Accounts payable (AP) is no longer just a transactional unit of finance that processes invoices based on purchase orders (POs) or approvals of business colleagues. Digital transformation and a focus on AP’s role as a transformation catalyst can contribute to margin maximization and improved customer experience. Digitally transformed AP creates a clear synergy between customer satisfaction, supply chain performance, supplier payments, supplier experience and employee experience.
The best practices of AP transformation
Transformation of any kind requires a deep understanding of the challenges and the opportunities, and digitization of AP is critical in that pursuit for enterprises. Here is a closer look at how AP can play the role of a catalyst for transformation and the best ways to achieve it.
Integrating source to pay
Real AP transformation is not limited to “in-process” technological interventions such as OCR-based invoice ingestion and workflow automation. Instead, it needs to be integrated with the sourcing strategy and procurement operations. As a downstream function, AP inherits its challenges from the sub-optimal design of upstream functions such as procurement, contracting and vendor onboarding. Seamless integration and automation with upstream processes help to achieve greater efficiency in the payable process.
Focusing on spend categories
Each industry has its nuances for managing direct spend while indirect spends are largely standardized across industries. Driving digital transformation without understanding nuances of spend categories is less effective. The transformation roadmap should have a sharper focus on spend categories. That said, upstream and downstream process designs can differ based on spend categories. Each spend category has a bearing on procurement design and AP transformation. Examples of this include PO-based and contract-based authorization, spending that require pre-bill validation, catalog-based spends, utility spends, etc.
Optimizing complex processes
Many industries such as oil and gas, media and entertainment and telecom have complex AP processes that require deep domain expertise to transform the P2P cycle. These spends are often backed by complex contracts and involve multi-source verification while processing supplier invoices. Such transformation requires sophisticated anomaly detection models powered by AI/ML and data modelling. It also needs automatic validation of the invoice at the line-item level with multiple sources, including third-party websites. It has a huge potential for leakage detection and cost reduction.
Standardizing and digitizing contracts
Contract digitization plays a crucial role in automating AP processing and implementing digital validation of invoices using AI/ML-powered bots. As a true partner to supply chain and sourcing, the AP function acts as a catalyst to drive standardization of contract terms.
Building analytics COE for APs
AP transformation should not be limited to merely creating a dashboard of key metrics like invoices processed, invoices outstanding, etc. Enterprises should invest in analytics-specific centers of excellence (COE), which can capture and process multiple attributes of procurement, spends and invoices in an integrated manner to deliver valuable insights.
It requires building a data lake, which can integrate multiple platform instances and systems for meaningful insights. Some examples are fragmented buying of the same material or services across regions and suppliers and at different rates. Invoking contract and commercial restructuring wherein volumes are either too high or too low as compared to envisaged slabs.
Structuring sourcing feedback
Deeper insights of AP process can act as transformation catalysts for Procurement. They contribute to the changes in procurement policy and vendor onboarding processes. They help in negotiating better rates during renewals or establishing contractual rate benchmarking and review. They strengthen procurement through vendor consolidation and aggregate buying besides improving supplier performance in terms of timely delivery and quality of service or material.
Developing intelligent workflow and agent assistance processes
By leveraging predictive and cognitive analytics, intelligent workflow and agent assistance dashboards can help to achieve greater value for businesses. Certain examples are identifying invoices subject to rebate/discount in the agents’ queue, supporting priority processing and preventing errors in repeated spends by assisting agents with prior errors/reclassification/identification of non-PO spends.
Creating connected enterprises
Most organizations deploy sophisticated tools to enable suppliers to interact with AP systems but fail to achieve the right adoption. The reason being the extent of engagement with suppliers being limited to only invoice submissions and payment updates. A truly connected enterprise should strive for supplier engagement beyond just transactional interactions. By fostering deeper collaboration and building long-term relationships with suppliers, organizations can reap benefits such as improved supplier performance, reduced supply chain disruptions and lower costs.
Integrating supplier risk management
Effective supplier risk management is critical for any organization to ensure business continuity and prevent financial losses. Organizations can achieve this by implementing a range of operational controls such as:
- Leveraging technology to screen suppliers against restricted party databases during onboarding
- Conducting sophisticated de-duplication checks during invoice processing and payment
- Implementing advanced controls in bank account setup and change
These controls should be complemented by a strong second line of defense, such as intelligent forensic analytics, automated quality frameworks and independent audits. By adopting a holistic approach to supplier risk management, organizations can proactively mitigate risks and protect their reputation.
Value generation through digitization
Looking towards the future, the possibilities for AP transformation seem endless. With the rapid advancement of technologies such as AI/ML, blockchain and IoT, AP will contribute to maximizing margins and improving customer experience. It will enable enterprises to proactively mitigate risks and protect their reputation by adopting a holistic approach to their AP practice. As enterprises continue to evolve and transform, the role of AP in shaping business outcomes will become increasingly crucial. By embracing digital transformation and the best practices mentioned above, organizations can achieve higher efficiency, customer satisfaction and revenue growth. However, doing so requires expertise that only a technology specialist with years of experience can bring to the table. This is why many Fortune 500 companies rely on HCLTech to optimize and manage their AP practices. Learn more how HCLTech can transform your AP function and turn it into a driver of business outcomes.