Predicting the Future of AP Automation
Guest article by Dermot McCauley, VP BPM & Case Management, Kofax - a Lexmark Company
A modern financial system is the foundation for automation. Complete accounts payable automation solutions are a relatively new product category for financial operations professionals. Advanced technologies such as mobile, social networking, and intelligent dashboards are very slowly being integrated into offerings and adopted by enterprises.
Finance professionals are cautious by nature and don't always view AP automation solutions as being strategic to an enterprise. However, in the past 10 to 15 years, companies have automated components of their AP process, doing it in phases with a slow adoption rate. Let’s look at the current phases for incorporating an automated solution into AP systems, as well as the current state of adoption, and predictions about where the industry is headed.
Phase 1: Standardisation
Most organisations start standardising with a single enterprise resource planning (ERP) system that handles transactional data. Although most enterprises have a current ERP system, many have multiple systems as well as plenty of legacy systems, and hosted and subscription-based financial systems are gaining traction. This is an area where most companies move at a glacial pace because of the size of the investment and the complexity of implementation. Additionally, there is no pressing business or technology matter to create a rush-to-adopt mentality among organisations.
Prediction: There will be an increased adoption rate of 3 percent to 5 percent for modern financial systems within three years.
Phase 2(a): Centralised invoice receipt and processing
Centralising invoice receipt and processing can be very painful because it requires people to adjust the way they work. Buyers that have a personal relationship with a supplier are even more reluctant to have the invoice sent to a central location. Getting suppliers to change their behaviour takes time and initiative. However, centralising receipt is a no-brainer. It takes time and error out of the process and is a prerequisite for further automation.
Prediction: In the next three to five years, more than 50 percent of enterprises will be forced to establish centralised receipt for increased productivity.
Phase 2(b): Invoice receipt, scanning, data extraction, and validation automation
With centralised receipt in place, it is easy and cost effective to purchase and deploy advanced capture technologies. These are proven to deliver an attractive return on investment, and they take time, cost, and errors out of the process. Today approximately 80 percent of all invoices are in paper format. The remaining 20 percent of invoices are produced in a bewildering array of electronic formats, including fax, PDFs and Microsoft Office files, as well as invoices from supplier networks that may be in an XML format and electronic data interchange (EDI).
All of these formats should be routed through the same process. However, they don’t work “out of the box.” Enterprises must invest in training employees to use the software and in keeping it current as the mix of suppliers and invoice formats evolve. Technology will continue to improve during the next three years, which will increase the percentage of invoices that are processed without being touched by a person.
Prediction: Paper invoices will be reduced to 75 percent of the mix. The pace of adoption of automation will increase and, consequently, the majority of enterprises will automate the receipt and data entry components of the process.
Phase 3: Accounts payable review and approval process automation
The automation of accounts payable review and approval processes will replace paper-based processes. An automated version compares the invoice data with algorithms or rules to determine whether it can be automatically approved for payment (such as three-, four-, or five-way purchase order matches or pre-approved utility invoices), or whether the invoice image and associated ERP and workflow data should be routed to AP, purchasing, or a line-of-business employee for discrepancy resolution, approval, and coding.
Invoice approval workflows are available from a variety of suppliers, some as tool kits that are customised for each enterprise, and some as configurable workflows. The latter are more robust, faster to implement, and easier to maintain.
Curiously, many enterprises implement Phase 2b and follow with custom workflows. This takes more time and money and it does not provide the same speed, cost, and quality advantages as an integrated solution.
The past few years have seen the introduction of hosted, subscription-based services that provide a pay-as-you-go, SAAS model, which is particularly attractive to small and mid-size businesses. Mobile technologies have not penetrated these solutions in a material way. Yet, think of the power of a complete AP solution in the palm of your hand - it would speed participation in the process, provided it meets enterprise security standards.
Prediction: The next three years will result in consolidation of vendors offering more reliable and easier-to-use workflow solutions, as well as more rapid adoption of their solutions. The majority of enterprises will deploy workflow solutions. Additionally, Apple iOS and Android phones and tablets will be securely integrated into the process.
Phase 4: Automation of routine supplier interactions
Automation of routine supplier interactions is the next fertile area after the core process has been automated, and it can represent 25 percent of AP resources. Interactions include supplier approval, changes to supplier information, invoice submission, invoice status inquiries, invoice payment inquiries, dispute resolution, and dynamic discounting offering a supplier terms for earlier payment.
The largest barrier to adoption is persuading suppliers to use the solution. The solutions for this area are relatively new and they include ERP and procurement solutions, which are fully functional, hard to adopt, and expensive to deploy. These typically serve the top 20 percent of suppliers. There are also solutions that are hosted, subscription-based offerings, or supplier portals, which are easier to adopt and deploy.
Prediction: In the next three years, ERP and procurement solutions will continue their gradual adoption, while portals establish themselves as a mainstream offering with rapidly increasing adoption.
Phase 5: Intelligent dashboards and analytics
We’ve all seen the pretty pictures of dashboards providing real- time process status and tools to optimise the process, taking the last set of costs out of the process. However, few of us have enjoyed the luxury of running one that works. All too often these are pretty pictures whose implementation requires significant initial and ongoing investment in custom development and professional services. Their appeal is to enable the process owners to drive the process, reassign work, escalate issues, and optimize AP cash. Among the challenges: integrating the points within the subsystems where this beast sits.
Prediction: Vendor consolidation within the next three years and the advancement of complete solutions will result in greater availability and increased adoption of out-of-the-box intelligent dashboard and analytic tools.
What does the future of AP look like in three years? Clean, predictable processes that are fast and efficient to operate and provide 100 percent visibility to internal and external participants; automated enforcement of internal controls; and a dramatic reduction in errors. For finance professionals, there will be less drudgery and more ability to add value — in other words, a better quality of life for AP.