dollars and units) best support this reporting.

In addition to these P2P key performance indicators (KPIs) and dashboards, AP supervisors should consider measuring their internal team’s performance improvement including efficiency, timeliness and quality related to the “pay” part of purchase-to-pay.

Adopting a holistic improvement portfolio

Once an automation-first approach is agreed upon, an improvement portfolio should be employed that addresses sustainable improvement from many dimensions. This holistic agenda typically includes implementing policy control changes, continuous process improvement, end-to-end organizational support, master data management and implementing other enabling technologies, such as ticketing systems, automation tools, or dashboards 

Estimating and tracking value

A successful automation project should always deliver value. Even if the value expected is an estimate, it’s important to ensure the required company resources to implement are delivering an adequate return. To do this, the calculations can be simple.

Automation percentage expected is the key estimate to pay attention to. Benchmark data and process health measures, like STP, will help as they drive focus on the improvements that enable increased automation. For example, if  a team estimates their STP is 75%, it’s not realistic to expect an initial automation percentage to be any higher. However, over time and as process improvements take hold, STP will increase, enabling the automation percentage to increase.

Value measurements should include other related accounts payable and P2P benefits, too. Some additional components to consider measuring value include improvement in job satisfaction, spend control and cycle time improvement, fewer lost discounts, expanded scale and business continuity, and improved organizational agility.

Automating other P2P processes

Once a significant percentage of invoices have been automated and process exceptions are managed, the next step is automating other parts of the P2P end-to-end process. The sample roadmap below includes other high-impact areas, such as master supplier data, that are important parts of the process to consider automating.

Optimizing the accounts payable function isn’t a one-size-fits-all task, but it doesn’t have to be overly complicated, either. The key is to get started on a P2P automation journey by setting up cognitive OCR and RPA to eliminate much of the manual input for the largest supplier invoices and use the time saved to work on process exceptions, while also having the expectation of undergoing a continuous improvement effort. This will pave the way to increased efficiency and accuracy and position financial businesses as a strategic partner to the optimization of an organization’s operations as a whole.

Greg Handley is Alight Solutions’ Global Finance Transformation Leader.