Getting Your Payables House In Order: The Recap

Chris Rauen

House_Woman-300x200Eighth of 8 blogs in the series. Read previous blog.

In this series, we’ve provided guidance on how you can transform your accounts payable operations for business advantage. Whether your project involves a tear-down or a simple remodel of your existing accounts payable operations, the opportunities for improvement are substantial.

Consider invoice exceptions – the equivalent of dry rot that can severely burden an accounts payable team. A recent industry study showed that, for the poorest-performing organizations, 30% of invoices have errors or exceptions. That means that for every 100,000 invoices that a low-performing group processes annually, 30,000 will require extra time and effort to resolve.

What would that cost your organization?

Well, if that extra cost comes to $20 an invoice, and your annual invoice volume is 500,000 invoices, that’s $3 million in additional costs to process 150,000 problem invoices. If that extra cost comes to $50 per invoice, that’s $7.5 million. How does your AP organization measure up? Given the potential cost savings, eliminating problem invoices certainly merits a closer look.

Enforcing compliance

Another industry study from several years back found that low-performing organizations experienced contract leakage – think of this as severe water damage – of $18.8 million for every billion dollars of spend. That’s $18.8 million an organization would spend above negotiated rates for products and services under contract because there is no systematic process for matching invoices to contracts. For a $10 billion company, the expense would amount to nearly $200 million in additional overhead.

Innovations such as contract invoicing and services invoicing can plug these leaks and help deliver dramatic improvements to bottom-line results. On top of this, there’s the additional positive impact on cash and working capital from an AP makeover that turns problem invoices into profitable invoices.

From liability to asset

Remodeling your accounts payable process will change your perception of an invoice. In the paper world, it’s a liability that is difficult to manage. In a connected world, it’s an electronic document that drives a collaborative process, unlocking new value for managing cash and working capital.

As you consider a transformation in your accounts payable organization, pay attention to the collaboration potential of a business network, and the simplicity of managing everything from sourcing to payments on one platform. The impact will be far-reaching. Here are examples of the kinds of results you can expect by following this approach:

  • 90% reduction in time it takes to receive invoices
  • 60% reduction in invoice processing costs
  • 99% touchless invoice processing rates
  • “Flipping” purchase orders, contracts, and service entry sheets into invoices to enforce compliance
  • Expanding early payment discounts, earning $2 million for every billion dollars of spend
  • Linking payments to detailed remittance data and related transaction documents for easy reconciliation
  • Enabling supplier self-service and helping suppliers improve their cash flow
  • Closing the loop, feeding line-level invoice data to sourcing teams to manage spend better

How can you realize these kinds of results? It begins with a plan to replace manual processes with the power tools that we’ve discussed in this series. With this blueprint, you’re on your way to thrive in a digital economy.

Learn more about how to take your payables to the next level of performance in Ardent Partners’ research report E-Payables 2015: Higher Ground.

Chris Rauen

About Chris Rauen

In his role at SAP Ariba, Chris Rauen educates procurement, finance, and shared services professionals on the business value of accounts payable automation, procure-to-pay transformation, and collaboration via business networks. Chris has addressed these topics at finance and shared services conferences, in articles for trade and business publications, and in blogs for online communities. Chris has more than 15 years of experience in e-payables, and holds a B.A. in Economics from the University of California, Santa Barbara.