How important is Accounts Payable management today?
For most businesses, the accounts payable function is always important but, in terms of strategic investment, it is usually at the bottom of the priority list.
This is understandable in a buoyant marketplace, as it makes absolute commercial sense to focus investment and resources on growing revenues to deliver the best return. As one CFO recently described it (pre-COVID-19): looking at the corporate big picture, accounts payable spend is a “rounding error”.
Today, we are a very long way from a buoyant marketplace, and even the most optimistic CFOs recognise that the impending post-COVID-19 recession has introduced an unprecedented level of financial uncertainty.
Bottom line: cashflow is King.
Obviously, every business is different and the COVID-19 lockdown will impact some sectors far more than others, but we should all expect and plan for a downturn in new business sales as CFOs conserve cash, as well as an increase in customer attrition (and associated bad debt) as organisations either fail to rise from the ashes or subsequently succumb to the recessionary market.
The evolution of the role and purpose of Accounts Payable
For most organisations, accounts payable is simply the process that captures supplier invoices, gets them approved and paid, delivers the statutory returns and enables the submission of timely cashflow and management accounts.
But accounts payable and its management are rapidly growing in importance.
In the new world order, it is now time to fundamentally re-evaluate both the role and purpose of accounts payable, with a specific focus on three key criteria:
- Increasing the visibility and control over corporate spend prior to it taking place to conserve cash,
- The effectiveness of that spend to maximise the value derived from each $ spent
- Increasing the productivity of everyone involved, both inside and outside the finance department to focus on more productive activities.
To achieve this, the first step is to automate the invoice capture and approval process. This is simple. For most organisations, AP automation can be deployed and taken live within a single day, massively improving visibility, control and productivity across the business whilst also addressing the ability for everyone involved to WFH.
The second step is to automate the purchasing process as it can easily be argued that all financial management takes place before an order is sent to the supplier, everything thereafter is simply the cost of accounting for it.
The best way to start a purchasing automation project is to buy more online: it is simple for the entire business to do, prices are invariably cheaper than what you currently pay and it fully integrates the online purchasing experience of the supplier with the invoice capture and approval process. With suppliers like Amazon Business, integrated online buying provides control over every purchase before it is made and then removes almost all of the accounts payable work to process the invoices, whilst saving money. This approach provides every business with the best possible initial buying experience as the first step into a company-wide, formal purchasing process.
Having implemented online buying, it is a much easier step to automate the entire purchasing process to gain full visibility and control over every corporate commitment prior to it being made. Online buying has made everyone involved familiar with the order approval processes, invoice capture and PO match and any subsequent invoice approvals – and that helps drive rapid adoption.
For larger companies (those with a turnover in excess of $10m), the final step is to systematically reduce the cost of everything bought, simply by paying less.
Digital Procurement then leverages the spend data collected from every invoice processed for every supplier and line item captured, which makes identifying and achieving savings over $100k’s per annum incredibly simple. This is cashflow and profitability that is currently being wasted.
By using the services of spend management consultants to undertake all of the “leg work” through the digital procurement applications, you are presented with a selection of suppliers and associated SLAs – including the savings opportunity and value from each. You just need to make a decision on your preferred supplier(s).
The purchasing automation software ensures the preferred supplier adoption and the savings continue to flow year on year.
Over time, Accounts Payable becomes a profit centre, delivering real and sustainable long-term value to the business for both cashflow and profitability, and delivering 70% to 90% productivity gains across the entire business for everyone involved. Compare that with accounts payable’s current role and purpose and you can understand how fundamentally different this really is and just how important accounts payable has become.
The good news is that the world will recover from the COVID-19 epidemic over time, and those businesses that weather the storm will reap the rewards from the growing marketplace.
The importance of accounts payable management cannot be understated. Getting your accounts payable house in order today will contribute to significantly to being one of the winners in the new world order.
Given how important accounts payable management is – particularly in the current climate as more and more businesses digitise their processes to work remotely during COVID-19 – is yours prepared for the future? If not, we can help. Find out how by following this link.