Call it the 7 percent solution. Or rather, 7 percent … in need of a solution.
Accounts payable (AP) remains a laggard when it comes to automating the cash flow cycle. Just 7 percent of U.S. firms automate that function, according to the Federal Reserve Bank of Minnesota. Other stats bear out just how far behind the curve technology is in fostering efficiency in this critical link tied to supply chain relationships.
Consider the fact that payroll automation is done by 49 percent of companies, and that only 37 percent of U.S. businesses automate employee expense management.
What’s behind the yawning chasm, then, where AP automation gets such short shrift?
Frustration or complacency? Perhaps a bit of both.
In an interview with PYMNTS, BC Krishna, CEO of payments automation firm MineralTree, said the disparity boils down to the duality of “lack of awareness” and “lack of solutions.” Manual processes, some finance executives believe, is “the way they’ve historically been done, and they often don’t know any differently.”
For large corporates — those who can process millions of invoices annually — the pain is so palpable that they proactively look for solutions readily provided by other large (tech) firms. The bigger the enterprise, the more money they must spend, alongside an appetite for large-scale, complicated technology project deployments.
But those same solutions for streamlining accounts payable have not been designed for middle-market firms. Upon PYMNTS’ contention that the definition of middle market remains elusive, BC Krishna agreed and stated that “for better or worse, we tend to use revenue as a proxy.”
Most observers might say that the low end of the scale tips at $5 million to $10 million in annual sales, with the limit at about $300 million in top line, also annual. That leaves a large swath of customers in the United States, numbering close to a million companies, said Krishna.
The opportunity for AP automation is marked by numbers that are “scary — at eye roll” levels, said Krishna. MineralTree has estimated that there are 9 billion checks that are issued by businesses in the United States annually, with 20 billion invoices that are processed manually. That means $150 billion to $200 billion spent just to process and pay invoices in the U.S. alone.
One advantage in the procession toward automation has been the movement toward lower costs and more robust technology infrastructure through the cloud. Krishna said that the relative ease in deployment also makes the economics of these solutions ever more viable. And there might be an osmosis effect for AP, as firms have some experience in place with, say, cloud-based accounting functions.
“AP automation today is getting to be defined more precisely and more clearly, but it is not quite there,” said Krishna. “If you ask five people,” you’d get five opinions about what AP automation entails — specifically what parts of the process itself require automation, from invoices to workflow to document management to payments.
AP automation standardization means addressing some of the more obvious pain points within those processes. Consider the fact that invoices — and the information contained within— still flow across paper: faxed and mailed and routed internally within companies in labyrinthine fashion.
As Krishna noted, when one thinks of AP automation, they may typically think of invoicing as the first pain point to address. After all, an invoice once received needs to be processed.
The question about processing itself can become an almost philosophical one. He gave the example of a pain point tied to purchase order matching processes. What follows might be that the firm adopts technology that is purchase order-specific and thus addresses only particular parts of the workflow throughout AP management.
“But you really have to think about the end-to-end process,” Krishna told PYMNTS. “If you think about the knock-on effect of a late payment on an invoice, you start to see how payments are indelibly linked to invoice processing.”
How to bring external forces to bear? Firms in the U.S. might take examples from other countries. He noted that Scandinavian nations have mandated automated invoice processing — and while it may be a stretch to think the U.S. could have similar legislation in place, market-driven as it is, some technology cues may hearken from overseas.
From 7 percent to … where? Asked to give a prediction of where AP automation may be headed off the relatively low base, Krishna said that a 15 percent level in five years would mark “a rip-roaring success.”