Why AP Keeps Losing at Rock-Paper-Scissors

Tim Kirk
Tim Kirk,
PROACTIS
The classic hand-sign game rock-paper-scissors is reckoned to date back to the Chinese Han dynasty in the third century. Today, it's being played in Accounts Payable departments worldwide – but with disastrous outcomes.
Over the centuries, rock-paper-scissors grew in popularity. In England, the game even had its own society, which formed in 1842 and went on to have more than 10,000 active members. Bizarrely, in 2006 the contest was even used by a US judge in Florida to settle a legal dispute.

The game is perfectly weighted: rock beats scissors, scissors beat paper, paper beats rock. But in many Accounts Payable (AP) departments across the globe, the balance is all wrong ... paper beats everything, every time.

Paper-intensive processes
While most activities in the world of business transactions have got faster, leaner and smarter over the decades, AP departments have often been left behind. And the cause is down to paper-intensive, 'high-touch' manual processes that smother everything.

Sometimes departmental procedures are methodical, but create even more paper. One study found that invoices were being copied and filed up to nine times.

Here are five examples of how what's going wrong:

#1: Receiving disparate invoices
When dealing with many different types of invoices from regular and occasional suppliers, AP departments often have to deal with the lowest common denominator – unstructured paper and PDF data. For example, many organisations receive invoices electronically, in the form of pdf attachments to emails. However, in order to process them, they are printed out and placed in the towering pile of invoices that arrived by post – completely destroying the advantage of paperless receipt. Sometimes the arrival of an invoice is the first time AP is aware of a new supplier, which then has to be added to the growing supplier base just to pay an invoice.

#2: Processing hold-ups
It can take days for paper invoices to be keyed into the system. Next, AP staff must go information-chasing – identifying who placed the order, checking for authorisation, ensuring the correct goods and services were received and dealing with any discrepancies. The process is time-intensive which makes it expensive – using up valuable time of key employees. Inevitably, keying is also error-prone which creates further costly administrative time down the line. Yet another delay is the failure to spot simple and common invoice errors upon invoice receipt – for example receiving and processing a duplicate invoice, meaning it undergoes the whole input and matching process before being finally spotted – all that work then has to be undone.

Ultimately, achieving 100% electronic invoicing and all the benefits that come from that will only be met by compressing the paper to as small a number of invoices as possible AND then automating the inevitable remaining paper. The paperless AP department is still a distant future. Organisations must also not overlook the bigger challenge of dealing with pre-matching exceptions. This is where technology and best-practice can deliver significant gains.

#3: Payment hiccups
Any goodwill generated with suppliers can evaporate quickly if paper invoices are mislaid, keyed incorrectly or get lost somewhere in approvals and processing. Without end-to-end visibility, it's hard for AP staff to work out what's happened and fix things – when the calls and emails start arriving from frustrated suppliers.

#4: Missed early settlement discounts
With invoice processing proving cumbersome, it's difficult for AP departments to unlock other value-add opportunities, such as the potential of early payments discounts.

#5: Lack of visibility into cash requirements
Without an integrated P2P and AP system, often the first time a business is aware of a liability is when the invoice lands in AP. Delays within AP processes don't help matters either, creating uncertainty for individual budget-holders who are wondering whether they've under or over-spent. At an organisation-wide level, a lack of insight into day-to-day spending can leave a company suddenly short of cash and also impair meaningful decisions on big investments. 'Can we afford it?' may be a killer question that no-one can really answer.

Issues #1-5 can prove a massive expense for organisations – and a colossal waste of resources. At the same time, AP processes can create a choke point for the business and a barrier to broader organisation-wide finance, purchasing and supply chain transformation efforts.

Suppliers, budget-holders, C-suite strategists and investors expect more. But AP staff themselves are often unfairly the target of people's complaints, when they simply need the right tools to do a great job properly.

Where do the rock and scissors fit in?
AP needs two things. Firstly, a rock-solid automation framework would enable the great majority of invoices from all suppliers to be processed rapidly and accurately with minimal manual intervention, while providing full visibility and control.

Secondly, with ultra-sharp tools, AP staff can cut out masses of waste caused by paper processes. All PO and non-PO invoice exceptions could be handled quickly and all payments made accurately and at the optimum time. Money, time and talent can all be won back.

In the new world of advanced AP processes, paper loses every time.

So how's it all possible? Find out by reading our next blog: 'Three battles every AP department must win'.