In virtually every organization there is a wealth of information hidden in accounts payable (AP) data. When utilized correctly, this often-untapped resource can help several other functions operate more effectively.
By working closely with the professionals responsible for forecasting, AP can help fine-tune the numbers to optimize the organization’s cash flow
The challenge is to figure out what type of information an organization can glean from its AP data, and how to extract analytical insights from that data.
Uses of AP Data
Procurement. For starters, AP data can be leveraged to improve the company’s purchasing function. This includes highlighting instances in which preferred suppliers may not have been utilized. It may point to the suitability of a different product or identify the supplier with the optimal price.
If purchases can be consolidated, such insights can even be used to negotiate preferred contracts.
Budgeting. AP data can be particularly useful in budgeting. Most organizations are quite adept at pinpointing spend for the prior year and using that insight to set the new budget.
Such an approach does not, however, allow for seasonal variations or not-so-obvious trends to be readily incorporated into the data – things like celebratory meals during Lunar New Year and corporate gifts in December. This is where accounts payable data can add real value.
Forecasting. The day-to-day forecasting of cash on hand can be a tricky matter, especially for organizations in a borrowing position. To pay down as much of the short-term lines as quickly as possible, it is critical that the organization knows exactly how much will be going out the door in the coming days and weeks.
By working closely with the professionals responsible for forecasting, AP can help fine-tune the numbers to optimize the organization’s cash flow. This is especially important as a growing number of organizations switch to electronic payments instead of paper cheques.
Strategies for Action
For organizations considering automation of their AP function, there are some best-practice strategies that can turn AP data into actionable insights.
Avoid silos. First, rather than extracting data in a silo, it will be more productive to complete this action as part of a larger project. This way, each business group can contribute its own expertise and collaborate on meeting some clear, mutually beneficial objectives.
The outcomes will be more productive, compared with asking the accounts payable team to “guess” which data the other group might need. While they would probably hit the target, say 50% of the time, there would be useful intelligence left in the dark because accounts payable isn’t aware of the need.
For example, the purchasing department might be more concerned about getting the highest quality product for a key ingredient rather than the lowest price. This may be an issue AP personnel are not aware of, with the result that they may focus on price rather than balance that consideration with quality.
Incorporate predictability. It’s also essential to incorporate predictability into the system, in cases where historical and current data are analyzed to provide visibility into likely future states. For instance, when leveraging early-payment discounts, organizations can raise questions around cash requirements and get answers; or check for potential violations of corporate policy and procedure and potential duplicate invoices.
Workflow report. Other important strategies include creating a workflow-queue status report that provides information about invoices ‘awaiting entry,’ ‘in approval’ and ‘approved,’ as well as information about compliance and segregation of duties that helps inform further steps necessary for review and resolution of potential violations.
Technology extensibility. An organization should consider extensibility of the technology as well. Issues—including ease of upgrade, adding new capabilities (such as mobile invoice capture), or even a switch to a new content management system—have to be factored into the AP automation plan. Additionally, capture technologies can also be extended to beyond AP to include other document processes, such as Accounts Receivable, contract management, and forms processing.
A key criterion for evaluation, selection and implementation of AP automation solution should be the ability to respond to change
Accounts payable is a treasure trove that generates large volumes of data. With the right automation and analytics technology, organizations can unlock the information hidden within.
What should companies look out for? A key criterion for evaluation, selection and implementation of AP automation solution should be the ability to respond to change. To optimize AP performance, organizations also need to understand the productivity of their staff, and the effectiveness of processes such as capture, classification, extraction, validation, number of invoices processed or awaiting action for approval or dispute resolution, and the average time it takes to process an invoice.
Strategies that focus on collaboration, workflow standardization, benchmarking and process visualization offer an excellent approach to AP transformation. More than just about paying bills, by harnessing the information in the AP mine, companies will enjoy significant cost savings, improve operational efficiencies and gain visibility to make informed decisions.
About the Author
Alson Ong is Vice President, Solutions, Asia Pacific and Japan, at Kofax by Lexmark.