The Evolution of Modern Accounts Payable

The Evolution of Modern Accounts Payable

When you look at some of the incredibly advanced systems today powering massive amounts of payables at a high level of accuracy, it’s hard not to be a bit awestruck.

But this level of AP technology didn’t get here overnight. The evolution of accounts payable was a long, arduous process driven by necessity, not novelty, as in the case with other technological pursuits. AP automation was born out of the need to manage large volumes of invoice payables, maintain accuracy, and achieve operational excellence within the accounts payable department.

Let’s get started.

Stages of the Evolution of Accounts Payable

In looking at the history of accounts payable, there are lessons in how to know when it’s time for the next step forward. Of course, in order to know where you’re going, you have to look at where you’ve been.

Let’s briefly examine a condensed summary of how accounts payable has evolved over the years.

Paper – The Dark Ages

Starting way back (well, through the 1980s) AP was mainly a paper-based function. Vendors sent hard-copy invoices through the mail to their buyers.

In the best-case scenario, the paper invoice would be shuffled through the company all the way to the AP department, which would verify the costs, cut the check, and remit payment through the mail.

In a less desirable (yet all-too-common) scenario, that invoice might sit on somebody’s desk for a couple of weeks, or get delivered to the wrong person. Either way, it’s hard to blame companies for using 90-day net payment terms when you consider all of the manual processes they used to have to endure.

The only way to add capacity in your ability to process more payables was to add more staff, more staplers, and more file cabinets.

Desktop Computers – The Renaissance

When the personal computers boomed, every accountant now had a computer at their desk, which opened up a lot of new possibilities. The ability to accept invoices digitally, correspond instantly with vendors across the country via email and chat, and software designed specifically for AP processes had a major effect on the ability to process invoices.

Companies began focusing on standardizing their operations in order to increase their efficiency, accuracy, and time to payment. The actual bills and checks were still using a mostly paper-based system, however, so much of the work needed was still manual, such as data entry.

Now equipped with processes, AP teams were able to get more done. Increased digital transactions came with a downside, however, as cybercrime evolved as well. This created new controls businesses had to implement to protect themselves from both internal and external AP fraud.

AP Automation – The Enlightenment

Today, many organizations have begun implementing various levels of AP automation. While cost savings and efficiency are still near the top of the list of benefits, forward-thinking companies view AP automation as a more crucial piece to their overall digital transformation.

They’re seeking big wins in terms of fraud prevention, scaling operational capacity, and maintaining compliance in an increasingly complicated legal landscape. Moreover, the user experience with these automated digital platforms is helping AP Managers and their staff verify and process invoices faster than before, all the while mitigating costly errors.

Then when it comes to Financial Controllers, they benefit from the added reporting abilities. Which in turn, gives Chief Financial Officers more visibility into where every company dollar is, including liabilities such as unpaid invoices.

In this way, the accounts payable department can play a strategic role in the finances of the company, as opposed to a simple transaction processor.

“Automation” is a term that covers a broad range of processes, however, and needs to be more clearly defined. Let’s take a look at the different levels of AP automation happening today and see if we can find where your organization fits in.

Levels of AP Automation for Invoice Processing

Levels of AP Automation for Invoice Processing

Within AP automation, there are various levels that you may employ.

We’ll take you through a journey, starting off with the manual AP process where there is no automation present. These types of firms are still accepting hard-copy invoices, processing them manually, signing checks by hand and sending through snail mail. If you’re one of these AP departments and find it difficult to gain control over your invoice lifecycle,  then speak with one of our AP Heroes to see if AP automation is right for your business.

Next you have the organizations that have a lot of paper processes and want to digitize their records. These companies are scanning their paper invoices upon receipt into a system and categorizing them in their general ledger. Firms at this stage are generally still using email for verification and approvals, and even sometimes the physical invoice before scanning it into a digital copy. These systems will also generally automatically save and archive the paper trail depending on the technology. While there are certainly some benefits to digitizing all these documents, there is still very little automation happening at this point, other than turing a paper invoice automatically into a digital copy of the invoice.

Stepping it up a notch you have the mid-level automation folks. These systems are not only scanning invoices or accepting them digitally, but they’re also capturing data by extracting it through the invoice and putting the data to work, such as GL coding. Automated systems at the mid-level are able to pull data out of an invoice not only at the header level but specific line items, too. Additionally, this type of system will usually integrate with an accounting system, which means AP staffers won’t have to enter the data twice. These mid-level systems start to really create lots of labor efficiency.

Lastly, we have the advanced AP automation platforms that cater to everyone in an organization. For AP, the platforms are intuitive by nature as they come in familiar tab-style layouts, trays, and advanced functionality they need to process invoices while putting the business in control of its processes. These systems will not only do everything previously mentioned, but will add in more complicated workflows such as three-way matching, automatic routing for approvals, duplicate invoice alerts, and advanced fraud detection. In addition, invoice approvers find these systems intuitive and easy to use as well. By removing all accounting functionality, invoice approvers have the most basic yet essential features available to them. Those come in a few flavours: ask a question, invite another participant, and click the approve button or click on not mine.

Additionally, these systems create advanced reporting opportunities based on the real-time nature of the workflows. At Stampli, we actually bake artificial intelligence into our software that helps the system learn and adapt to your unique organizational workflows.

Now that you have a general understanding of how the different levels of AP automation can function, let’s take a closer look at why this technology can help mid-market firms.

Why Mid-Market Firms (Not Just Big Businesses) Should Automate Accounts Payable

Why Mid-Market Firms (Not Just Big Businesses) Should Automate Accounts Payable

AP automation is not only suited for enterprise business, but mid-market firms can use AP technology platforms to control processes and costs.

Without the massive resources that large corporations have, however, mid-market firms need to know when it’s time to take the next step and a framework for accounts payable that operates at that size and scale. Here are a few indicators it’s time to explore AP automation.

When your AP cost is too high

The first indicator that it’s time to implement an AP automation solution is cost, specifically, your accounts payables costs to process invoices which also includes time. Here’s a related article that details how to calculate various AP costs, but to summarize:

  • Measure overall accounts payable related expenses, and calculate them as a percentage of your total monthly revenue.
  • Measure the expenses associated with each vendor individually and compare them to the revenues directly affected by that vendor.
  • Measure the cost per invoice processed. Per-invoice costs can vary by industry, but if yours are in the $8-$10 range or above, AP automation can certainly help decrease costs.

When researching an AP automation solution, make sure that your plan addresses these costs directly.

When morale dips

Smaller firms are often asked to ‘do more with less,’ and back-office resources are often one of the first areas that are affected. While downsizing your AP department might look good on your P&L, how does it affect office morale? Take a look around and ask:

  • Does the AP staff feel overworked and underappreciated?
  • Is the AP workload sustainable over time?
  • Are errors frequently committed and what implications did they have on business?
  • Do we have a high churn rate for AP employees?

There is a growing opportunity for the AP department to be a strategic asset to the company, but this will never be realized if your AP staff feels like overworked paper pushers.

When you identify bottlenecks in your processes

Are bottlenecks decreasing visibility into cash flow? Another metric that might indicate it’s time to upgrade AP workflows is your invoice processing speed. Honing in on the specific tasks that are eating up labor or causing frustration within the AP function and accounting department can be solved with technology such as AP automation and accounts payable performance metrics.

Here are a few areas where there tend to be bottlenecks, especially during peak times of the month and at the start or end of a fiscal quarter or year:

  • Manual coding and data entry
  • Verification processes
  • Duplicate invoices either paper or digital, or one paper and one digital
  • Missing, partial or blanket purchase orders
  • Approvals when thresholds have been reached or delegation required due to an approver out of the office

An AP automation platform provides you with reports on how long it takes for invoices to be approved within the system and spot any laggards in the invoice verification and approval process. From the Management Overview dashboard, any and all bottlenecks can be identified long before they make a financial impact on business.

Stampli provides not only the ability to report on approval times but the ability to streamline the routing process of invoices to ensure it reaches the appropriate party or parties. Oh, and the last three bullet points (verification, coding, and data entry) are all handled by computers with minimal effort from AP — only to ensure and verify all the information is correct.

When you realize the company-wide benefits that are possible with AP automation

When you take a step back from the accounts payable department and look at the full picture, you realize that AP automation doesn’t just help one department cut costs or improve service, it benefits the entire company.

For example, 96% of AP automation users are invoice approvers outside of the AP department. This means other departments have to spend time and be part of the invoice approval process.

With AP automation, invoices are not only routed for approval faster, all conversations regarding the invoice and any field changes are presented to the approver in context, making the invoice itself the center of conversation.

What if an approver has questions on how much the vendor invoice was last time around? With Stampli, the system automatically includes a list of previous vendor invoice amounts and links to them on the invoice itself. With all information presented on the invoice, approvers can arise to a decision much faster than a manual paper process.

A streamlined AP process is going to save time while increasing your controls and accuracy of payments, essentially providing a double-dip in value to the company. This maximizes the output companies are able to yield out of their workforce, while also freeing up time for those some professionals to think strategically about how to improve how the company handles its cash, work on other projects, or even explore opportunities for career progression within the company. With more time and access to capital, AP staffers will be able to research opportunities to save money in the form of early payment discounts, for example.

Supplementing the output of employees with AP automation allows your staff to explore other projects that actually drive growth. For instance, if some form of operations was limited because the AP department simply couldn’t handle all the paperwork associated with growth, that problem disappears with AP automation and you can move the conversation on to how to scale invoice processing along with the other side of the business.

So what do you think? Where is your organization in terms of its accounts payable evolution?

As we’ve mentioned, there is a huge upside to AP automation and very little downside, even for smaller organizations. The costs are reasonable and can be made up quickly with the amount you’ll save, and with Stampli, you can be up and running with a best-in-class AP automation platform in as little as one day. Learn more about how it works.

Looking to maximize B2B payments flexibility? Use Stampli Direct Pay to pay suppliers by automated clearing house (ACH payments) or paper checks. Or pay suppliers outside of Stampli. You’re always in the driver’s seat with Stampli Direct Pay.

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