In today’s environment, traditional companies are getting disrupted as the business environment gets more competitive. The pressure to drive productivity and cost savings has increased. It is thus critical for management teams to remain agile and focus on streamlining business processes as much as possible.
In line with this development, the finance function in a company has also evolved from purely accounting into a more strategic one. Hence, CFOs desire to streamline their manual finance processes so that more time can be dedicated to strategic planning and analysis.
One of the critical but very manual functions in most finance departments is the Account Payable function. This function handles all cash outflow, both spending and investment and they provide the source data for spend analysis. In a recent 2018 survey conducted by Canon, 76% of CFOs interviewed believe that Accounts Payable (AP)/Purchase-to-payment (P2P)’s will grow in influence and importance in the next two years. Efficiency, automation, and improved accuracy are top priorities for the finance function. With accurate and timely data, we will be able to synthesize insights to help the management team make better decisions.
Five Reasons to embark on Purchase-to-Payment Automation
Improve accuracy with less time spend on reconciliation
Large number of supplier invoices coupled with time pressure could result in manual entry errors. Furthermore, as hardcopies of supplier invoices are usually circulated, there is a lack of paper trail. Hence, this would increase the risk of losing an invoice. At times, the same invoice could be processed twice because proper control measures were not put in place. Based on our experience, any invoice loss or entry errors could result in 23% more time spent on tasks resulting in inefficiency.
With automation, supplier invoices can be archived with an electronic trail. In addition, an improved data entry interface could also reduce human errors in data entry. For certain companies, they might consider outsourcing their data entry function offshore. This will allow the existing finance function to perform the role of a checker and increase accuracy without incurring too much cost.
Better staff morale and increased productivity
With less time spent on manual tasks, finance staff could be upskilled to do more meaningful tasks. Instead of being employed to do data entry and hardcopy filing work, finance staff can spend more time on analysis and supporting business development efforts.
It will also improve the staff morale of other functions. The interaction between finance and other operations is crucial as these operations usually provide the source information. Due to finance control requirements, it could increase administrative load if the process is too manual. In fact, this causes a high turnover rate in certain roles for one of our clients. We helped them to plan for an integrated system to reduce the administrative workload for both finance and non-finance staff.
Better visibility on invoice processing and approval status
With a structured and digitalized workflow, stakeholders will have a better visibility of each purchase requisition request. The correct financial approval level of authorization will be applied. In addition, companies would also have visibility over their spending and ensure that various divisions spend within their approved budget. For certain companies, they would also have a list of approved vendors which ensures that they spend in-line with their internal policies. This will promote greater transparency in spending.
Faster P2P cycle, earlier payment discounts and less late penalties
In a typical manual process, hardcopy supplier invoices are usually shuffled between various stakeholders. As a result, the finance department may run a risk of delays, or that the hardcopy invoice could be lost during the transfer from person to person. Worse, late penalty charges may be imposed for certain supplier invoices that are not processed in time.
Also, with automation, most orders will be pre-approved, with all invoices being PO-based. This means that th invoices can be easily matched with the corresponding purchase order (“PO”) and delivery order (“DO”). Hence, the AP staff will no longer be required to chase for payment approval and the company could potentially benefit from early payment discounts.
With a faster payment cycle, supplier relationship will improve, and the purchaser will be better positioned to negotiate for further discounts or other terms.
Sets the foundation for companies to scale operations
A business should not stay stagnant but should strive to remain competitive. However, a manual process could result in over-working certain staff when operations load increase. We spoke to a restaurant client of ours. During the discussion, they were concerned that their finance executive is unable to cope with their accounts. With only three outlets, the executive is already struggling. The business owners are worried that things will get worse when two more outlets open.
Our suggestion was that they should deploy automation to their P2P process and outsource the data entry overseas. With this, the business owners are more comfortable to scale operations.
Critical success factors for successful implementation
One of the pitfalls is the deployment of software without proper consideration of the business specific workflows. There is existing software in the market that promotes finance process automation. However, our experience tells us that there will not be a one-size-fit-all solution. In fact, we noticed that many companies deploy tech solutions which later became white elephants as they are not used.
There are three main considerations that a company should pay attention to before any technology deployment:
Firstly, the new system introduced should be integrated with other existing systems. Otherwise, it will be counter-productive and cause an increase in workload instead. Of course, one of the options will be to revamp the whole company’s system which would be costly and time-consuming. We recommend that companies first map out their current workflows. We will then need to figure out how this new system is going to integrate with the existing systems. Ideally, the systems should be seamlessly integrated with each other.
Secondly, management should give assurance to AP staff. While they might see the benefits of finance process automation, they could be worried about their job security. Without their buy-in, the implementation will not be successful. There must be a plan to re-purpose existing staff to perform tasks with higher responsibility and greater business value. Furthermore, as the learning curve could be steep, it is vital to deploy any changes in incremental stages.
Lastly, data collected will be meaningless unless they are moulded to suit decision-making. Different users within the organization will require different information. Communication with various stakeholders is crucial to design dashboards tailored to their specific needs.
Every company has different needs. We believe that you will need to have an intimate understanding of existing processes and systems before deploying any new technology. Also, the budget for every company will differ. Any technology investment should generate a ROI that justifies it. Hence, we will need adjust and tailor the solutions specifically to the company.
Excide has worked with various organizations ranging from MNC subsidiaries to SMEs. We help companies to define their objectives and budget.
Once defined, a bottom-up approach will be critical to understand the pain-points on the ground. Without buy-in from staff, implementation will be challenging. Hence, we will go hands-on and experience their work. This experience will also uncover any blind-spots that management might have.
We do not rush into implementation and will roll out changes in phases. This ensures that staff are not overwhelmed by the steep learning curve in migrating to a new workflow. During implementation, we will guide company staff step-by-step for a smooth onboarding.
Excide specializes in transforming finance functions in Singapore and Myanmar. We work closely with various stakeholders in the company to better understand their needs. Our hands-on approach allows us to better tailor our solution and commit resources in the most value-added features. This will allow our clients to achieve maximum value during the various implementation phases. We commit resources on-site to ensure that we understand your business, build stakeholder relationships, and ensure smooth onboarding.