AP Automation Is Steadily Progressing

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The biggest driver behind companies’ interest in automated AP technologies is achieving better control over their spending and ensuring purchases are made with preferred suppliers.

Accounts payable (AP), like accounts receivable and other corporate financial operations, often struggles when it comes to investments in automation. Top execs tend to give priority to more customer-facing functions as they divvy up whatever capital dollars are available. That’s been true even though the paper, manually-intensive processes that have characterized AP departments can be inefficient and error-prone, and can hinder companies’ management of corporate spending.

However, AP departments are slowly but steadily moving away from paper and to a greater percentage of electronic transactions, a study from the Institute of Financial Operations and ReadSoft shows. The biggest driver behind companies’ interest in these technologies: achieving better control over their spending and ensuring purchases are made with preferred suppliers. The next most commonly cited reason: eliminating mismatches and exceptions that result in blocked invoices. (This may explain why 43 percent of respondents currently capture less than 10 percent of early payment discounts.)

So, while checks remain the most popular payment methods, accounting for 51.5 percent of business-to-business payments, that’s down from 57.1 percent last year. ACH use jumped from 25.5 percent of payments last year to 33.6 percent currently.

In addition, three-quarters of respondents said their firms were processing more B2B payments electronically than they had been three years ago. That’s key, given the impact on processing costs. Consider this: just 12.2 percent of respondents were able to process paper invoices for less than $2 each, compared to 31 percent of respondents handling electronic invoices.

Fortunately, more companies are handling electronic invoices. Nearly half the 213 respondents indicated that their volume of paper invoices was slightly or significantly lower than it had been a year earlier. That compares to 30 percent who said that it had increased. More than one-quarter of respondents had cut the time their organizations required to process invoices; just 10 percent had seen an increase.

The move to electronic processing is especially pronounced among firms with $5 billion or more in revenues. At nearly one-third of these firms, 25 percent of the invoices they handle are paper. That compares to 13.4 percent of firms overall.

The rest plan to catch up, however. More than four-fifths of respondents expect the majority of their B2B payments to be completed electronically within three years.

Whether the funding will come through remains to be seen. More than half of respondents – 57 percent – said their AP capital budget was unchanged between 2012 and 2013, and 19 percent that said it would decline. About one-quarter said it would increase. Moreover, at 59 percent of companies, automation projects account for less than 2.5 percent of the overall AP budget.

The most common obstacle to getting AP automation projects approved? Competing initiatives.

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What's Basis Points?

Karen Kroll supplies the Business Finance community with reporting and commentary examining cash management and treasury-related topics.

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