How Accounts Payable Automation and Agility Drive Long-Term Business Productivity

Published on
14/11/2023 02:50 PM
accounts payable automation and agility

The next BriefingsDirect business modernization discussion focuses on how optimizing and automating accounts payable (AP) functions gives businesses improved insights and levers to better transform.

We’ll examine how improved control and management over cash flow, payables, and related fiduciary functions elevate overall financial situational awareness.

Via adoption of intelligent automation, such new awareness -- and the greater efficiency it produces -- will further support the expected consolidation and convergence of financial operations within the typical office of the Chief Financial Officer (CFO).

  Listen to the podcastFind it on iTunes. Read a full transcript or download a copy.

Here to show how and share his insights as a business operations efficiency veteran and expert is our guest, Jason Kurtz, Chief Executive Officer (CEO) at Basware. The discussion is moderated by Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: Jason, let’s put some context around our discussion. What are some of the major trends shaping the need for better accounts payable automation, and why is there an imperative to add intelligence and automation to overall back-office business operations?

Kurtz: The imperative is we’re dealing in truly unchartered waters here for a lot of CFOs. If you think about what’s going on in our world, if you think about the macro-environment, we have potential recessions in some areas of the world. We have higher inflation rates, higher interest rates, and all that affects us in our businesses in various ways. If you think about supply chains, for example, we still -- believe it or not -- haven’t fully recovered from supply-chain disruptions from the pandemic.

Kurtz

These trends impact CFOs, and what’s going on in our world. We still have people working in hybrid or remote environments. We still have companies that can’t fill the jobs they have open, including in AP. Then we also have countries such as France, Germany, Poland, and Spain that are adding regulatory requirements for how you should send and receive an invoice.  Countries like Mexico and Brazil are changing their regulations on a regular basis.

Never before have we seen so many things impacting CFOs at the same time. You think about people like me, I’m in my mid-50s, I’ve never worked in an environment where there’s a recession plus high interest rates, plus inflation. You throw that in, and we’ve never seen this before. For many of us in these roles, it’s a unique time in history -- and in our careers -- that we’re dealing with so many challenges at once.

Gardner: Because there’s so much that’s unprecedented happening at once, it’s hard to look at the historic record and say, “Okay, I know what’s going to happen next.” There’s very little clear visibility as to what we’re going to be dealing with in terms of our top-line and needed constraints on spending over the next six to 12 months.

Kurtz: That’s 100 percent right. We are living with uncertainty right now. Few companies have great data and information to help them navigate such uncertainty. But one of the key documents, key pieces of information and data, is the invoice. If you can get that right, and gather great data from your invoices, man, that makes your job as a CFO a lot easier.

Gardner: To get that look at the full record and all of the data, that usually means more intelligence and automation around vital business processes. So, on the micro-level, what are the challenges facing businesses to gain more tactical and strategic control over their finance operations?

Kurtz: There are some really interesting challenges that you wouldn’t believe are still challenges. For a lot of businesses, we want to improve profitability in uncertain times. We want to unlock working capital. What’s one of the biggest barriers to that? Over 90 percent of companies say they can’t pay an invoice on time because they don’t have it approved in time.

You need automation and tools that can embed your policies and procedures into your workflow and your processes. You can't do that in a manual world. This is the reality for a lot of the companies we deal with.

Because they have bad data, because they haven’t enabled their suppliers, and because they’re often dealing with scanning and optical character recognition (OCR) documents of poor quality --  and it takes time to manage difficult exceptions – those are all critical hurdles. So, it’s important to solve these to unlock lots of hidden value.

Another challenge we talked about; companies don’t have a full staff in AP -- sometimes people are working remotely. How do you make sure those new people are trained, are more efficient, and effective? How do you know they’re following the policies and procedures for your company? How do you quality check the work they’re doing via remote work? 

Because you want to do more with newer and fewer employees, you need automation and tools that can embed your policies and procedures into your workflow and your processes. You can’t do that in a manual world. So those are just a couple of examples, but this is the reality for a lot of the companies we deal with. From an AP perspective, they need improvements because these really are barriers to their success right now.

Gardner: Jason, both you and I have been in this business long enough to have seen wave upon wave of new technologies and approaches. And that was great, to use the best-of-breed solutions as they came online. But it has left many organizations with a scattered and disruptive mix of apps and silos that come from different eras.

Invoice intervention imperative

Kurtz: Yes, without question. We joke a lot about an earlier era of scanning paper docs using OCR, right? That’s just one example of what you’re talking about. For a lot of companies, scanning and OCR checked the box on adopting electronic invoicing. “We’ve done it.” But you and I know that that’s not really the case, right? You don’t get any good data out of that.

You have to have manual intervention. It slows your processes down. It’s like using a pay phone, right? Or a fax machine. And no one uses those anymore. But there are still lots of people who have that as their e-invoicing solution, which is crazy.

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And, to your point, lots of companies have layered different technologies onto their environment over time. Maybe it was a procurement solution, or a sourcing solution, or their enterprise resource planning (ERP) suites, and they’re trying to figure out, at least in AP, “How do I make all of that work? My invoices come and originate in different places.”

They ask, “How do I put something on top of that that is modern, usable, and purpose-built for me in that kind of an environment that’s very fragmented and has lots of different offerings and capabilities?” They need something that sits on top of that to make it all more efficient and effective for the AP department. So, again, you hit the nail on the head. There’s a lot of complexity in the companies that we work with.

Gardner: Part of the good news, as you alluded to earlier, is that the modern invoice has a beneficial role to play. When you go fully digital, you can layer into that resource lots of metadata, you can bring added processes to bear, and you can use that asset as a powerful tool to usher in benefits across other applications, data, and processes. When you do this right, and you unlock the superpowers with your invoice workflows, how does that set off cascading benefits?

Invoice data insights reap rewards

Kurtz: One that we haven’t talked about yet, when you get that invoicing data right and you have good data from across your suppliers, that gives you aggregate insights into what you bought from whom, how much you paid, and what the commerce trends are. That gives you the basis for accurate spend analytics.

In the current uncertain macro-economic environment, we’re trying to save money and use that money to fund growth where we can find it, or put it away in the bank for profitability, then spend analytics is a great place to start to optimize, right? But you have to have that invoice data first to fully understand what it is you bought from whom, the pricing, and all the added details. So that’s one.

Two, the other part of the invoice data goodness, comes from unlocking working capital. Many companies now discount payment terms so the buyer receives a two percent discount on the net invoice amount if they pay within 10 days. Otherwise, the full invoice amount is due within 30 days. But, if they can’t pay something in 10 days, they can’t get the benefit.

But imagine if we could unlock literally billions of dollars in potential early-payment discounts or working-capital benefits that we could then use to invest in our growth or direct to areas where our acute business needs are. But, again, you must have a working invoice with good data, well-structured and in a timely manner, to be able to handle that management of working capital optimization. Yet, lots of companies still can’t do that.

I think those are a couple of examples where the modern invoice can unlock a lot of economic benefits for companies in these uncertain times.

Gardner: It has only gotten more important to best manage cash flow now that we’re up to five percent or more on overnight interest rates. The imperative to get fast and detailed cash flow data, and bring that organizational efficiency and agility to bear in real time, is higher than at any time in at least the last 15 years, right?

Kurtz: That’s 100 percent correct, and so intelligence is more valuable for us as an organization, and for our large customers. That’s because, in many cases, they have billions of dollars in spend, so that they can unlock millions – even hundreds of millions -- in working-capital dollars due to those higher interest rates.

Such intelligence is also important for our customers' suppliers because their cost of capital is going up, too. When supply chains are still disrupted, who gets what when and at what terms? 

But that intelligence is also important for their suppliers because their cost of capital is going up as well. In this world, where we still have some limited supply chains, suppliers can’t always deliver 100 percent of what they did three years ago. They may still be at only 85 or 90 percent.

Who then gets what when and at what terms? Who gets that 85 or 90 percent instead of the requested 100 percent? I would hypothesize -- and our customers are telling us this -- those good payers, the people who pay on time for timely delivery, become the customers of choice. If there’s a limited supply, they may get more of their fair share. There are a lot of benefits for doing this well, being able to pay when you and your suppliers want to pay for the right reasons.

Gardner: You’re teeing up some of the changes needed in CFO-required skills. Whereas due diligence, operational integrity, and process efficiency may have been top of mind when it came to bringing new people into the office of CFO, now you’re talking about more analytical, entrepreneurial, and innovative skills. We need a different kind of person in these strategic thinking and data analysis roles, right?

CFO role encompasses more analytics 

Kurtz: Yes, absolutely. In almost every role in the finance department now, comfort with data and analytics is becoming more critical. Those are the skills that help with automation and gaining insight into how you best manage your resources and capital. Those two skill sets -- comfort with technology and proficiency with data and analytics -- are probably two of the most important.

The other thing we’re seeing is the office of the CFO is broadening its responsibilities, too. They’re taking on more operational responsibilities and further impacting their organizations. So, that means being consultative and being good influencers and educators. Those are all part of the skill sets that a good finance organization has to have right now.

Gardner: There is no closing the door to the back office and then only coming out once a quarter with an audit or report anymore, right?

Kurtz: That’s right, you can’t do that. You just can’t do that.

Gardner: Let’s put some meat around some of these solutions in practical terms. How are these AP automation solutions paying off in brass tacks?

Productivity, processing, profits -- all up

Kurtz: We’re seeing incredible benefits. When we see automation in the AP function, you go from a company on average processing maybe 5,000 to 7,000 invoices per full-time annual employee equivalent (FTE) to companies processing, 30,000 to even 50,000 invoices a year per FTE. So, that’s a massive productivity benefit. You see the level of electronic invoices from your suppliers going from, on-average for most companies at 34 percent to some of Basware’s best-in-class customers attaining 99 to nearly 100 percent.

OCR is no longer the answer to processing PDF invoices, but AI-powered solutions are.

So, again, that plays into the benefits of accessing great structured data around an invoice. If, for example, you examine invoice processing time, most companies average around 11 days for AP functions. But Basware’s best-in-class AP customers are looking at hours or minutes, certainly less than a day, for processing. And that’s part of what you need to do to unlock the working-capital benefits. And you see companies with 20 to 30 percent of their invoices being touchless -- meaning you never physically have to manually have an intervention into an invoice from receipt through payment – are up from formerly around 21 percent. But again, Basware best-in-class customers are gaining with more than 90 percent being touchless.

These are the kind of metrics and value that AP automation solutions, and in particular Basware, customers are able to achieve.

Gardner: Can you apply these tactical metrics to also measure improvement in overall business productivity and financial returns?

Kurtz: Sure. Take a look at a customer of ours like Heineken. They implemented Basware’s AP automation solution. It streamlined invoice processing, reduced manual efforts, and improved data accuracy and efficiency. All of that resulted in greater than 40 percent reduction in their cost to process invoices within their function as a whole. So more than 40 percent reduction in overall AP team and organization costs by implementing an AP automation solution.

We can be really impactful. The same kind of thing happened at Toyota Industrial, another customer of ours, where they saw similar benefits from streamlining the invoice processing, reducing manual work, and getting suppliers to send invoices electronically. They attained better data, but also significantly reduced cycle times and earned invoice processing time savings. And that lead to better spend visibility and access for a well more than 50 percent reduction in the cost of processing within accounts payable as a whole.

Those are some of the benefits. I think the order of magnitudes are really incredible and transformational. We’re talking about literally millions of savings in hard dollar savings and then tens of millions of dollars in potentially in working-capital benefits as well. 

Gardner: You can’t define productivity much better than that, right?

Kurtz: I like to think so.

Gardner: Okay, we have those direct, hard number AP improvement benefits. But as we alluded to earlier, there are some burgeoning types of benefits that come from having the data analytics and capability to innovate on larger strategies for buying, spending, and paying. Let’s talk a little bit about some of the ancillary benefits that come when you automate, when you go truly digital, and when you explore innovations around how the business itself operates.

Tech-savvy, budget-aware people thrive

 Kurtz: Yes, there are a bunch of benefits. Let’s not underestimate the people benefits, right? So many of us are working in hybrid working patterns and remote working environments. I think one of the real benefits is to be able to onboard our people faster and have better productivity from them that much faster than you can in a non-automated world. So that’s one.

 Two, you can attract a higher level of quality of candidate, particularly -- not to stereotype -- younger generations who are attracted to the technology that we need to incorporate into finance functions over time. They’re attracted to great technology and purpose-built technology. So, that’s another interesting example of ancillary human capital benefits of modernizing AP operations.

So many of us are working in hybrid working patterns and remote work. A real benefit now is to be able to onboard people faster and gain better productivity from them much faster by being in an automated environment.

Another one is clearly the savings visibility, right? And we have customers who are using that spend data that you get from invoices that we talked about to identify tens of millions of dollars in savings from having better data associated with invoices.

Toyota, again, is a good example. If you think about the overall finance function, one of the things they use our AP solution for and can gain from improved invoices data is the capability to rapidly monitor budgets. By improving their budget awareness, and having better conversations sooner in their fiscal quarters, they get a head start on performance metrics to know where they stand relative to budgets -- and being able to then act swiftly. They tell us that’s one of the really big benefits.

Again, that fits in with the overall CFO theme of being more consultative, being more of a business partner. That comes in large part from being able to see data, gain insights, track trends – all much earlier in the process. You simply can’t do that if it takes you 11 days to process an invoice, or you retain only 50 percent of the data, or you get garbage for data because it’s scanned, and then you have to go back and manually figure out what it is.

All of those are some of the ancillary yet impactful benefits that we’re seeing.

Gardner: Given the ongoing tight labor market, it sounds like the role of the finance people can now better help innovate for other parts of the organization, such as human resources. Better tracking payments and processes can help exploit a gig economy of contractors or use different forms of labor while tracking the costs in full.

So, is there an elevation that we should expect to see in terms of the status and impact that the finance office can have across the business?

CFO: From counter to consultant

Kurtz: Without question that’s the case. Here at Basware, our CFO is becoming more of a consultant, business partner, and adviser to other functions within the organization. That is a very common trend and theme we’re seeing as CFOs have broad influence and more operational span of control. They are changing from being the counter to being the financial consultant.

These new types of CFOs are bringing the insights from all of that data that we’ve talked about and helping the whole business operate better and deliver on expectations of profitability, growth, or whatever it is that that function is focused on.

Move from manual ways of working to the most automation AP processes possible.

And then, if we want to be really provocative about where this leads, you might have AP organizations that become profit centers. Because of the cost-reduction elements that they can take out, the working-capital benefits that they can unlock, and the ability to attract more supply -- all of those things help with investment, innovation, and growth. We might someday be looking at finance functions that are profit centers instead of cost centers.

Gardner: Interesting! Well, that’s a good segue to the last part of our discussion, which is what can we expect next? What’s in the future when we exercise true and pervasive AP automation? When will we be able to further avail ourselves of tools like machine learning (ML), artificial intelligence (AI), and instill an analytics culture within our businesses? What does your crystal ball show you coming for the modern accounts payable impact when we do it right?

Kurtz: We’re going to see a world in the not-too-distant future where in 95 percent-plus of the time, an AP person won’t ever have to touch an invoice. We will have better data from an invoice. Using AI, we will gain the capability to match and handle nearly all exceptions. We already have this today, but it’s going to keep getting better and better.

Soon more than 95 percent of the time an AP person won't ever have to touch an invoice. And we will have better data from that invoice. Using AI, we'll handle nearly all exceptions ASAP.

And you’re going to see these AP teams become much less, “How do I manage this exception? How do I go track down who the buyer was; what happened?” and all of that, to more of, “Hey, now I can think about what’s the best way to deploy my working capital. How do I take this data that we’re getting and spot impactful trends in it?”

As we become more touchless and automated, it’s going to free up value-added time to enable CFOs to be the business optimization partners, to spot trends, to understand better what’s happening in the business, and to bring ideas, solutions, and creativity to the rest of the organization. That will, in turn, fund the innovation that we want, fund the growth that need, and not just be a cost of doing business that we’ve been in the past.

 Gardner: Yes, no better way to get a sign-off on something then when you can tell them it’s going to pay for itself, right?

 Kurtz: That’s right. That’s exactly right.

 Gardner: Jason, where can people go to learn more about these trends and solutions? Where do you look for good analysis and information about these trends, markets, and solutions?

Kurtz: At Basware, we do our best to be educational and share what we see happening in the industry as well as track industry trends and benchmarks. You can go to Basware.com to see that or follow us on LinkedIn. We post a lot of content on our LinkedIn page.

I like to read a lot of the industry analyst content that comes out. I think there is some really good stuff. I know recently I’ve done some good reading on benchmarks from Ardent Partners. They’d done some really interesting studies. Forrester has interesting studies that I’ve been reading about as late. So, those are two great examples.

Basware is also a founder and innovator around EESPA, one of the leading associations of invoice and AP automation providers across Europe. We’re constantly working together to bring forth ideas and innovation on how to bring more automation to the industry.

See how your organization stacks up on the top AP metrics comparisons

And then frankly, Dana, most folks joke about me being a Chief LinkedIn Officer, and I’m a LinkedIn addict. I think there’s all kinds of great data that I find around LinkedIn and I’m constantly looking on there and finding interesting articles and information. So, just a few thoughts on where we can find some interesting insights.

Listen to the podcastFind it on iTunes. Read a full transcript or download a copy. Sponsor: Basware.

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