THE COST OF DOING NOTHING: WHAT EVERY CFO
SHOULD KNOW ABOUT ACCOUNTS PAYABLE AUTOMATION
By Dave Litzenberg
Vice President, Sales – Tungsten Network
[email protected]
Summary
Inertia: “An object at rest will remain at rest unless acted on by an unbalanced force.”
– Newton’s First Law of Motion (The Law of Inertia)
Not to suggest anyone reading this paper is an “unbalanced force,” but there is money flying out your
door every day and you have the power to stop that from happening. This white paper explores the true
cost of inaction relative to accounts payable automation, identifies obstacles to the planning process
(both internal and external), offers suggestions for conquering those obstacles and delivers an action
plan for moving forward with your AP automation initiative.
Introduction
The possibilities are endless. There is a plethora of solutions in the market aimed at helping improve
accounts payable processing. From automation to outsourcing, in-sourced solutions to SaaS offerings
and more, the overwhelming number of alternatives can cause inaction. People often struggle to find
where to start in a sea of options.
This white paper is intended to help financial executives and accounts payable management
understand that the cost of doing nothing far outweighs the pain of digging in and developing a game
plan to address the issues that exist in accounts payable.
The Shifting Landscape of Accounts Payable: Doing More With Less
With or without automation, accounts payable departments are being challenged to do more with
less – to reduce staff and become more efficient. Without automation, there is only so much accounts
payable can do to become more efficient.
At one time, Electronic Data Interchange (EDI) processing was felt to be the savior of the accounts
payable world. Invoices would be sent into an organization “pre-matched,” taking this requirement out
of the hands of the accounts payable team. However, true EDI processing has been challenging (to say
the least) for many organizations to implement with a broad base of suppliers. While electronic invoice
receipt continues to be a focus for many organizations, the tasks of matching PO-based invoices with
purchase order and receipt data and managing the general ledger coding and approval process of
non-PO invoices still requires substantial manual effort without a workflow solution to automate these
processes.
Even if everything matched perfectly 100% of the time and coders and approvers were prompt and
accurate 100% of the time, managing this process would be a daunting task. The fact is, things aren’t
always perfect. This requires accounts payable professionals to handle exception processing.
Over time, the role of the accounts payable professional has shifted. AP professionals are no longer
just data entry professionals who process payments. Now, they are expected to be analytical problem
solvers who can perform root-cause analysis and improve operations by eliminating issues before they
exist versus playing the role of the bomb squad after they do.
The Cost of Doing Nothing: What Every CFO Should Know About Accounts Payable Automation
Top Pressures Driving Interest in AP Improvement
What are the top pressures driving interest in AP improvement? According to an Aberdeen Group study
from April 2012, the top three pressures are the lack of visibility into invoices and AP documents,
corporate directives to lower costs, and difficulty finding or managing paper-based documents.1
Beyond these top three pressures, the inability to effectively manage cash according to current
business needs, risk of payment-related fraud, and difficulty handling high numbers of supplier
inquiries were also cited.
What are the ramifications of these pressures?
• Lack of visibility into invoices and AP documents – Lack of visibility means that it can be
challenging if not impossible to accurately state ones overall financial liability. If an organization
were to receive a multi-million dollar paper-based invoice at a remote facility that sat on
someone’s desk through a financial period end, the organization could misstate financial results
for that period. Alternatively, let’s say that organization received the invoice but lost it through
mishandling. We’ve seen cases where companies’ financial executives could not sign off on
financials because they knew they had received a sizeable invoice but lost it prior to posting
payment.
• Corporate directives to lower costs – One way or another, cost pressures will win within
organizations. There is only so much one can do to cut costs in a manual-processing world.
Eventually, cuts will hit bone and cause more harm than good. The point about losing invoices and
being unable to close the books financially is an example of one such result. People will continue
to cut costs relentlessly and a well-formulated automation strategy plays a key role in the success
of these efforts.
• Difficulty finding or managing paper-based documents – In addition to the issue documented
above about lost invoices causing issues closing the books, pushing non-PO based invoices
through a coding and approval process in a manual world becomes a nightmare.
Paper is Still a Major Issue
Even with all of the efforts to move invoicing transactions away from paper to electronic means,
organizations are still handling huge volumes of paper-based invoices. According to the Institute of
Financial Operations’ AP Automation Study from 2012, paper is still a major challenge to accounts
payable departments. Nearly 80% of respondents have at least 50% of their total invoice volume still
paper based. Of those, nearly 2/3 have 75% or more of their invoice volume paper based, and just
under 50% have more than 90% of their invoice volume paper based.
What are the Most Important Factors to Justifying the Cost of AP Automation Projects?
It is becoming clearer all the time that automation is becoming a necessity in accounts payable
processing. So, how can you make a business case for AP automation projects? According to the
Institute of Financial Operations’ AP Automation Study from 2012, the top four factors for justifying
expenditures on accounts payable automation projects are reduced cost of processing AP transactions,
fewer mistakes/higher accuracy, quicker turnaround times, and increased visibility. Other factors
cited by roughly 50% of the respondents or more include improved metrics to understand and reduce
exceptions, full-time equivalent redeployments, immediate recording of liabilities, improved data
capture for better control over spend, optimizing working capital, and improving master vendor file
management.
1 Scott Pezza and William Jan, “AP Invoice Management in a Networked Economy,” May, 2012, available from The Aberdeen Group
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The Cost of Doing Nothing: What Every CFO Should Know About Accounts Payable Automation
Where Does Your Organization Stand?
Based on an Aberdeen Group study from April 2012, the gap in metrics between Best-in-Class (the
top 20% of performance scorers) and Industry Average respondents (the middle 50% of performance
scorers) appears to be shrinking when compared to the comparable study from 2011. Best-in-Class
organizations processed invoices in about two-thirds the time as those in the Industry Average
category (4.1 days vs. 6.1 days), at an average cost to process an invoice from receipt through approval
of about one-half ($3.34 vs. $6.29), while capturing available early payment discounts about 2x as often
(90% vs. 47%). When comparing Best-in-Class with Laggards (the bottom 30% of the performance
scorers), Best-in-Class processes invoices in about one fourth the time (4.1 days vs. 16.3 days), at an
average cost of about one-fifth ($3.34 vs. 16.67), and capture available early payment discounts about
5x as often (90% vs. 18%).
Table 1
Comparison of Performance Indicators by Maturity Class
Organization
Maturity Class
Average Days to
process a single
invoice
Average cost to
process a single
invoice
Capture Rate for
Available Early
Payment Discounts
Best in Class: Top 20% of
respondents
4.1
$3.34
90%
Industry Average:
Middle 50%
6.1
$6.29
47%
Laggards: Bottom 30%
16.3
$16.67
18%
Data Source: The Aberdeen Group
AP Invoice Management in a Networked Economy - May, 2012
Not Sure of Your Costs?
So, if you were to do a study to calculate your fully-loaded cost to process a single invoice, here are the
main buckets to consider for your cost evaluation:
• Data entry – costs for manual data entry labor (using fully-burdened costs)
• Clerical – costs of manual paper handling (filing, copying, faxing activities)
•
Exception processing – costs to handle exceptions that require research and correction
•
Erroneous payments – this number is typically 0.2 to 2% of your total spend,
and includes duplicate payments, incorrect freight, fraud, etc.
•
Ancillary costs – costs of your IT systems to support AP, storage of documents,
postage for mail/courier, office space for personnel, etc.
Addressing the Top Reasons People Do Nothing
So why are organizations still not taking action with all of the evidence that there is a business case
to be made in moving forward with an accounts payable automation initiative? Based on responses
to the Institute of Financial Operations’ AP Automation Study from 2012 relative to the top obstacle
to getting accounts payable automation projects approved, too many other projects, lack of capital,
senior executive attention and leadership were the top three reasons, followed by lack of internal IT
resources, solutions are not compelling enough, and lack of business case.2
2 The Institute of Financial Operations, “2012 AP Automation Study,” May, 2012
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The Cost of Doing Nothing: What Every CFO Should Know About Accounts Payable Automation
Addressing the Top Obstacles
• Too many other projects – Accounts payable automation initiatives are not only competing with
themselves relative to such an initiative making sense or not, they’re also competing with all
other projects to see where they stack up from an overall priority standpoint. When accounts
payable improvements can be tied to broader governance and compliance requirements, they
are more likely to gain focus and approval in the overall mix.
• Lack of capital – While hosted solutions or “software as a service” (SaaS) solutions can be
implemented with no capital investment, traditional licensed-based software solutions may
be acquired on a lease or subscription basis which minimize or eliminate the need to invest
capital in these projects.
• Senior executive attention and sponsorship – Getting the attention and sponsorship of the
top financial executive within your organization is seen as a critical success factor for gaining
approval of an accounts payable initiative.
• Lack of internal IT resources – This can be similar to the point about “too many other projects”
above where IT just has too many competing priorities, and it can also be the case where there
is just a simple lack of sufficient internal IT skills to support such an initiative. When this is the
case, external resources can be brought in to augment the internal team.
• Solutions are not compelling enough – While not receiving an overwhelming amount of
responses, there is a wealth of information available about potential solutions in this space.
It may be that people are either confused or skeptical that the solutions can really deliver on
their promises.
• Lack of a business case – While receiving a limited amount of responses, there is a wealth of
information available about how to develop a business case in this space. Again, people may
be confused or skeptical that the solutions can really deliver on their promises. Some may
struggle to document an as-is cost basis before attempting to justify an accounts payable
automation solution. If this applies to you, please see “Not sure of your costs?” above.
The Cost of Doing Nothing
Are you still considering doing nothing to address the inefficiencies caused by not automating your
AP operations? Let’s explore the ramifications of choosing to do nothing. Here are the issues your
organization is likely facing as a result:
• Lost invoices
o Vendor stoppages – When invoices are lost, vendors are not being paid in a timely manner.
When this occurs on a consistent basis, some vendors will elect to stop providing products
and services to your company. Let’s say your company is in the construction industry and
your subcontractor stopped delivering goods to a job site due to your poor payment history,
which causes you to miss a milestone on a major contract. As a result, your company has
now become subject to a penalty of $50,000 for a late delivery. It doesn’t take very many
such incidents and penalties to pay for an AP automation project.
o Poor vendor relations – People do not prefer to work with others who are high
maintenance. In business, poor performance equals high maintenance. While a company
may not have an immediate option to fire you as a customer, companies are making
decisions all the time whether or not it is worthwhile doing business with others. In nearly
all customer-vendor relations there comes a time when the customer needs to ask the
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The Cost of Doing Nothing: What Every CFO Should Know About Accounts Payable Automation
vendor to do something extraordinary to help resolve a situation. Situations where there is
a poor relationship between the customer and vendor will make it less likely that vendor is
going to be willing to bend over backwards for you if you’re high maintenance.
o Negotiation issues – When a customer decides to sit down with its vendors to negotiate its
book of business – both from a pricing and payment terms perspective – that customer is
going to struggle to get its vendors to commit to doing more for them than they have in the
past if they’re not paying that vendor in a timely manner.
• Slow payment process
o All of the same issues as caused by lost invoices also apply here
o Missed discounts – Companies which can’t move invoices through their accounts
payable process in a consistent and timely manner will miss on some portion of the
prompt payment discounts they’ve been offered. We’ve had customers which have gone
from receiving $26,000 in discounts in one year to over $1,000,000 the next through
implementing an improved AP process with associated automation and by being able to
negotiate better terms with its vendors.
• Routing paper invoices
o Costs – if paper invoices are being routed around your organization for coding and
approval, there are tangible costs that are associated with this approach. In many
instances, people are copying invoices to send one copy out for approval while keeping
the original in a paper file. When personnel across a wide geography are involved in the
process, there are charges associated with moving the paper from one office to the other
via the mail or express delivery.
• Approvals and purchasing control
o Raising purchase orders after receipt of the invoice – Purchasing works with vendors
to establish contracts which are intended to optimize the company’s spend for goods
and services. Those contracts set pricing, delivery, payment terms, and service level
agreements with preferred vendors. Once those contracts are in place, company personnel
are expected to raise purchase orders with those preferred suppliers for those associated
goods and services; however, we’ve seen situations where companies believed a very high
percentage of their invoices were purchase order-based only to find out after they had
implemented an accounts payable automation solution that their personnel were raising
those purchase orders after receipt of the associated goods and services. In doing so,
company personnel were using non-preferred suppliers and were not receiving pricing,
delivery, and service levels consistent with the negotiated contracts.
o Circumventing controls – Governance and controls are mission critical elements of today’s
business world. Erroneous and fraudulent payments can be a frequent result of people
circumventing controls in the procurement to payment process. When people circumvent
controls, they put their businesses at risk.
• Handling paper
o Costs of filing, pulling, and searching files – Reviewing invoices is a common phenomenon
within businesses. Whether that review is prompted by a vendor or an audit, there are
real costs of people’s time, storage space (both onsite and offsite), and storage cabinets
to house invoices. People will commonly pull and make copies of invoices from corporate
files, add annotations to those copies, and keep them in their personal files, which add
both additional storage costs and reduce the companies institutional knowledge because
those personal notes are unknown across the business.
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The Cost of Doing Nothing: What Every CFO Should Know About Accounts Payable Automation
• Problem Resolution
o Time spent – There are documented cases where personnel from accounts payable clerks
to Controllers are spending over 50% of their time responding to vendors’ calls asking for
payment status and resolving issues. All of these personnel could be making better use of
their time by focusing efforts on higher value-added tasks, including reviewing analytics
and performing root-cause analysis to remove the issues themselves.
• Data Inaccuracies
o Manual data entry errors – By manually keying invoice data, errors will be more prevalent
than by having automation extract and validate the data.
• Less Accurate Financial Data
o Managing accruals – By not having an automated system to capture invoice data
immediately upon receipt of the invoice, there are invoices on people’s desks at the end of
a financial period which are unaccounted for in the company’s financial data. This causes
companies to use accruals to attempt to more accurately reflect their true financial
position.
• Period Closing Cycle Time
o Longer period closing time – By not having an automated system to manage accounts
payable processing throughout the entire fiscal period, period closing is a longer, more
tedious process where people have to go through a series of manual steps to make sure all
invoices are accounted for to get the financial books closed.
Call to Action
Now that we’ve explored the changes and challenges in accounts payable, the key factors to
justifying an accounts payable project, how to assess current costs, how to address the top obstacles
to getting projects approved, and the cost of doing nothing, let’s pull together a simple action plan to
move the ball forward.
1. Gain executive support – Get your top financial executive on board with the need to pursue
accounts payable automation projects.
2. Document your existing process, cycle times, and associated costs – Process flows and costs
become the basis for evaluation.
3. Evaluate opportunities for improvement in your current operations – Review what you’ve
documented about your current operations to find areas for improvement and associated time and
cost benefits.
4. Gather budgetary numbers for potential solutions – Talk to some potential solution providers that
are well respected in the market to get some ballpark numbers for your project.
5. Document a business case – Pull together the quantitative improvements found above along with
qualitative advancements to put a sound, defensible business case to paper.
6. Line up your resources – Having both business and IT resources on board to support your plans
becomes critical. If oars aren’t pulling on both sides of the boat equally you won’t make the
progress desired.
7. Gain approval and move forward – With the above documentation and having strong executive
support, move forward with confidence to get your project approved.
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The Cost of Doing Nothing: What Every CFO Should Know About Accounts Payable Automation
Conclusion
The road to accounts payable automation and the benefits it provides can be confusing and frustrating,
which often leads to inaction. As profiled in the April 2012 Aberdeen Group Study and explored more
deeply in this white paper, this passiveness has costly consequences. Breaking down the discovery
process into a step-by-step game plan, including how to effectively address obstacles, will make this
effort much easier. By utilizing the information in this white paper, you will be able to move confidently
towards implementation of an accounts payable solution that will progress your company to Best-in-Class
status. If you’d like to discuss this white paper or if you need some assistance with any of the aspects of
the call to action above, please feel free to contact us for assistance.
About Tungsten Corporation plc Tungsten Corporation (LSE: TUNG) accelerates global trade by enabling customers to streamline invoice
processing, improve cash-flow management and make better buying decisions from their detailed spend
data.
Buyer organizations that join Tungsten Network, the world’s largest compliant electronic invoicing
network, can reduce their invoice-processing costs by 60%. Suppliers benefit from efficiencies, greater
visibility of their invoice status and peace of mind. Tungsten offers supply chain financing through
Tungsten Bank*; and helps buying organizations profit by applying real-time spend analytics to its vast
repository of line-level invoice data.
Tungsten serves 56% of the Fortune 500 and 67% of the FTSE 100 by connecting the world’s largest
companies and government agencies to their thousands of suppliers around the globe. It enables
suppliers to submit tax compliant e-Invoices in 47 countries, and last year processed transactions worth
over $187bn for organizations such as Alliance Data, Aviva, Cargill, Deutsche Lufthansa, General Motors,
GlaxoSmithKline, Henkel, IBM, Kellogg’s, and the US Federal Government.
Tungsten Corporation acquired DocuSphere, a provider of accounts payable automation solutions, in
September 2014.
*Tungsten Bank is authorised by the Prudential Regulation Authority and regulated by the Financial
Conduct Authority and the Prudential Regulation Authority. Tungsten Bank is registered on the financial
services register with firm reference number 139209.
About Dave Litzenberg
Dave Litzenberg, Vice President, Sales at Tungsten Network, has spent his entire professional career
helping small, mid-market, and enterprise-level businesses leverage information technology to
deliver business results. Prior to joining Tungsten, Dave has held sales and marketing positions with
IBM corporation in various roles including International Account Executive for the global Ford Motor
Company account, Technology Group International as Vice President of Sales, and Meritage Technologies
as Business Development Executive. Dave is a summa cum laude graduate of Bowling Green State
University, where he earned a Bachelor of Science degree in Mathematics and Computer Science.
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