How to Use the Accounts Payable Process to Gain Competitive Advantage

Introduction

Successful management of accounts payable has traditionally not taken center stage in the core strategy of companies. However, there are several reasons to make it a top management priority. In fact, we consider the often-underrated accounts payable process to be one of the most important processes for today’s business.

In this article, we’ll present why accounts payable needs to be a strategic priority and explain how you can turn the back-office function of invoice processing into your competitive advantage.

Common Risks of Not Having an Efficient Process in Place

Without an efficient accounts payable process in place, you will risk failing to pay invoices on time, accidentally paying duplicates, and missing out on cash discounts.

Moreover, your vendor relationships may suffer to the point where you’ll get worse service and deliveries in the future – which in its turn affects your entire organization and what you’re able to offer your customers.

Current Challenges in Managing Accounts Payable

Common approaches to managing accounts payable efficiently include delaying payments to maximize free cash flow and decreasing the cost per invoice through strategies like offshoring and outsourcing – often, without having transparent processes and systems in place.

Below, we discuss what makes these approaches risky.

Over-optimizing invoice processing causes more problems than benefits

The risk with trying to pay as many invoices as fast and cost-efficiently as possible (often through outsourcing and offshoring these tasks) is that you’re left with a mess that reflects negatively on your entire company: overdue payments, duplicate payments, fragmented and inadequate payments, missed cash discounts, and invoices without matched purchase orders (POs).

As the most important thing in accounts payable is accuracy, you might not want to risk it for the sake of quick invoice processing.

The lack of data-based insights into the accounts payable process causes time-consuming detective work

Especially if you don’t have access to your accounts payable data in an accessible and understandable form, many of the above-mentioned issues regarding over-optimized invoice processing would require quite a bit of detective work.

Figuring out why payments were delayed, finding the ones that lacked POs, or locating duplicates will be near impossible and extremely time-consuming unless you have a defined process combined with access to comprehensible real-time data about your AP process.

Stricter consumer protection acts can lead to significant penalties when failing to pay invoices on time

Be careful in case your strategy is to maximize free cash flow by delaying payments for as long as possible. Depending on the country, your company can be fined for substantial amounts if you don’t handle your invoices properly. For instance, according to the Consumer protection act of 2015 (Act Hamon) in France, companies can be fined € 375,000 if they fail to pay invoices on time – in case of a repeated breach within 2 years, the penalty is doubled.

“Companies can be fined € 375,000 if they fail to pay invoices on time – in case of a repeated breach within 2 years, the penalty is doubled.”

If you’re having trouble getting others on board with making accounts payable a priority, you can always ask them if paying your suppliers on time is better than a penalty of € 750,000 for not doing so?

Automating the accounts payable without end-to-end process transparency

As you probably have heard from countless automation providers, automating your accounts payable process is the remedy to all problems in AP – leading to higher efficiency and fewer human errors and mistakes.

While automating manual steps that would otherwise be prone to human error is a great strategy, it is good to know that automating processes thoughtlessly (i.e., without first being aware of the end-to-end process and all its variations), will only lead to mistakes being produced – more efficiently.

Because of this, it is wiser to first make sense of your process – based on data – and only then automate the most profitable parts.

Transform Your Accounts Payable into a Strategic Asset Using Process Mining Technology

By adding intelligent process mining technology (read: what is process mining) to your accounts payable process, you can transform it into a strategic asset.

Process mining empowers you to utilize AP data (that would otherwise be ignored) to understand your process, collect cash discounts, identify overdue payments, spot invoices without purchase orders, and see what caused any of the problems in your process.

At the same time, you’ll be able to automate your reporting and increase your AP automation rate as well as your three-way matching rate, which cuts the time you spend on manual corrections.

AI-driven process mining with QPR ProcessAnalyzer showed a large European bank that they should stop focusing on finding new opportunities for automation. Instead, they should improve the automation rate of specific existing initiatives. In two months, they increased their zero-touch rate from 5 % to 40 % which resulted in € 2.6 million in cost savings.

Process mining helps you:

• understand your process
• collect cash discounts
• identify overdue payments
• spot invoices without purchase orders
• understand what caused problems in your process (i.e., root causes)
• improve your automation rate
• increase the three-way matching rate
• show vendors that you are a reliable partner
• have automatic reporting instead of spending days building reports
• benchmark the average duration of invoice payments internally

Real-life benefits gained from process mining - driving productivity and cutting costs

• Metsä Board reduced the number of invoice corrections by 80 %
• Piraeus Bank reduced process lead times by 86 %
• A large European bank increased its zero-touch automation rate from 5 % to 40 %, which resulted in € 2.6 million in cost savings.

Essentially, process mining can help you at every step of the way in managing your accounts payable process efficiently and strategically. Are you ready to unlock hidden value in your accounts payable process?

Watch the 2-minute Accounts Payable demo

and see how you can improve the Accounts Payable process through process mining software:

Contact us to hear more.