AP Process Improvement Has Multiple Benefits

Current APQC research indicates an uptick in financial process improvement. These efforts tend to focus on one of two key areas: (a) streamlining and automating core processes or (b) strengthening financial analysis that supports business decision making. When it comes to core process repair, accounts payable (AP) is getting a lot of attention. Process productivity metrics from APQC's Open Standards Benchmarking database help to explain why.

The data in Figure 1 show that implementing high levels of automation in AP can lead to significant cost savings and cycle-time compression. We examined the performance differences between:

(1) the top-quartile performers that are very highly automated, defined as those organizations that report having 5 percent or less of invoice data entered manually, and

(2) the top-quartile performers at the other end of the automation spectrum, defined as those organizations that report having 90 percent or more of invoice data entered manually.

Unsurprisingly, the number of organizations that have completed APQC's AP benchmark survey and that we placed in the "highly automated" category is quite small. The vast majority remains highly dependent on manual data entry. Still, we have enough data to make our point: process automation offers attractive benefits. The highly automated group spends about one-third of what the non-automated group spends on AP, and it can process and pay invoices at twice the speed.

Strategic Impacts

Improving AP cost and speed metrics is a noble aim, but it's not the only reason a growing number of organizations are investing here. In fact, there are several constituencies that stand to benefit for varied reasons. Consider the CFO perspective: Beyond spending less on AP, the CFO wants to reduce the risk of being labeled a "slow-payer" by credit rating firms, which in turn could drive up borrowing costs. This risk grows when data errors regularly interrupt invoice processing. Data errors, of course, are commonly associated with manual data re-keying.

Procurement staffers want AP to improve so they can spend less time going back-and-forth with suppliers to determine why dodgy data has turned up on invoices. The people in AP want to spend less time on the phone or emailing suppliers who are trying to learn when they will be paid. More than anything, though, they want to spend less time manually keying invoice data into transaction-management systems. These activities badly hamper AP staff productivity and keeps costs high.

Meanwhile, everybody with a hand in working capital management wants to see more use of cash discounts. Of course, slow speeds in invoice processing impede discount capture (common discount terms call for payment in, say, 10 days versus 30). For their part, accounting staff want to improve internal controls with stronger paper trails. They'd also appreciate a reliable view of current liabilities and impending cash flows. (Many software vendors in this space often recite the benefits that AP automation brings to the accounting group.) Last but not least, suppliers prefer to do business with customers that pay on time.

We know from empirical research that 80 percent of payments are still, to this day, made with paper-laden, manually driven processes. Let's hope to see a dent in that figure a year from now when the results of the current wave of financial process investment begin to appear.

1 The top quartile is the performance level above which 25 percent of all responses in the APQC survey occur. The bottom quartile is the performance level above which 75 percent of all responses occur. The median is the middle value in a set of values that are arranged in ascending or descending order.

Mary Driscoll is a senior research fellow with APQC, a nonprofit benchmarking and best-practices research organization. She is a regular contributor to Business Finance.