The State of ePayables Chapter 3: How to Become an AP (Best-In) Class Act
In Chapters One and Two of our blog series on The State of ePayables 2022: Mastering a Key Function at a Critical Time from Ardent Partners, we explored what’s behind the current (impressive) state of AP and what it takes to attain ePayables mastery. Chapter Three explores how organizations that are leveraging their well-earned status and reputation, and strategic focus on process optimization, have defined what constitutes Best-in-Class, and what you can do to join their ranks.
As the report mentions, to be Best-in-Class you need to understand the true value in achieving AP function mastery, constantly push the innovation envelope, and become a hub of efficiency and intelligence for the rest of the organization. No small feat, but the following sections outline how to focus your efforts to reach, or maintain, AP leader status.
Best-in-Class AP: Know thy metrics
The journey to Best-in-Class accounts payable starts with a single step: reviewing your own performance — both current and historical. Likely, this is something your AP department does on a monthly or quarterly basis, but it is important to cast an objective eye over the numbers in the context of establishing an accurate starting point for continuous improvement.
It’s critical to know what you’re looking for. Not to immediately drag up a worn out cliche, but regarding AP metrics you can’t manage what you can’t see. Data blindness is a real thing, and can be interpreted several ways. The most common usage of it concerns the sheer overwhelming amount of AP data you have, and the unstructured nature of it that prevents a methodical analysis in order to glean useful information and intelligence. It can also mean willfully ignoring some data and highlighting other information that may show accounts payable in a better light at reporting time.
But, it isn’t entirely based on whether you actually have the data or not; The more cumbersome manual AP processes you rely on, the bigger the gaps that will exist in your data and understanding of what it means. This is more a case of technology blindness, which is not the path to Best-in-Class. It is totally fixable, however – more on that later.
The AP metrics that Ardent Partners highlights as the most important to get a solid understanding of are neatly summed up in this benchmark chart from page 23 of The State of ePayables 2022: Mastering a Key Function at a Critical Time:
For the average company, invoices are expensive. As the report notes, multiply that $10.18 per invoice by “the thousands or tens of thousands of invoices processed per month” and you immediately identify a critical area for efficiency improvement. One that will significantly impact an organization’s bottom line (and AP’s reputation in the process).
If time is money, and it is, cranking up the invoice speed is also crucial to increased savings – another area where improved efficiency plays a central role, as it also does in “straight-through” invoice processing and electronic invoice submission by suppliers. The faster you can get the process moving, the greater effect on cash management and perhaps payment discounts.
You begin to see where technology is unavoidable to being Best-in-Class. That efficiency should also mean accuracy, which helps solve or alleviate the exception rate and the human resource commitment required in responding to inquiries.
Best-in-Class AP: Compare and prepare
If there is a flip-ahead part in Ardent’s roster of “State of…” reports, it’s probably the “Best-in-Class vs. All Others” charts, like the ePayables Performance version seen below. Everyone wants to know where they stand in the scheme of things, Accounts Payable included. The “Best-In-Class” ranking represents the top 20% of organizations with the lowest average invoice cost and shortest invoicing processing cycle, and who are leveraging technology to the greatest advantage.
The above Accounts Payable snapshot is really the crux of what “Best-In-Class” looks like at this moment, and provides the current benchmark aspiration for AP process optimization. It’s impressive for sure, intimidating for some, but inspiring (and achievable) for certain.
AP mastery, beyond the professional satisfaction, is about real business outcomes. There is no denying the $9.99 difference in per invoice processing cost, and what that means to the bottom line. Even more impressive is the speed at which it’s achieved, giving the organization enormous flexibility in when and how to pay those invoices, creating significant cash management and forecasting advantages.
Important to note is the high percentage of suppliers onboarded in electronically submitting invoices, boosting speed and accuracy while helping reinforce relationships — a crucial benefit in these volatile supply chain times.
All of the above is made possible by the right tools used by innovative AP thinkers.
Best-in-Class AP: What’s in your toolbox?
“For Best-in-Class AP departments, technology has long been a key determinant in the success of the modern operation. In 2022, the enterprises that choose to ignore innovation will be left behind.”
The most remarkable thing about the statement above from chapter three of The State of ePayables 2022 report, is not the truth of it, but the fact that so many AP organizations still continue to put off the inevitability of technology and digitization. Especially with the lessons of pandemic business continuity fresh in everyone’s minds.
You will not achieve accounts payable or ePayables mastery — or anything remotely close to it — using manual or semi-manual processes. Period. In fact, the Ardent Partners research report makes clear that technology adoption is one area where Best-in-Class organizations differentiate themselves. Importantly, they do so by thinking holistically across multiple parts of ePayables – eInvoicing, ePayments, and to a large degree, eProcurement or procure-to-pay (P2P).
88% of the Best-in-Class AP teams use an eInvoicing solution, with just slightly less employing automated routing and approval workflows and electronic B2B payments processes capability. If your AP organization isn’t well-versed in using technology, you might not think of these three areas as “low-hanging fruit,” but the automation and software solutions — or alternatively, technology-enabled managed services providers — have been available for a long time. They are results enablers.
Meaning, there are no excuses to not accelerate their adoption, and subsequently your accounts payable performance.
Best-in-Class AP: The (missing) elephant in the room
People who need people are definitely not the luckiest people in the world, at least not in companies today. Hiring qualified talent – or any talent – has become nearly impossible since the pandemic.
The Great Reshuffling is shaping up to be the way things are for the foreseeable future, with growing ranks of people not just switching jobs, but switching careers — Accounts Payable included. It’s hard to make an enticing offer to someone who just wants to go on sabbatical or chase their dream of becoming a bespoke cobbler.
All joking aside, the trouble is real. A McKinsey stat on the World Economic Forum website states that only about a third of job leavers are returning to the same industry. When two-thirds of everyone who has left never comes back, that leaves more than an enormous skills gap.
While all this is hampering business as usual in many ways, it does underscore the urgency with which accounts payable absolutely has to accelerate some sort of technology adoption or partner with a managed services provider. You don’t have to worry about launching into a full-scale digital transformation; just focus on your top challenges and areas that are most profitable to your desired business outcomes — cash management, working capital, exception management, etc.
Technology can’t replace people — at least, not yet or not entirely — but it is essential for expanding the capabilities and bandwidth of a smaller workforce. And, as the Ardent Partners Best-in-Class performance results show, it absolutely does boost overall performance and puts AP firmly on the path to mastery.
But, as we mentioned in Chapter One, now is the critical time.