Automate Or Stagnate: The Accounts Payable No-Choice Choice

Inertia is a powerful, if unhelpful, force in business. A process doesn’t necessarily have to be good or useful to get a contingent of people attached — it just has to be around long enough for those people to get used to it.

This stumbling block to innovation is often visible in accounts payable (AP) departments, Corcentric SVP of Sales Daniel Andrew told PYMNTS in a recent conversation. Manual, paper-based invoicing systems are objectively worse in every metric when stacked against automated, digital AP systems that leverage straight-through processing. The latter are faster, more efficient, easier to use, more secure, cheaper — and essential to transform AP departments from cost centers to revenue centers.

“The biggest obstacle is change management,” Andrew said. “You’re talking about different tools, different processes, opportunities to improve and streamline. But it really requires a willingness to stop and look at the technology, and what it can do for accuracy. There are some concerns.”

The transition to automation comes with some challenges, he noted. While a good start is deciding to focus on a goal of digitization and straight-through processing, the benefits only accrue when implementation of a new platform is done properly. When done wrong, automation can be every bit as time-consuming and costly as manual invoice processing.

However, waiting around and clinging to old processes is becoming an untenable position for organizations, Andrew added. The leaders in the marketplace are looking at AP departments and wanting more out of them than cost centers. There is a growing understanding that there is another way to do it, one that drives revenue instead of cost. Businesses are increasingly motivated to pursue this type of innovation for the obvious rewards, he said.

Many organizations, however, are limited in the progress they would like to make by the resources that are available to them today, Andrew pointed out.

“Organizations’ accounts payable departments perform at a certain level, and then stay there. Unless you embrace technology and make a really dramatic effort to use those tools, and examine where you want to go, you will stagnate at that level,” he said.

Getting To The Next Level

The problem in getting to the next phase of AP processing is that firms have an insufficient picture of where they’re coming from, explained Andrew. That means an internal assessment is in order, either done internally or by a third-party provider like Corcentric — whoever does the assessing is less important than what is assessed.

Broadly speaking, Andrew said firms need to look at four main areas: time to process an invoice, days to make a payment, cost from end to end and management of cash discounting.

“Once you know the internal baselines, the next thing to do is benchmark against a leader to determine where you rank in the marketplace,” he said. “When you see the gaps, you can start looking at the tools to start improving the operational efficiencies.”

Most businesses Corcentric works with are in for at least one surprise — usually around costs. When the firm asks executives to estimate what they are paying to process invoices, the number is always a lot lower than the actual total cost.

The other big eye-opener is all the benefits they aren’t accruing — or all the ways they could be optimizing their payments for better discounts or easier flow-through, if they weren’t mired in a largely manual AP process.

The AI/OCR-Driven Future

Some AP departments must actually do less, particularly when it comes to making the payments themselves, noted Andrew. Twenty years ago, payments were almost entirely defined by check. Today, options like cryptocurrency, ACH, virtual cards and mobile wallets abound — and the buyer doesn’t want to be in the business of either paying to all of those or choosing among them.

“Increasingly, companies are just embracing tools where they create a payment[s] cloud, deliver their payments file to a third-party provider, and then leave that provider to figure out the best and most optimized way to distribute the payments,” Andrew said. “The buyer doesn’t want to care; they want to be able to pay 100 percent electronically, and then have the third party work it out for them.”

The bigger goal, he noted, is 100 percent straight-through processing — optimizing actions that would have once happened through a manual process that will now flow through electronically, without any manual work required. He explained that those processes are created by building business rules based on preset guidelines, which route payments appropriately. The goal is for recurring payments (utility bills), multi-party payments or blanket payments to be seamlessly managed without human intervention, with funds flowing out in their best-optimized form.

“Most companies can then embrace tools like artificial intelligence [AI] or [optical character recognition [OCR]) because they are learning systems that allow those business rules to get smarter,” Andrew said.

With those payments automated, and the data from those transactions scanned and categorized, the benefits accrue. Processing times go down, payments become more predictable, organizations can optimize around discounting opportunities and procurement costs can be better forecast.

Over time, he noted, accounts payable isn’t costing money. It’s positively generating revenue because it can both better control its processes and use its data to create savings.

“You’re going to see more and more departments converting to profitability centers, which will create pressure in the market for more such conversions,” Andrew stated.

It’s a reality to the good of all involved, he said, and an opportunity to do more with a department that has — historically — been underloved and overlooked in most organizations. Treasury departments and executive teams both tend to look more enthusiastically on AP departments that make money than those that lose it.

“The tools are there today, and they are going to get better, faster and cheaper,” he pointed out. “The companies that use them are better off — and that will push progress faster than anything else.”