how to turn ap into a value and profit engine
TRANSCRIPT
HOW TO TURN AP INTO A VALUE AND PROFIT ENGINERevolutionising Accounts Payable in Shared Services
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INTRODUCTION: Accounts Payableoffers much more than just efficiencies
In the drive to improve efficiency and productivity,many enterprises have turned to Shared Services Centres (SSCs) as a solution to centralise control and reduce costs. Yet, despite improvements, most organisations still have not got Accounts Payable (AP) right, remaining stuck with predominantly manual, siloed processing. Without automation, even Shared Services can only go so far.
Despite the efficiencies gained by centralising control over invoices, many Finance SSCs are still held back by inefficient processes, late payments, high operating costs, overwhelming numbers of exceptions, inaccurate reporting, limited visibility of invoice spend and a lack of invoice flow traceability. How can AP break through this to become a value and profit engine in Shared Services?
The solution is, first, to streamline invoice processing end-to-end; second, to drive real-time data through the system; and third, to translate this data into valuable insights that provide a new profit context.
Best-practice organisations are already targeting seamless, paperless invoice processing – from sourcing through to payments – by leveraging one global platform for all invoice, VAT/GST, and compliance needs. This is also the key to reliable, structured data that not only drives process improvements but also valuable, insight-driven reporting leading to unprecedented levels of transparency. However, while many solutions offer improved data capture that is a vast improvement over traditional OCR (translating to better invoice data quality), it’s not just the transactional element that is improving.
Modern cloud-based solutions offer critical decision-making transparency thanks to real-time analytics in areas like spend (both indirect and direct), supplier performance, KPI benchmarking and early payment discounts. As a result, when AP embraces a digitised, data-based approach, its contribution to other functions improves as well: procurement wins through 100% spend visibility; and treasury/working capital management wins through cash flow transparency.
The days of AP as a transaction factory are giving way to a value-adding, profit-driving future thanks to new automated solutions.
This report will help you evolve your AP strategy and identify new ways to leverage true, measurable value from AP.
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How to Turn AP into a Value and Profit Engine
ContentsFrom cost centre to profit centre viaimproved input data
Processing ‘smarter’ through digitisation
Invoice data: The foundation ofautomated AP processing
Analytics offers insights needed to shift to profit thinking
SSON Analytics global e-invoicingmetrics & benchmarks
How to gain buy-in for AP transformation
More value: Automated solutionsmitigate risk and prevent fraud
How can Shared Services meet itsobjectives through automated AP?
Conclusion
BARBARA HODGEPrincipal Analyst and Global Digital Editor, Shared Services and Outsourcing Network (SSON)
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FROM COST CENTRE TO PROFITCENTRE VIA IMPROVED INPUT DATA
One of the challenges for AP is that it has historically been viewed as a cost centre, and management concerns, by and large, still reflect this. However, the evolution of AP solutions goes far beyond document management or approval workflow solutions, which historically served to transform manual, paper-based processes into manual, albeit electronic, processes.
Today, forward-thinking enterprises are embracing a digital-first strategy to automate the entire process – from purchasing a product or service to paying the bill. The
most significant output of this truly digital strategy is the genuine business insight it delivers based on quality data inputs (invoices and purchase order data). Improving data quality at the input level does more than just streamline processing, however. It also allows for better reporting and analytics for the enterprise at large, improving the ability to extract cash from the balance sheet and strengthen working capital.
The result: More ‘value’ through data transparency – and the ability to drive profitability.
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As the global leader in power and automation technologies for utilities and industry, ABB processes millions of invoices every year in countries around the world. With a vision to improve its largely manual and labour-intensive AP process, the company established country-based Shared Accounting Service Centres, while at the same time committing to automating AP operations.
In the quest for more efficient invoice processing, ABB implemented Basware’s invoice automation solution, attracted by the ability to connect to multiple ERPs, as well as language and currency capabilities.
Prior to implementing the new solution, 380,000 invoices were processed manually each year in Switzerland alone. As part of the transformation, the accounting processes of all 14 business units were transferred into one Shared Accounting Service Centre and the system configured to interface with ABB’s SAP systems.
Today, purchase invoices are received electronically through Basware´s e-invoice for receiving service and incorporated into the invoice automation system, all in one single step. Invoices are
automatically sent for review and approval andtransferred to the ERP system for payment, thus achieving end-to-end electronic processing.
As a result, the time spent on processing purchase invoices has been cut in half, all invoice data is captured electronically and the effort and potential for errors are significantly lower. In addition, reporting capabilities mean that expenditure can be analysed in detail.
“The increased visibility and efficiency that invoice automation provides has made it an attractive solution not only for countries with high labour costs, but also for those where labour costs are low, such as China and Egypt,” says Pether Jonsson, Group Vice President.
Some countries are already achieving 60% fully automatic, straight-through processing. ABB has gained significant productivity increases in processing invoices and has been able to accommodate higher invoice volumes every year since the solution was implemented. In addition, improved analysis of the supplier base helps determine which customer should be a priority to convert to e-invoicing next.
INVOICE AUTOMATION ADDS VALUE TO ABB’S ACCOUNTS PAYABLE
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PROCESSING ‘SMARTER’THROUGH DIGITISATION
Transparency drives smarter decisions. This is important as AP leaders look at how they can impact ‘cash’ as opposed to just ‘cost’. It starts with best practices that combine digitisation with good user functionality (e.g., an Amazon-like purchasing experience) by guiding users to pre-negotiated supplier catalogues/prices. The result is improved visibility over who is buying what from whom; improved spend management and compliance; and reduced wasteful purchases. As the data tells a clear story, AP leaders are able to identify what drives profitability – and what drives costs.
At the same time, driving higher levels of electronic invoices (e-invoices) improves AP performance as a result of the knock-on effects of automated invoice validation and streamlined invoice routing, while better supplier interfaces (often supporting self-service) lead to fewer supplier enquiries.
AP teams are now able to use the time they previously spent on processing to dedicate themselves to more of a reporting and compliance function, which ticks the insights-driven ‘value-add’ and ‘risk minimisation’ boxes. This approach also fosters an environment of continuous improvement, changing AP’s focus from ‘pure execution’ to ‘learning behaviour’ and opening the door to new opportunities for collaboration and mutual gain. In other words: shifting the focus from cost minimisation to profit, by way of analytics.
“The objective of modern-day finance is to drive simpler operations and spend smarter,” explains Lauri Palokangas, Director of Customer Insights at Basware. In practice, this translates into simplification and optimisation.
“Multinationals with far-flung operations and supplier bases in dozens of countries are constantly facing the challenge of how to meet VAT/GST regulations and other business requirements across multiple jurisdictions. In addition, although organisations typically have good relations with their top tier suppliers, the long tail of the supplier base – and its spend – is largely unmanaged and not optimised, presenting significant administrative challenges.”
“The key”, Lauri says, “is to optimise AP despite the challenges presented by scale and multinational operations, and in the face of multiple ERP and procurement solutions. But while there may be a plan for long-term ERP consolidation, procurement is generally not a priority”.
“The solution is therefore, first, to get all suppliers on board so that invoices come together in one place, regardless of where spend is generated; and second, to integrate all procurement solutions that deal with spend, whether direct or indirect. Once the data is in one place, it’s easier to decide how to automate activities and so release employees to focus on more valuable services like data analytics, which is where true value is generated.”
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THREE ASPECTS OF AP WITHROOM FOR IMPROVEMENT:
data input processes automationanalysis of the data available from digital processes and platforms
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Source: Billentis
2020
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INVOICE DATA: THE FOUNDATION OF AUTOMATED AP PROCESSING
Industry estimates are that 80- 90% of the AP process could be automated, depending on the extent to which invoices are digitally received and processed. Electronic invoicing, therefore, is a key driver of optimised AP. Research firm Billentis predicts strong growth in global invoice volumes but shows electronic invoices – though rising – are still lagging. So, what’s holding organisations back?
One challenge is the lack of global e-invoicing standards. The global PEPPOL e-invoicing framework is a commendable initiative, albeit one that has developed local flavours due to differences in regulations. Some industries, like the German automotive industry, have developed their own standards. Given the absence of agreed standards, therefore, it’s important to be able to receive invoices in various formats and then convert these to one format for easy processing.
“The challenge is not just about structuring data, but also about scalability,” explains André von de Finn, Director of Global Business Development at Basware. “This means allowing ‘small’ suppliers to send their invoice format to ‘large’ receivers. This is facilitated by modern systems that can ‘read’ a PDF by cutting and pasting the original source data – not just by copying pixels – and converting this into a format favoured by the receiver (the buyer). This removes a significant number of errors.”
“Customers are putting more and more pressure on providers,” explains André, “so the answer is to leverage automation by offering innovative solutions, even if the data is not perfect.” AI, for example, can ‘smart code’ invoices where there is no PO, using historical data – i.e., identify a given coding based on past treatment of similar invoices – to keep the process flowing.
Billi
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2025 2030 2035
Total invoices and receipts
Electronic POs and mobile invoices
Conventional e-invoices
Paper invoices and receipts
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ANALYTICS OFFERS INSIGHTSNEEDED TO SHIFT TO PROFIT THINKING
Modern analytics capabilities that are embedded in technologies provide real-time as well as trend data to drive the kind of valuable insights that determine optimal decision making. These insights include:
AP cash forecastsAP key performance indicators and trendsAP process performanceProcurement processesSpend across categories and suppliersSupplier performance
In addition, however, modern predictive analytics tools can also review and understand historical trend data to anticipate the probability of late invoice payments, for example. This, in turn, helps prevent future late payments and capture more early payment discounts, increase e-invoice rates, resolve process bottlenecks and improve supplier relationships. Modern solutions highlight all this actionable, real-time data via pre-defined dashboards that that really shine a light on problem areas and, importantly, highlight the direct connection between data and profit. Within that framework, SSC leaders can set up their own benchmarks to manage their journey and focus on the value-adding, profit-driving opportunities that establish AP as an elevated partner to business.
First, however, you have to collect the data – and trust it.
“The nature of most AP data tends to be related to spend,” explains Lauri. “And yet, a recent Deloitte CPO study highlights that 63% of procurement executives have limited or no visibility outside Tier 1 suppliers. So, if you don’t solve the data problem, your analytics will be based on an incomplete data set. It’s critical, therefore, to bring all data together first, and structure it optimally, in order to compare apples to apples – and apply best practice to analytics.”
“Analytics allows you to see what’s actually going on with your liabilities and where the bottlenecks are,” adds Michael Pyliotis, Vice President Asia Pacific, Basware. “You
can see how the process is flowing in real-time and how long it’s taking for each of the steps.” Bottlenecks or shifts in performance are easily identified, he explains.
“For example, where matching performance is suddenly low, employees can dig into why. That might mean considering whether they are not buying correctly, or whether buyers are not receiving correctly. Essentially, you can better understand the root cause of the slowdown in the process and take relevant action – for example, adjusting a matching rule to enable a smoother flow; automating coding combinations; or using Basware’s SmartCoding™ (coding suggestions based on machine learning technology) for manual transactions that don’t have POs.”
Driving more value out of data is not just about freeing up time, however. You need to proactively allocate time to analytics, warns Michael. “People don’t necessarily know what to look for. And they may not know what to do with it. That whole area of data analytics is a lot bigger than we assume it to be.”
“Right now, we know where the cost blocks are. But in future we expect to leverage strategic AP roles – analytics gurus – whose job is to understand trends and see where these might turn into inefficiencies or costs.”
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Ave. Cost per Manual Invoice (USD) Ave. Cost per e-Invoice (USD)
$14
$12
$10
$8
$6
$4
$2
$-
Utilitiesand Oil
ProfessionalServices
HeavyIndustries
Banking andHealthcare
AdvancedTechnologies
Australia and New Zealand
$14
$12
$10
$8
$6
$4
$2
$-
$9.71
Utilitiesand Oil
ProfessionalServices
HeavyIndustries
Banking andHealthcare
AdvancedTechnologies
Germany, Switzerland and Austria (DACH)
$14
$12
$10
$8
$6
$4
$2
$-
Utilitiesand Oil
ProfessionalServices
HeavyIndustries
Banking andHealthcare
AdvancedTechnologies
Global
$5.07
$9.55
$4.99
$12.54
$6.55
$9.41
$4.91
$10
$5.22
$9.30
$4.86
$9.15
$4.78
$12.02
$6.28
$9.01
$4.71
$9.58
$5
$11.49
$6.00
$11.30
$5.90
$14.84
$7.75
$11.13
$5.81
$11.83
$6.18
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7The cost benefits of e-invoicing are indisputable across the globe
Source: SSON Analytics 2019
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HOW TO GAIN BUY-IN FOR AP TRANSFORMATION
Transitioning to a centralised AP model can ruffle a lot of feathers, and it’s important to plan for this by considering how to counter resistance. While the benefits of a modern, integrated AP platform are significant, the change management and transformation requirements can be daunting. Countries frequently resist centralised processing because of unique compliance requirements and perceived local complexity. Most modern platform providers offer built-in local expertise, however, so it is often simply a matter of having the right conversations to allay such concerns.
Suppliers, too, require persuasion. “Given that you can’t impose specific requirements on all of your suppliers, you should offer them flexibility,” explains Lauri. “You need to approach this in a way that makes it easy for suppliers to join. Imposing one solution tends to backfire.” Instead, he suggests working with suppliers to enable all of them to receive and send orders and invoices electronically, using a technology solution that suits them.
“The hardest part to change is behaviour,” Lauri points out. “While it might be tempting to inflict behaviour on users, for example through a ‘no PO no Pay’ strategy, the truth is that better results are achieved in starting with an enabling structure between systems.”
Where supplier contracts run through procurement, one approach is to modify supplier behaviour through pricing. Where SSCs charge paper-processing at a higher rate than e-invoices, the departments to whom costs are passed on are incentivised to step in and put pressure on procurement to prioritise suppliers that use e-invoicing. These departments are in a much stronger position than AP to drive the necessary changes.
However, care must be taken to balance procurement and AP improvements.
“Across the DACH region, I have seen that P2P projects are often driven by procurement and thus sponsored by the CPO,” explains André. “That means that the focus is predominantly on procurement, and AP requirements are not under quite the same spotlight. Organisations
end up with a new procurement tool but they are missing the automation and e-invoicing link. I find this is often underestimated.”
However, getting it right will need to be a priority very soon, especially because the EU has recently issued a directive to mandate e-invoicing across the EU public sector. Globally, initiatives encouraging the use of e-invoicing have been in place for decades, with Latin America taking the lead, partly driven by governments’ desire to reduce VAT gaps. “If you consider that roughly half of all German enterprises have at least one public sector client, you get an idea of the impact this will have,” explains André. “They will need to find a way to send e-invoices fairly quickly.”
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AUSTRALIAN STATE GOVERNMENT MEETS SAVING TARGETS WITH AP AUTOMATION AND E-INVOICING In 2006, one Australian State Government moved to a Shared Services model, announcing a plan to save A$60 million per year as a result. The transition of employees into the SSC included approximately 175 FTEs who were responsible for invoice processing activities. It quickly became apparent that there were significant opportunities to improve both the efficiency and effectiveness of the P2P process through automation. The subsequent P2P reform was a key contributor to achieving overall Shared Services savings targets. At the time, their AP team received roughly 2.5 million invoices per year, most of which required manual processing and less than 5% of which were received electronically.
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How to Turn AP into a Value and Profit Engine
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MORE VALUE: AUTOMATED SOLUTIONS MITIGATE RISK AND PREVENT FRAUD
Financial fraud costs businesses a lot of money every year and one of the attractions of e-invoicing and AP automation is that the combined impact of digitisation and analytics go a long way towards preventing fraud to begin with, thus minimising unnecessary financial loss. E-invoicing’s framework makes it harder for fraud to slip through. In addition, the controls and compliance built into tools designed to manage e-invoices create an environment that is fairly resistant to fraud, given the limited human touches that occur (which is where vulnerabilities tend to creep in).
It’s also possible to code for some of the red flags commonly associated with fraud. According to a recent Report to the Nations published by ACFE, fraud typically lasts 16 months; the loss to the business is greater the longer an insider works for the company; and half of fraud cases are directly linked to weak internal controls. In addition, 85% of fraudsters display at least one behavioural red flag. Simply improving internal controls, therefore, means that half the fraud can be prevented from happening in the first place. In addition, software can be codified to look out for behavioural ‘red flags’.
It is also possible to mitigate fraud by applying AI to internal controls, for example, by identifying where the distribution of invoice amounts does not “fall on the curve,” as Lauri puts it. “We are working on lots of areas and applying AI to identify alerts in the data. That is still a work in progress, but we have cracked internal controls through e-invoices. I think in future we will see more fraud-type dashboards evolving, which will identify transactions that could be susceptible to risk as opposed to those that are quite safe,” he says. “This is where the AI and analytics capability will take us.”
In addition, only half of these were paid electronically.
The Director of Reform at this SSC explains that AP staff had to undertake all tasks like purchase order matching, compliance checking and data entry, manually. In addition, within agencies, hard copy invoices were being physically sent around to different people for certification and approval before being sent to the SSC for processing, which naturally led to a high incidence of incorrect or missing invoices.
Basware was implemented as a solution and was particularly attractive because it offered the ability to interface with a range of different financial systems. Twenty-one separate agency implementations were launched for an estimated 10,000 users. A dedicated vendor consultant and project manager located on site supported the implementation, a critical aspect of which was an agency training programme that included online delivery as well as classroom-based teaching, given the broad distribution of agencies across the State.
A year later, the P2P process showed significant improvement, with a 35% productivity increase in AP, improved payment cycles, and 99.5% of invoices processed within service level agreements. In addition, the number of invoices received electronically increased tenfold, from 5% to 55%. Other benefits include an automated workflow for invoices not associated with POs, and automated GST compliance checking. Enhanced reporting capabilities have further simplified financial accounting and audits.
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THREE QUESTIONS AN ENTERPRISE SHOULD ASK IN AN RFP:
How will you ensure we get rid of paper invoices?
How will you ensure that you automate as much as possible?
How will you deliver transparency over how well/badly my SSC is performing?
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Finance Shared Services leaders are under pressure to come up with more opportunities to drive down cost – but also drive up profit. With transactional efficiencies now table stakes, management is looking at ways to leverage data and insights for greater profitability. The top line, as opposed to the bottom line, is increasingly under the spotlight.
AP provides such an opportunity through new platforms that drive automated, seamless processing on the basis of digitised data input (e-invoicing and procurement data). While this meets the cost-cutting and standardisation criteria, it also importantly presents hitherto untapped means of driving more value and profitability for the business through newly available analytics, offering transparency over volume, suppliers, process flows and cash-generating opportunities.
Analytics capabilities embedded in modern AP solutions extend far beyond traditional spend reporting to include automation rates, invoicing rates, payments on time, and performance against benchmark averages. Pre-defined dashboards offer actionable, real-time data analysis that shines a light on problem areas – but also highlights opportunities to improve cash flow for the business.
Ease of access is key, however. While modern AP solutions store all the information in their database, what’s required for improved decision-making is to build the right reporting tool on top.
It’s really important that Shared Services leaders targeting AP optimisation choose the right solution, based on their requirements, explains André. “Many typical RFPs outline requirements at too high a level. It’s like issuing an RFP for a car, and then stipulating it needs four wheels!”
It is critical, too, that AP leaders understand exactly what they are comparing. “Talk to providers,” André suggests. “Many offer a free evaluation of a potential customer’s current state – we do it through our Success Lab – and will even outline a process description with recommended improvements and opportunities.”
This kind of information requirement should be stipulated in a request for tender, he suggests. “Organisations should think about what they really need as opposed to what they really want out of a solution. Most of the time, based on what we are seeing, it’s plain that they don’t know.”
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CONCLUSION
Accounts Payable has always presented a preferred opportunity for Shared Services to leverage efficiencies through centralisation and standardisation. Up until now, however, the cost side of AP has driven performance strategies.
With new solutions offering digitised data inputs, streamlined automation, and value-adding analytics, AP leaders find themselves in a position to offer the enterprise much more.
More, that is, in the way of value-adding intelligence to drive optimal decisions, for example in the supply chain; but also, more in terms of getting cash into the business and driving profitability.
New functionalities can, for example, be leveraged to gain money back from virtual credit cards and allocate the savings to cover the cost of AP operations, thus turning it into a profit centre. Similarly, dynamic discount opportunities can be offered to customers and such benefits, too, allow AP to generate additional revenue for the business.
The benefits, in terms of automation, control and visibility, all link to the most critical metric for any business: cash flow. More importantly, AP’s ability to predict future cash flow is an invaluable asset for the enterprise.
These opportunities offer a step change for AP as never before. We are truly witnessing the revolution of AP – a journey, the momentum of which will only escalate in the years ahead.
For AP leaders, the options are clear: assess the current AP process landscape for gaps or bottlenecks, and address these with best practice solutions that leverage digitisation to the full.
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ADDITIONAL READING:Gartner Magic Quadrant for Purchase-to-Pay
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ABOUT THE SHARED SERVICES & OUTSOURCING NETWORK (SSON)
The Shared Services & Outsourcing Network (SSON) is the largest and most established community of shared services and outsourcing professionals in the world, with over 120,000 members.
Established in 1999, SSON recognised the revolution in support services as it was happening, and realised that a forum was needed through which practitioners could connect with each other on a regional and global basis.
SSON is a one-stop shop for shared services professionals, offering industry-leading events, training, reports, surveys, interviews, white papers, videos, editorial, infographics, and more.
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Thousands of global business services and outsourcing professionals use our data to understand the shared services landscape in their region through a variety of interactive data tools, analytics reports and customised data insights.
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Basware is the global leader in providing networked purchase-to-pay solutions, e-invoicing and innovative financing services. Basware’s commerce and financing network connects businesses around the globe. As the largest open business network in the world, Basware provides scale and reach for organisations of all sizes, enabling them to grow their business and unlock value across their operations by simplifying and streamlining financial processes. Small and large companies around the world achieve significant cost savings, more flexible payment terms, greater efficiencies and closer relationships with their suppliers.
www.basware.com
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