Flexible Standardization Is Essential For Successful Account Payable Automation
By Danny Schaarmann, xSuite North America
You would be hard pushed to find a financially astute person disputing the cost benefits of automating account payable (AP) processes. However, there is still some debate around standardization. Should automated AP activities and workflows be standardized and, if so, how is standardization even possible when different organizations can have dramatically different AP requirements? Companies often believe that their specific AP processes represent a special case, and so rally for an individual approach, ruling out standardization. Are they missing a trick? Let’s investigate.
First, let’s outline the usual AP process.
The Standard AP Process
An organization’s AP department handles incoming invoices and pays suppliers for products and services. To ensure quality and compliance within the invoice management process, a typical AP department is required to take the following steps:
- Capture invoice data
- Check document validity
- Match invoice documents to corresponding purchase orders (POs)
- (Once approved and released), authorize and execute payment
Traditionally, this process involved a lot of manual labor. For example, the AP department would have to transfer invoice data from a paper document into an enterprise resource planning (ERP) system. Or, they would have had to check invoice documents manually against the POs. These tedious tasks were often impaired due to human error.
Today, thankfully, these manual processes have been - or are being - replaced with digital workflows, called AP automation.
Why Automate AP Processes?
Automation is a top priority for businesses today. According to the SAPinsider December 2020 benchmark report entitled Automation in Finance, nearly nine out of 10 (87%) finance and accounting respondents have already taken their first steps toward automation. This is a 33% increase from the previous year’s figures when only 65% of respondents had begun their automation journey. So, why automate AP processes in particular? There are four key reasons.
- To Reduce Manual Labor
Automation reduces the tedious tasks and human error involved in processing incoming invoices. It speeds up the AP process, increases efficiency, and improves transparency within the organization.
- To Improve Process Reliability
A fully automated, digital workflow assures company management that specific AP processes always follow the same standard. This eliminates the risk of exceptions and irregularities.
- To Help Ensure Compliance And Audit Readiness
AP digital automation provides additional security and accountability, which helps prevent fraud and ensure compliance while keeping the business prepared for external audit requests.
- To Handle Global E-Invoicing
An automated AP workflow can easily be adapted to comply with local laws and regulations surrounding the new global e-invoicing regulations, established to support tax and fraud initiatives. This increases an organization’s flexibility in handling invoices from multiple countries around the world.
Standardization Versus Individualization
Although the fundamental workflow for processing incoming invoices generally follows the same pattern across companies and industries (see ‘The standard AP process’, above), the actual work steps required can vary significantly between companies. It follows, then, that a digital AP workflow must be adaptable to meet the individual requirements of each customer. Here are three contrasting examples that illustrate the need for a level of individualization.
A Global Car Manufacturer Improves Supplier Relations
When a car manufacturer buys office supplies or IT hardware, the AP process will likely mirror the standard process of any other company.
However, when the car manufacturer buys automotive parts for production, the AP process will be very different. It will depend on entities such as current contracts, price agreements, quota volumes, delivery times, and payment terms – factors that need to be considered throughout the entire AP process.
An International Logistics Company: Multiple Invoices, One PO
The transportation and logistics industry often deviates from the standard AP process.
For example, each order can differ from the previous ones depending on the means of transport, the delivery times, and the distance covered.
A second example is that one order could generate several different invoices, depending on the number of service providers involved. Let’s consider the service providers involved in the journey a container takes from origin to destination. An AP department might expect an invoice from the following providers:
- The company that picks up the container from its origin and takes it to the closest train station or docks
- The carrier that transports the container across the country or overseas
- The company collects the container at the last leg and delivers it to its destination.
In this instance, the AP department would receive three different invoices with a shared PO, with only the shipping number as a matching reference.
A Large Entertainment Company – Multiple Company Codes, Multiple Actors/Vendors
Picture a large entertainment company with hundreds of company codes and thousands of vendors who are, in this case, actors. The biggest challenge for this company’s AP department is processing the high volume of invoices from the actors involved in the company’s numerous productions.
To further complicate things, since most actors are represented by an agency, it is not the actors themselves who invoice the company. Instead, agencies bundle the documents and send one collective invoice for multiple actors and productions.
However, each invoice received by the entertainment company needs to follow its standard AP process. This results in high complexity and a plethora of invoices in SAP with almost no purchase orders.
AP Automation Should Be Standardized Yet Flexible
As the scenarios above illustrate, seemingly simple AP processes can become increasingly complex, depending on the individual needs of an organization. However, AP automation should still be standardized – but flexibly.
The automated process should be based on best practices and customized according to the organization’s individual challenges. These are often found at task level or deeper, on the technical or data level. These customizations are key to triggering relevant workflow steps, while the standard AP process should remain the same.
About The Author
Danny Schaarmann is CEO of xSuite North America.