The following is a contributed piece from Shan Haq, vice president of corporate strategy and development at Transcepta. Opinions expressed are author's own.
CFOs must always be planning for rare, black swan events with major disruption potential. By definition, these are unpredictable and often unleashed by nature, like hurricanes, fires, and pandemics. Aside from activating your business continuity plan, one can't do much beyond riding them out.
But problems originating internally are a totally different ballgame because, at least theoretically, they are controllable.
Accounts payable (AP) — and its labor-intensive tasks — have long been the bane of global finance operations, and the pandemic has only heightened AP frustrations. The lack of digitization, or automated invoice processing, is the main driver behind the inefficiencies blowing up AP budgets.
Too many hands, too much time
Every manager wants to do more with less. As such, adding staff to address manual processing issues isn't ideal. Additionally, cost, data, and communication problems increase with each additional employee.
If anything, having more employees compounds daily issues and challenges. Incomplete invoices lead to communication logjams as more and more people weigh in, following up with calls or emails becomes more complicated, and vendors aren't sure where to direct questions. All told, too many cooks spoil the soup. Additionally, all this extra work takes time, costs real money, and adds risk.
Digitizing the AP function provides several unique, material benefits to CFOs. Here are just a handful.
The 6 Benefits to CFOs
1. Dramatically reduced costs
CFOs can expect an 80% drop in costs, which will allow for redeploying staff to more value-adding activities. In the current uncertain environment, these savings help maintain margins and contribute to corporate agility.
2. Drastically reduced processing time
Reduced manual intervention, fewer errors, emails and phone calls can reduce invoice processing time by as much as 95%. Missed payment deadlines can become obsolete. Once you explain to vendors how they will benefit from automated AP, acceptance of electronic onboarding will approach 100%.
3. Reduced fraud opportunity
Bank deposit fraud costs an estimated $25 billion annually in the U.S. alone. Replacing human interaction with automation makes fraud much less likely, and greatly reduces the pool of potential suspects, should fraud occur.
4. Unlimited scalability
Once a company's AP is digitized, the scaling potential (up or down) is virtually unlimited, for a negligible incremental expense. Additionally, companies will avoid the financial and human costs of hiring, training, and layoffs.
5. Actionable, real-time data
CFOs and their colleagues need accurate, timely financial data. As your automated AP system ingests and digitizes all invoices, while simultaneously updating all accounting records, budgets and projections become more valid and reliable.
6. More precise cash management
As accounting records update in real time, cash management becomes less of an art and more of a science. A pile of invoices won't accumulate on someone's desk, awaiting input. CFOs will know what the company has, what it owes, and they have the financial visibility to schedule payments as soon as 24 hours after receipt.
Perhaps best of all, CFOs will be able to confidently pursue financial opportunities they otherwise might have missed.
A large university that recently digitized its AP functionality makes an excellent case study. 27,000 invoices from thousands of suppliers, the vast majority arriving by mail and being handled manually, was burying its staff.
The university needed five extra full-time mailroom workers, alongside AP, to deal with the crush, and the increased headcount still could not solve the problem. Documents got lost, payments were incorrect or late, and the staff approached burnout.
According to Institute of Finance and Management data, manually processing an invoice costs about $13, while the per-invoice cost of best-in-class automated processing is about $2. After the university digitized about 60% of its invoices, it began saving $178,000 each month. In addition, AP processing costs dropped 90%, freeing up staff for more critical needs.