The COVID-19 pandemic forced more than 1.85 million U.S. businesses to temporarily close during the second quarter of 2020. The consultancy Oxxford Information Technology reports that 20% of U.S. businesses – about 4.5 million total – permanently shut down during the last recession. This time around, the die-off is expected to be worse.
By putting businesses on the brink, the pandemic is forcing executives to rethink how they generate revenue and continue to pay the vendors who make that possible. Accounts payable (AP) departments, never usually the center of attention, are undergoing a transformation.
Accounts payable's dilemma
Essentially, AP departments are coping with challenges that were tolerable in an office but now seriously interfere with their work. For example, A recent study of AP leaders by Ardent Research, conducted during COVID-19, finds that about half of invoices still arrive in paper form, and 43% of payments are made manually rather than electronically. That's an issue when AP staff are working from home.
The Ardent Research survey also found that, for the first time, the No. 1 challenge for AP departments is lengthy approvals. When COVID-19 eliminated the meetings, walk-by conversations (e.g., "Did you get my email?"), and other in-office workarounds that made a paper-based AP process semifunctional, the chain of approval and control broke down.
Many finance leaders already know about software that automates and digitizes the procure-to-pay process. Before COVID-19, it seemed like a nice thing to have. Now, it seems essential to future-proofing businesses against uncertainty and overcoming the challenges of remote-flexible work.
But AP is a bit of black hole. Accounting teams venture into the software market looking for quick solutions and either find or create new problems. There are more than 20,000 global fintech startups, and too many have overpromised and underdelivered. It is not easy for finance executives to navigate this market, let alone swap in a new AP platform in the midst of the worst economic conditions in a decade ... if not a century.
However, this is no moment to shy away from innovations and small investments that offer disproportionate returns. To have a finance department weighed down by invoice processing and coding makes little sense when they should be focused on financial reporting that could avert disasters, save jobs, and plot a course to the other side of this crisis. AP automation is one way to free up time for that vital work.
If you're considering AP automation, I want to talk through some key questions and considerations. As the CEO of Stampli, a company that provides AP automation, I see companies go through this all time. I'll share what I've learned from their successes and struggles.
1. Get to know your AP process first.
Get acquainted with that black hole of AP. How are invoices delivered – as PDF statements, by mail, through emails? How does the approval process work? For example, does the invoice go straight to AP, where someone must track down who ordered what and whether it was received? Or do the invoices go first to individuals in departments, who must remember to pass the invoices to AP with a stamp of approval? Ultimately, how many people touch the invoice?
Most finance leaders haven't bothered to map this process. However, doing so will establish what tasks your AP software needs to complete. It will also unveil some of the dependencies that make AP processes less efficient than they can be.
2. Check how different AP platforms code your invoices.
Many AP platforms are light on technology but heavy on cheap manual labor, which codes invoices behind the scenes. They just outsource the coding of your invoices to a revolving door of hourly workers who are given mistake-proof directions.
The result is that your expenses are allocated in an overly simplistic way that can lead your executives to harbor false beliefs and make poor decisions. Business leaders would be shocked to discover how different profit and loss looks when coding acknowledges their diverse lines of business and actual spending patterns.
A better approach than cheap labor is to use software that codes invoices in a consistent, sophisticated way and identifies troubling patterns, like fraud, that human beings are likely to miss. Good coding, whether it's done by a person or machine, should also reveal centers of profit and loss by getting to the bottom of who spent how much on what and why. It's extremely unlikely that outsourced help will go to those lengths to interpret invoices in a way that matters to your business.
3. Pick AP automation software that you can scale.
It's common for small, understaffed businesses to adopt AP automation at their QuickBooks stage. They may run into issues, however, when they scale up to Microsoft Dynamics, NetSuite, Sage, and SAP.
Ideally, you want to train the company on one AP automation solution that will work as your company grows. You don't want to incur the costs of switching and retraining non-finance staff on a process they participate in grudgingly.
4. Determine how communication and collaboration will happen.
The coding of invoices is only about 15% of the AP process, according to data my team has collected through Stampli. The bulk of it is conversations between AP staff and nonfinance colleagues who aren't particularly happy to pause their day and be questioned about what they spent on and why.
Usually, that conversation takes place in email, leading to painful reply-all chains, lost attachments, and frustration for all parties involved. With most offices shuttered, AP departments can't chase people down to get approvals if email fails. And in the absence of this conversation, AP staff allocate costs imperfectly.
AP automation, in my view, should turn the invoice into a record of those conversations. Get it out of email. Look for AP solutions that offer a central feed where everyone can participate at will, just like on a Google Doc. If the conversation is about an invoice, why not have the conversation literally on a digital version of that invoice?
5. Learn what nonfinance people will buy into.
95 percent of AP software users are not in finance according to data my team has collected through Stampli. Rather, they are approvers spread throughout multiple departments.
Thus, the AP automation system has to not only work for them but be self-explanatory. If you have to train people, by the time they generate an invoice three weeks later, they will have forgotten whatever you taught them. If they don't adopt the platform, there's absolutely no point to having it.
When you're going through the buying process, gather some nonfinance people on Zoom and show them the user experience in each of your top options. Which is the most intuitive from their point of view? If you hand over the controls, can they use it as intended? Which would they adopt?
Less paper passing, more time for the important stuff
To be clear, automating AP is not corporate-speak for firing people and hiring robots. Rather, AP automation should free up time that accounting staff can spend on more advanced analyses and reporting. It should also improve relations with your vendors, who are no doubt stressed about COVID-19 and will appreciate a faster, digital, and more transparent way to get paid.
AP is responsible for keeping millions of businesses in operation during these hard times. If automating AP is not already on your bucket list of COVID-19 upgrades, it's time to add it.