Procure to Pay - Six Questions to Kick-Off a Scalable Accounts Payable Automation Project | Levvel Research

Six Questions to Kick-Off a Scalable Accounts Payable Automation Project

A Guide to Understanding and Implementing Scalable Accounts Payable (AP)

Introduction

When considering the adoption and efficiency gains possible with Accounts Payable (AP) automation software, results vary based on a company’s level of automation in the AP department. Levvel’s research indicates that the most innovative AP departments process invoices in fewer than 5 days at a cost of $2.36 per invoice, and capture 75 percent of available term discounts. AP departments on the other end of the scale (those running almost entirely manual processes) typically take 9 times as long to process invoices, at 6 times the cost—capturing only 18 percent of available discounts. Unfortunately, while the savings and efficiency resulting from AP automation are very appealing, they seem unattainable to many companies.

Some companies do not have the budget for a full AP process transformation, or they believe that their unique business environment would not be able to withstand the disruptions involved in software implementation. For these organizations, a more feasible goal is to adopt AP automation in a scalable manner with modular solutions. Beginning with the tool that meets their immediate process improvement needs, companies can still work towards full automation, but at a pace that suits their organization.

The way in which a company begins its scalable automation journey will vary based on its specific business characteristics. Industry, revenue, and technical maturity all play a role, not to mention the unique environment and business structures within individual companies. Scalable AP depends on an understanding of the current state and an adoption strategy. With this knowledge in place, organizations can build a strategic, tailored, and scalable adoption plan that prioritizes holistic AP management.

The following report offers a look at current market trends around AP processes among North American businesses. It also offers a brief guide to beginning a scalable AP transformation, with respect to the unique requirements of the organization.

Understanding Scalable Accounts Payable

Levvel Research typically divides companies with or without AP automation into three different categories—Novice, Mainstream, and Innovator. The category in which a company fits is determined by its AP process metrics and its automation adoption level. For example, companies that receive most of their invoices in paper format typically fit in the Novice category. Those who receive the majority of invoices in email format, and some invoices in electronic invoicing formats like EDI or XML, are often in the Mainstream category. For a company to reach an Innovator level for the entire AP management process, it should receive over 32 percent of its invoices in an electronic invoice format, and the invoice routing and approval workflow process should be fully automated from receipt through payment. Table 1 illustrates more of the metrics that reflect a company’s maturity, as well as what is possible for companies as they progress towards complete AP automation.

TABLE 1
AP Automation Maturity Metrics
Metrics Novice Mainstream Innovator
Average processing time from invoice receipt to approval 45 days 23 days 5 days
Average processing cost per invoice (combination of paper and electronic) $15.00 $6.70 $2.36
Percentage of invoices received electronically 3% 9% 32%
Percentage of invoice terms discounts captured 18% 40% 75%

Levvel Research has found that 30 to 40 percent of North American businesses making more than $100M in revenue fall between Novice and Mainstream in terms of automation maturity. Ideally, companies should be in the Innovator state, but this is not a viable option for all organizations—at least not at first. The transition from Novice to Innovator takes time, and very few organizations have the resources and business structure to support the AP department overhaul required for this transition. It can be particularly hard for some companies to secure their stakeholders’ cooperation on automation if they approach the process all at once. Large-scale change management initiatives may appear too costly, disruptive, and risky to C-suite decision makers. As a result, many companies choose to forego automation adoption altogether when they realize they cannot easily achieve an Innovator-level state of efficiency.

The best way to achieve the AP success of an Innovator state, particularly for companies with limited budgets or other constraints, is to undergo the transformation gradually. This can be achieved by adopting AP automation in a scalable manner, from a solution provider that offers its product modularly. By implementing AP solutions piece by piece while still maintaining the end goal of a fully automated state, organizations make the journey to Innovator much more attainable. A modular approach also gives companies more control throughout the process—it enables them able to develop and refine a change management project that best suits their organizational requirements, from implementation and testing to roll-out and training.

As Table 1 shows, the AP process improves with each degree of automation, and even the smallest process improvements impact a company’s bottom line. The key is for organizations to work with a provider that offers a modular product, affordable software, and services that lend themselves to a company with a long-term automation plan. The following section provides a guide to identifying the first step of AP automation an organization can take based on its unique characteristics.

Beginning a Scalable AP Transformation

Drawn from years of consulting engagements and market research, Levvel Research has found that companies typically begin their AP automation journey by adopting a solution that offers a balance—it should relieve their most urgent pain points while still accommodating their internal constraints. These constraints typically include budget, executive agreement, technical complexity (e.g., how difficult a solution integration would be), the current state within AP departments, and suppliers’ attitudes towards software tools. Another important consideration is disruption—the less disruption a software implementation causes to current processes, the more appealing it is for companies with little automation. For example, a common automation starting point for many companies is a plug-in data capture tool that can be installed in an AP department for processing paper invoices. This does not require a company to ask their suppliers to change their behavior, and the tools themselves are relatively inexpensive and technically simple to install.

The main advantage of starting small with a tool like a plug-in data capture solution, is that an organization has begun their automation journey. As processes improve, the company is building internal momentum and changing perceptions around automation. There is often a correlation between automation adoption and a company’s reduced resistance to further technology investment. The further companies proceed towards automation adoption, the more willing they are to explore new software options, change current processes, and move their suppliers to participate. However, it should be noted that a data capture tool is ultimately not the best long-term solution for efficiency in the back office, as it is more of a “band-aid” for an efficiency problem than a tool that actually improves and automates processes. This is why it should be used within the parameters of scalable adoption plan. Even if a company starts small with a data capture tool, it can use that momentum to work toward a fully automated AP process from invoice receipt, to approval, to payment.

In order to conduct a scalable AP transformation successfully, organizations should implement AP automation according to their own unique business environment, AP department needs, and business culture. Identifying these characteristics will help identify what area of the AP process a company should automate first.

Companies can evaluate their current state by asking the following questions. The data used to support these questions is taken from Levvel Reseach’s recent market survey, which was conducted across more than 400 organizations from a variety of revenue and industry segments.

1. What automation is already in place? According to Levvel Research’s recent market survey, Accounts Payable automation software has a relatively high adoption rate among North American businesses, see Figure 1. However, this data does not indicate that every company has automated the entire AP process from beginning to end, or that companies are leveraging the best technology for the task.

FIGURE 1

Almost Half of Organizations are Using AP Automation

“Are you currently using an automated invoice workflow solution?”

For example, some companies only use an invoice data capture solution to scan paper invoices and enter them into their accounting system, but they may not receive any invoices in electronic format. In this case, a scalable AP plan may involve that company incorporating an eInvoicing network into the supplier invoice process. Another company may have an invoice workflow or more generic document sharing tool in place to send invoices through the organization, but it may be spending a large amount of time manually keying in data from paper invoices. This company would benefit from implementing a data capture tool.

It is important to identify find the missing pieces of an automated process, and prioritize which of those tools would help the overall AP process. Table 2 offers a set of possible automation starting points companiecan take based on their current level of automation adoption.

TABLE 2
Scalable Automation Scenarios Based on Current State Automation
Current State Possible Automation Starting Points
Fully manual (no software tools, high volumes of paper invoices)
  • Outsource invoice receipt to mailroom service
  • Plug-in OCR data capture tool that works with scanners, MSP, etc.
  • Electronic invoicing network
Partially automated (high volumes of email invoices, some electronic invoices, electronic payment tool)
  • Web-based OCR scanning tool for email invoices, uploaded invoices in a variety of formats
  • Supplier portal for invoice submission
  • Electronic invoicing network
  • Invoice workflow tool to connect route scanned invoices for approval
High automation but using several disjointed and/or legacy software tools
  • Work with a consultant or software provider that identifies gaps in automation
  • Work to migrate from legacy solutions to cloud-based tools in order to consolidate IT maintenances streamline process flows

2. Where are AP’s greatest pain points? Organizations’ pain points will vary slightly by industry and size, but most companies share many of the same problems when it comes to invoice management. Survey results show that respondents’ top pain points are manual data entry and inefficiency, manual invoice routing, and high volumes of paper invoices, see Figure 2.

FIGURE 2

Most Organizations Struggle with Problems Related to Manual Data Entry, Manual Routing, and HIgh Volumes of Paper Invoices

What are the top three biggest pain points you experience in your workflow process? (Select up to 3)”

If organizations determine their main issues, they will be able to identify what tool would best fix these issues, and make their AP adoption selection accordingly. Table 3 offers a set of possible automation starting points companies can take based on their current pain points.

TABLE 3
Scalable Automation Scenarios Based on Current AP Pain Points
Greatest Pain Point Possible Automation Starting Points
Manual data entry
  • Outsource invoice receipt to mailroom service
  • Plug-in OCR data capture tool that works with scanners, MSPs, etc.
  • Web-based OCR scanning tool for email invoices, uploaded invoices in a variety of formats
Manual routing of invoices
  • Supplier portal for invoice submission, providing a consolidation platform to review invoices
  • Invoice workflow tool to connect route scanned invoices for approval
Majority of invoices received in paper format
  • Outsource invoice receipt to mailroom service
  • Plug-in OCR data capture tool that works with scanners, MSP, etc.
  • Electronic invoicing network
Decentralized invoice receipt
  • Outsource invoice receipt to mailroom service
  • Supplier portal for invoice submission, providing a consolidation platform to review invoices
  • Electronic invoicing network
  • Invoice workflow tool to connect route scanned invoices for approval

3. What are AP’s top improvement goals? Figure 3 shows organizations’ top improvement goals for their AP processes. For many organizations, their top improvement goals often align with their top pain points.

FIGURE 3

Organizations Gain Quicker Faster Invoice Approval Times with AP Automation

“What are the greatest improvements you have seen since inplementing an invoice workflow solution? (Select up to 3)”

When it comes to adopting an AP point solution, an organization can identify the tool that best solves its top pains and accomplishes its key goals at the same time. Table 4 offers a set of possible automation starting points a company can take based on their top improvement goals.

TABLE 4
Scalable Automation Scenarios Based on Top AP Improvement
Greatest Pain Point Possible Automation Starting Points
Quicker invoice approvals
  • Supplier portal for invoice submission, providing a consolidation platform to review invoices
  • Invoice workflow tool to connect route scanned invoices for approval
Increased employee productivity
  • Outsource invoice receipt to mailroom service to reduce internal data entry
  • Supplier portal with self-service features to reduce the AP team’s dispute resolution inquiry and increase supplier’s self-sufficiency
  • Invoice workflow tool to connect route invoices for approval
Lower processing costs
  • Any of the tools mentioned, depending on the where in the AP process the company is spending the most
Increased visibility into liabilities
  • Supplier portal with self-service features to reduce the AP team’s dispute resolution inquiry and increase supplier’s self-sufficiency
  • Electronic invoicing network

4. What is the organization’s budget? Companies’ resources will determine both the type of AP solution they select and the provider they select. Some AP software providers only have experience working with enterprise companies with the resources needed for a large-scale software implementation. Other providers know the requirements of companies in other revenue segments, and they offer tools that accommodate those smaller companies’ budgets. An organization should identify a provider that offers flexible options at varying prices, with experience working in that organization’s market segment.

5. What kind of tool does the AP department need? The department’s employee count and environment can help determine the right AP tool. Table 5 shows the average number of full-time employees (FTEs) in AP departments depending on the size of the company. Companies with smaller AP departments and fewer supplier invoices and payments to process will require different tools than a company with a large AP department. For example, consider an AP department with 4 employees receiving 80 percent of invoices in paper format. Though they receive a high volume of paper invoices, they may not receive more than 2500 invoices a month. Therefore, they may benefit from a plug-in scanning solution in their department. On the other hand, if a company with 15 employees in their AP department received 80 percent of their 10,000 monthly invoices in paper format, those employees are devoting far too much time to manual data entry. They would benefit from outsourcing the invoice scanning process altogether and reallocating many of those employees to more strategic tasks.

TABLE 5
Average FTE Count Based on Revenue
Revenue Average full-time employees in AP
$30M-$100M 4 employees
$101M-$500M 6 employees
$101M-$500M 11 employees
Greater than $2B 18 employees

Organizations can identify the tool that best aligns with their internal AP workforce and process flow. Table 6 offers a set of possible automation starting points companies can take based on how the AP process flows among their AP department and team.

TABLE 6
Scalable Automation Scenerios Based on the Current State of the AI
Current AP Department State Possible Automation Starting Points
High volume of paper, stretched AP employees spending too much time on data entry, no budget to hire more AP labor
  • Supplier portal for invoice submission, providing a consolidation platform to review invoices
  • Plug-in OCR data capture tool that works with scanners, MSPs, etc.
AP department is managing invoices and payments
  • Electronic invoicing network
  • Supplier portal with self-service features that allow the supplier to input and manage payment information
Internal structure requires many approvals from all over the organization, not only AP department
  • Invoice workflow tool to connect route invoices for approval

6. What are the organization’s future goals? When a company begins a scalable software implementation, it should build an adoption roadmap. However, this roadmap should not stop at AP automation. The company should also consider the future possibility of automating other back-office departments, such as procurement. When companies are evaluating potential software providers, they should look for a provider that has a holistic set of Procure-to-Pay (P2P) solutions. If they keep the future state in mind, they will not have look for a new procurement provider when they are ready for a fully automated P2P state.

About the Sponsor

Basware is a global leader in cloud-based, Source-to-Settle solutions. The company works to help each customer achieve 100 percent supplier onboarding, user adoption, and invoice automation. Basware also grants customers full visibility into spend and the ability to capture all of their financial data in one solution. Basware provides scale and reach for organizations of all sizes, enabling them to grow their business and unlock value across their operations by simplifying and streamlining financial processes. Organizations around the world achieve significant cost savings, more flexible payment terms, greater efficiencies, and closer relationships with suppliers.

About Levvel Research

Levvel Research, formerly PayStream Advisors, is a research and advisory firm that operates within the IT consulting company, Levvel. Levvel Research is focused on many areas of innovative technology, including business process automation, DevOps, emerging payment technologies, full-stack software development, mobile application development, cloud infrastructure, and content publishing automation. Levvel Research’s team of experts provide targeted research content to address the changing technology and business process needs of competitive organizations across a range of verticals. In short, Levvel Research is dedicated to maximizing returns and minimizing risks associated with technology investment. Levvel Research’s reports, white papers, webinars, and tools are available free of charge at www.levvel.io

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