Part 1: Exactly What Is the Problem Here?
You’ll read about automation as the magic bullet for everything that’s wrong with accounts payable. It’s supposed to speed up processing and save costs, the two main goals that AP is usually tasked with. And yet, implementing an automation solution without first digging deeper to fix problems at the root will likely result in significant disruption, and may even make things worse.
Why Is This?
It’s important to remember that automation is just a process; the goal itself is to get suppliers paid on time. Focusing only on the process without refining it first is a recipe for disaster.
If automation is implemented without taking a cold, hard look at the existing way of doing things and cleaning that up beforehand, you’ll essentially be “lifting and shifting” the problems of a manual system and trying to impose them onto a software-driven system, one which is far less flexible than the human beings now doing the work—human beings who have learned to work around the issues in the interest of just getting stuff done.
Implementing a best practices strategy needs to come before automation so that a smooth transition can be made, but that’s usually not an easy task.
AP is the last step in what is often a relatively chaotic purchasing process. It’s not reasonable to expect an AP solution to work if it addresses only AP tasks. While the pressure may be on AP management to fix their own problems, those people do not operate in a vacuum and cannot even begin to change their processes, must less improve them, without buy-in and empowerment from higher-ups.
Since some of AP’s problems are likely emanating from other departments, and everything that is done to change process in AP will impact others, organization-wide support is critical.
The List Goes On
Other reasons that AP’s efforts to implement best practices prior to an automation solution may fail include:
- AP doesn’t own the processes that need to be fixed.
- Procurement and AP are adversaries.
- AP is not aligned with the business as a whole.
- AP reacts to the people yelling the loudest rather than by taking a methodical approach.
- AP is spread too thin, trying to fix too many broken processes at once.
- AP is not sufficiently trained or empowered to lead a large cross-functional project.
In the next part of this series, we’ll discuss how to approach reengineering AP in order to improve workflow and implement best practices, all of which is necessary for successful automation.
Why AP Automation Initiatives Often Fail—and What to Do About It, Part 2
In Part 1 of this series, we began to discuss the pitfalls of AP automation, and why so many organizations struggle with these implementations. The fact is, the difficulty usually comes not through lack of effort and initiative, but rather arises from the fact that AP comes at the end of an often-chaotic purchasing process.
Often siloed from purchasing and other parts of the organization, accounts payable may be isolated, forced to deal with messy transactions and processes by slapping band-aids on them just to get the work done. Yet without a clearly defined end-to-end process, AP automation in a vacuum is very likely to fail.
Step 2: Seeing the Forest, Not Just the Trees
AP deals with procurement of goods and services in one of two ways: inventory transactions, usually highly controlled by purchase orders and receipts of goods; and non-inventory transactions. In the case of non-inventory situations, purchases can be made by nearly anyone in the organization, from anywhere, for anything, and at any price. AP often isn’t aware of these transactions until they get calls about past-due invoices—which they likely knew nothing about, since these invoices probably went to the individuals who made the purchases, and who may have neglected to do anything with them.
These non-inventory purchases can drag an organization down with uncontrolled spending and even OFAC violations, and can get AP into trouble for non-payment of invoices—even though they weren’t aware of them in the first place. However, trying to improve this process may be an exercise in futility for AP, since they have no control over the departments involved; and even though it has a huge negative impact on the budget (an average organization sees about 80 percent non-inventory purchases), there may be considerable resistance to change.
Obviously, this makes automation of a very messy process frustrating, if not impossible.
A Way Out
Since AP has needed to assume a reactive role as “cleanup” at the end of a poor process, upper management must be made to understand that to get out of the head-down, fix-it-up-as-you-go mentality, there must be alignment throughout Finance to develop a holistic end-to-end AP process that includes supplier setup, invoicing, payments and reporting.
The bottom-line focused CFO may issue a directive to reduce AP costs, but automation, a logical way to create those savings in headcount, won’t work if the process relies heavily on time-consuming, people-dependent research and exception handling.
To streamline process and reduce cost, AP must educate the organization with hard metrics about how sloppy purchasing habits and maverick spending are affecting the bottom line. Another very compelling talking point involves the extremely high fines associated with doing business with a prohibited entity that appears on OFAC’s SDN list—even the smallest and most insignificant-appearing transaction can result in disproportionately high penalties. But without AP to vet suppliers, this can easily occur.
For now, software can’t solve many of the complicated problems that human beings must deal with. To benefit from automation, the underlying process must be cleaned up first—and that requires stepping back from the individual steps in a broken process (the “trees”) to get perspective on the overall goals and design of an optimized process (the “forest”).
In the next part of this series, we’ll discuss best practices for process alignment improvements that must come prior to implementing an automation solution.
Why AP Automation Initiatives Often Fail—and What to Do About It, Part 3
In Part 2 of this series, we discussed how important it is to clean up messy, catch-as-catch-can processes in AP before attempting to automate. Because AP is the last touchpoint in a long chain of potential inefficiencies, trying to automate AP without addressing the larger organizational problems can doom any such initiative before it even gets off the ground. But where to start?
Step 3: Aligning AP, Finance and Purchasing
It probably is no great surprise that Purchasing often views AP’s tasks as annoying busywork. After all, the purchases have already been made, and Purchasing owns the supplier relationships. Just pay the bills already!
So when AP needs help sorting out non-PO invoices, Purchasing’s natural inclination is to ignore those requests, which can result in late payments and ultimately, soured vendor relationships.
To overcome this bad reputation and improve relations with Purchasing, AP needs to start at home, by changing its view of itself. As long as AP buys into the conventional thinking that it’s merely overhead and a clerical function, things won’t get better. Instead, AP needs to “rebrand” itself within the organization by changing its image from an invoice-paying factory to a value-added function that controls the company’s cash, mines data from invoices and keeps the company safe from compliance violations.
Start with Workflow
Creating a workflow that integrates with the organization’s ERP system is key to getting control over supplier onboarding, paper invoices, tax compliance and bottlenecks. This facilitates collection of metrics that can be used to strategic advantage.
For example, one big benefit of data collection is that it positions AP to become the authority on why things don’t work as well as they should. For example, if there’s an issue with getting invoices paid on time, AP should be able to report on how many were not sent to AP in the first place, were received after the due dates, had no receipts, and so on. This casts light on where the process problems are occurring—and no surprise—it really isn’t all AP’s fault.
However, avoid the temptation to collect the data and then use it as a bludgeon to beat up other departments about their shortcomings. Part of gaining the respect of the rest of the organization involves accepting responsibility for one’s own problems and working together in a non-confrontational manner to help drive resolution of the issues throughout the end-to-end process.
Knowledge Is Power
The key to effecting that positive change depends upon educating the AP team about best practices, project management, C-suite perspective, benchmarking, controls, compliance—even teaching them presentation skills. Positioning them to take on a more strategic role prior to an automation initiative will solidify their role as key business partners rather than clerks.
Of course, some of the resistance toward automation comes from employees who are fearful of losing their jobs. But best practice organizations have learned that automation is not an opportunity to get rid of staff, but rather one that enables shifting them to more strategic, value-added tasks that will save the company money and create efficiencies in other ways: supplier onboarding; discount management; dynamic discounting; payment strategies; and spend management. The time to begin that shift is before implementing automation.
We’ll discuss that in greater detail in the next installment.
Why AP Automation Initiatives Often Fail—and What to Do About It, Part 4
In part 3 of this series, we covered the need for aligning AP, Finance and Purchasing before attempting any automation initiative. This necessitates AP taking on a greater leadership role by collecting metrics to help identify bottlenecks and broken processes, all of which can torpedo automation.
Here, we’ll discuss how to build on that momentum to deepen AP’s strategic role within the organization to prepare for when automation begins to take on the more routine, clerical tasks.
Step 4: Redefining AP
First and foremost, AP needs a good relationship with Procurement. There may be a barrier to overcome here, fueled by Procurement’s view of AP as lower-paid clerical types, and AP’s view of Procurement as unconcerned about procedures and details, leaving them to clean up after the transaction.
How to Fix That?
One important way that AP can demonstrate it’s willing to assume a more interactive role is with supplier onboarding. This clearly supports Purchasing by making sure they don’t run afoul of compliance requirements, which can land an organization and its principals in financial and legal hot water.
Of course, to do this, AP must get involved in the Purchasing process early on. Once a supplier has been selected and goods or services ordered, it may be too late to fix a problem. Since AP is usually tasked with managing the vendor master file, here are three things AP should be looking at from the beginning of the purchasing cycle:
- Checking suppliers against OFAC and international “do not pay” lists from the get-go and again before payment to ensure the organization is not doing business with prohibited entities.
- Collecting and verifying all appropriate tax forms during the onboarding process; these are required for proper tax reporting on forms 1099 and 1042-S.
- Establishing and verifying payment information up front. While this information is typically communicated ad hoc, a more formal process will ensure suppliers are paid correctly and timely, which solidifies those relationships.
These steps all support Purchasing by assuming a lot of heavy lifting from the start. While staying on top of government sanctions and tax requirements is no easy task, it will afford AP staff learning and growth opportunities that will make them highly valuable team members and help foster a sense of increased self-worth.
Helping craft a measured, risk-mitigating, end-to-end purchasing strategy will elevate AP in the eyes of the organization—but of course, the C-suite must first back up any such change. Fortunately, making the case with the CFO should not be difficult if the value of an improved process is clearly supported with facts—facts which AP is uniquely positioned to collect and evaluate.
It’s also important to have executive sponsorship if and when someone does not comply with the buying policy.
Gaining Executive Sponsorship
When approaching the C-suite about reengineering the P2P process, keep in mind the benefit for the company overall. While repositioning AP and helping people move from clerical to partnership roles within the department is important, it’s peripheral to the big-picture win for the organization itself.
Appealing to goals at the executive level is key to getting C-suite support for process reinvention. Typically, those goals involve:
- Accurate and timely financial statements
- Working capital
- Cost reduction
- Cash flow and profitability
- Regulatory compliance, avoidance of associated penalties and fines
- Data collection and analysis
- Satisfied customers and suppliers
- Fraud mitigation
A business case needs to address those drivers in order to gain executive backing. The best strategy is to use this information as a springboard for a targeted, well-documented case so compelling that it will be hard NOT to embrace it.
This transition of AP to a project management mindset is the beginning of the transformation that will, in turn, facilitate a smooth transition to automation.
In the next installment of this series, we’ll discuss in greater detail what’s involved in developing a holistic AP team and how to map a new end-to-end process.