AP Automation Still the Land of Promise in a World of Paper
March 17, 2015
How to ensure the success of your AP automation strategy
According to the results of the Institute of Financial Operations’
2012 AP Automation Study:
“Two thirds of respondents processed more B2B payments electronically versus three years ago. But nine in 10 still deal, at least in part, with paper invoices.”
It’s not surprising that, given the overall state of the worldwide economy over the past few years, cutting costs has emerged as the top priority of AP departments in survey after survey.
To do this and improve overall efficiency within Accounts Payable, technology is often turned to in the first instance as the ultimate panacea. Indeed, even with AP budgets remaining roughly the same, organisations continue to see technology and full-scale automation projects as the way forward.
Financially, automation holds out the promise of reducing AP transaction and headcount costs, making a direct impact on an organisation’s bottom line. But in many cases AP have little or no say in automation initiatives and projects are imposed on them without their input but relying on their full participation. And alternative methods to achieve process improvements are often completely overlooked. This article reviews six areas to watch out for that, if managed well, can dramatically improve the outcome of any AP Automation project.
Defining AP Automation
AP Automation can mean different things to different people. So it is perhaps best to start with our definition: an AP automation project is any initiative undertaken by a company to utilise technology solutions and/or services in order to automate the people and paper-based processing of invoices for payment.
So, an AP automation project can include front-end scanning and indexing, workflow and OCR solutions—i.e. ways to take paper and convert to electronic format—or it can include leapfrogging these technologies and adopting, for example, e-invoicing technologies right from the outset. The final part of the process is streamlining actual payments using electronic means such as BACS or ACH. In short, an AP automation project means removing paper from the entire process of invoice creation to invoice payment.
The combination of automation technologies your organisation chooses to achieve the end-result of cost and process improvement will depend on a multitude of factors, among these financial constraints, IT and AP staff resources, existing financial hardware or software installations, supplier issues or constraints, and executive buy-in.
But whichever combination you choose, you will need to take into account the following six potential danger areas and manage them well in order to ensure your project’s success.
Six Potential AP Automation Pitfalls to Watch Out For
We have identified these six key areas which can scupper a good AP automation project:
1. Staff Morale
In a typical AP automation project, the actual team using the system is often the last to be engaged. Since the end-result of automating AP can be reduced headcounts, the end users can also get the feeling that by helping with the project, they are participating in their own obsolescence. Demotivation can result, with some valuable people leaving the organisation, taking their knowledge and skills with them.
Recommendations: Conduct an internal workshop to garner initial feedback from the users. AP should be involved in the technology selection process in order to get their buy-in and ownership. Within the project team, there should be an AP lead, transferring in a rising AP star to take on the role, for example. Extra temporary staff should also be taken on to help with the increased burden for the team over a likely 6-12 month period as the system beds in. Regular communication updates for AP are vital with a retraining program running in parallel to ensure good staff members are kept.
2. Immediate vs Long Term Gains
The IFO’s 2012 Global Trends study reported that the cost to process an invoice stayed the same or decreased only slightly after AP automation. So, if it’s an immediate reduction in processing costs you’re after, you might do well to look for other complementary projects and technologies that can also drive a reduction in transaction costs.
Recommendations: Use forensic tools to assess issues, cost leakage, errors and problems within current processes. The reports and main results can kick start a range of initiatives to drive a first phase of process improvement before AP automation. These can include an internal duplicate payment recovery program, capturing early settlement discounts, implementing p-card programmes or simply restructuring your AP team to create efficiency and transaction cost improvements.
3. Drain on AP Resources
The AP team often carries the brunt of the actual project implementation load which can cause fundamental disruption to the day-to-day running of the AP function, putting the organisation at increased risk of fraud, duplicates and errors across the whole period of implementation.
Recommendations: Again, request temporary staff, to allow, firstly, an AP project manager be to be allocated to the implementation team and secondly, to manage the increased work load that inevitably results from a project of this scale. Make your team aware of the increased hazards and increase vigilance across the department. Boost reports and controls to ensure constant monitoring of AP transactions and to protect spend.
4. It's a Marathon, Not a Sprint
Implementation times, from the very start to a finish line that can include post-audit analysis, are typically in the 6-12 range. The core parts of the implementation might be 4-6 months. The rule of thumb is to add 30-50% to any quoted timeframe in the project proposal.
The AP team need to be kept motivated by the end goal, which can sometimes seem to be a moving target. A project that takes 12 months to work through fully can feel like a small eternity for teams battling through the day-to-day pressures of imminent change.
Recommendations: Set performance incentives and penalties with automation vendors to ensure they are jointly linked into the success of the implementation. Ensure the AP lead reviews time scales and builds in extra time. The lead should also keep the AP team fully informed of the project status and progress. Cross-functional cooperation involving the AP team can also serve to keep them engaged in the project and motivated for a mutually successful outcome. It’s a team effort.
5. Cost Control
As with any project, the forecasted cost of installation often snowballs and the final cost can be significantly over budget. In theory, the AP cost reductions achieved will offset this increase; nevertheless the payback period lengthens and the bottom line is affected.
Recommendations: There are many good examples illustrating how automation projects can be split into a number of stages. For example, workflow can be implemented before OCR. Online supplier portals can be set up as a separate project unto itself. So, instead of trying to do everything at once as automation vendors might prefer, consider a more phased implementation and measure the budget at each stage. Work with your vendor to cap the budget and provide motives for them to hit key objectives. Build in some slack that can be withdrawn if other projects don’t go to plan.
6. Balancing Technology with Experience
Removing paper from the invoicing and payment processes will undoubtedly help reduce costs and eliminate certain types of errors – such as any errors resulting from manual keying in of data. But current research shows there is often an actual increase in different types of errors following implementation, for example OCR misreadings or budget holder sign-off errors.
The implication of replacing an AP employee who has, say, 15 years of experience with automation doesn’t take into account what that person actually does day in, day out. He or she is often your first line of defence against fraud, for example.
There is plenty of evidence to show that this person will routinely carry out 6, 7, even 8 different sub-conscious fraud checks when a paper invoice comes in for input. These include the format of invoice, name of the contact, telephone numbers, typical invoice amount, types of purchase, average quantities, payment details etc. Anti-fraud checks like these are very hard to replace with an AP automation system that uses only simple PO matching as a safe guard.
Recommendations: Carry out constant analysis of transactions across the whole project looking for red flags indicating potential fraud. Work with your internal audit department to ensure extra controls are in place to capture any increase incidence of fraud or errors. There are number of additional reports that can be set up within your ERP system as well as some best-in-breed systems that can sit alongside your automation system(s) monitoring all transactions and protecting the organisation.
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