This article is for finance leaders who are currently running their back office with a combination of an accounting package, spreadsheets and manual work. We discuss how you can automate your accounts payable process by outlining a list of questions and actions you should consider before starting your finance automation journey.
If you are reaching the limitations of your accounting package but you are not sure whether the cost and effort of an accounts payable automation project will yield a return, this article is for you. We highlight a checklist of questions in the following areas:
✍️ Define your current state
Benchmark your current payables challenges
🎯 Define your future state
Know what capabilities you need in the future
📊 Define your measures of success
Understand what success looks like
This article takes a holistic approach to designing a digital financial operating system and will arm you with the right information when working with an internal or external technology partner.
✍️ Define your current state
Before jumping into new, shiny solutions, you should have a clear picture of your starting position. It is common to throw technology at problems, hoping they will go away, and it often backfires. Accounts payable automation is not a technology project but a finance project enabled by technology. To take control of shaping your finance function of the future, you need to lead this project from a place of deeply understanding your current challenges and baselines. You are likely taking action to digitally transform and automate because your are facing a number of internal and external challenges:
You need to scale efficiently and do more with less.
Your organisation is growing, the volume of monthly invoices is increasing and your manual process is reaching its capacity. You may have hired more staff who are working overtime but you know this is not a sustainable solution. You need to find a way to scale without hiring.
The business expects more agility and forward-looking insights from finance.
The level of change and uncertainty has never been higher - remote work revolution, supply chain disruptions, geopolitical turmoil. Finance teams are forced to transform to support the business with flexible, real-time insights. Your business cannot wait multiple weeks to figure out that you are running low on cash.
You need to increase confidence in the accuracy and timeliness of information.
Due to process inefficiencies, reporting timelines are slipping and the month-
close takes longer than the business would like. You are also worried about the accuracy of information. Your process now relies on various spreadsheet manipulations, manual data entry and copy/paste acrobatics. Human error is inevitable. Just google “biggest spreadsheet mistakes” as another reminder that running a growing business on spreadsheets is a huge risk and disaster waiting to happen.
Your suppliers and employees are suffering.
You are eroding your suppliers' goodwill with late payments. The communication between your suppliers and accounts payable team is slowing down the process. Your employees are drowning in manual data entry and reconciliation work and are not getting the experience they need to progress their careers.
You are likely facing more than one of these challenges. To create a more structured picture of your current state, complete the checklist of questions below.
Readiness Checklist - Current State
✅ What are the top three challenges driving the need for automating accounts payable? Getting clear on the main challenges will help you drive internal alignment and focus on top priorities.
✅ Do you have high-level documentation of your payables processes? This
should include different input and output data sources, spreadsheet
manipulations and stakeholders involved in setting up suppliers, processing invoices and reconciling balances.
✅ What parts of your process have the highest risks of human error and
fraud? For example, what workflows exist offline (e.g. on paper or local
versions of documents)?
✅ How much time do you spend on each part of the process? For example,
how much time do you spend on data entry, matching invoices to purchase orders,
emailing suppliers and other stakeholders to get the information you
need?
✅ What are your current baseline metrics? For example, how many invoices
are you processing each month, how long does it take to close
the books, how long does it take to create forecasts and analysis?
🎯 Define your future state
Once you are armed with the information to articulate your current state, you can create your vision of the future. Defining the future state is not about having all the answers or being able to specify the perfect solution in detail. Instead, you should be clear on the directional re-focus of the finance function and what types of technology enablement is needed to make your vision a reality.
Although accounting today is still largely based on the periodic review and analysis of financial information, the profession is going through a major transformation. If you want to future-proof your financial operating system, you need to develop capabilities that support forward looking reporting, moving away from the traditional rear vision mirror view.
As a finance leader you need to work with your technology partners on enablement that moves you away from spending your time on transaction processing and instead focuses on forecasting the P&L, driving strategy
and proactively identifying and reducing risks. Your headcount should shift from data entry to analyst roles. When discussing your future vision with internal or external technology stakeholders, ensure you cover the following three core principles:
Approach automation holistically.
Don’t simply automate your existing processes! A common pitfall is adding fragmented point solutions like Robotic Process Automation (RPA) or Optical Character Recognition (OCR) to your existing systems without taking a holistic view of automation. Adding automation to an inefficient process can magnify the problem and do more harm than good. Start with a complete view of the end-to-end process from inputs to outputs. Chances are, you will be able to cut out significant parts of your current process. For example, adding tools like invoicing and billing directly to a banking solution can cut significant amounts of keying and reconciling data between multiple different systems.
Integrate with critical systems.
The accounts payable automation solution will exist in an ecosystem of other business software, like your ERP, project management, POS or accounting systems. Master data and ledgers should be updated and balanced in real-time. Automatic syncing of systems is crucial so you don't end up filling gaps with homegrown spreadsheet solutions again.
Build for collaboration and visibility.
Perhaps the number one drain on accounts payable teams' time: collaboration across stakeholders internally and external parties like suppliers. The time spent playing phone-tag and digging through email inboxes can be cut down significantly by building a solution that is centred around collaboration and visibility across multiple parties. For example, imagine you and your organisation's suppliers accessing the same system for contact, order, invoice and payment information. Any correspondence is stored in the same place with all parties having access to up to date information in real-time. Building a system with this type of collaboration in mind can dramatically reduce the accounts payable teams' time chasing data.
The optimal solution design and roadmap will vary widely from business to business depending on your unique requirements, urgent challenges and priorities.
The three core principles above are a starting point for discussion with your internal and external technology partners.
Readiness Checklist - Future State
✅ What parts of your accounts payable process rely on significant amounts
of double handling and should be re-designed?
✅ What type of reporting and analysis does your executive team need? What are their timing expectations, e.g. what reports are required in real-time?
✅ What systems does a new solution have to integrate with? What systems
are absolutely critical and what systems could potentially be sunset or
consolidated?
✅ If your transaction processing volume increased by X% (depending on
your business growth plans) - what would be the cost of additional
headcount? What types of invoice volumes does the new system have to
process?
✅ How will the competency profile of your finance team need to change?
Can staff be retrained from data entry to analyst roles or do you
need to hire new talent?
✅ Do you anticipate internal resistance to the change? How can you involve
and prepare your team?
📊 Define your measure of success
Finally, create a list of success metrics with expected targets that you plan to achieve - short, mid and long-term. You will likely come across vendors and consultants who propose implementation plans spanning multiple months, if not years. Be wary of diving into complex digital transformation project planning. You have probably heard of the shockingly high number of IT implementation failures. An estimated 70% of digital transformations fail. Organisations bite off too much to chew and then never seem to be able to quantify the return. Instead, start identifying quick wins to build confidence within the business that your accounts payable automation is getting traction. You don't want to head towards another failed IT project statistic. If you can, you should avoid paying large implementation fees upfront. Work with a vendor who can help you deliver tangible value incrementally.
Depending on your business you should be able to see quantifiable improvements in the first 1-3 months, including:
Reduce or re-allocate headcount
Set a clear baseline of how much headcount is going towards manual processing and how much you are looking to re-allocate FTE.
Reduce time to close books
Define how many days you need to shave off your month-close timelines to meaningfully impact business outcomes.
Increase savings through early payment discounts
If applicable to your business, this can be a game-changer. If shorter invoice processing timelines enable you to pay less by paying early, the investment in automation could potentially pay for itself.
Readiness Checklist - Future State
✅ What are the most important metrics that if improved will have a
significant positive impact on business outcomes?
✅ How will you measure an increase in efficiency? What can you
realistically achieve in the short, mid and long-term?
✅ Can an accounts payable automation solution contribute to direct cost savings? Can you achieve quick wins through reducing FTE?
✅ Can the cost of automation be subsidised by early payment discount savings?
Overall, when it comes to measuring success, ensure that you select a solution vendor that is able to deliver incremental results and value overtime as opposed to delivering all the value at the end of a 6-12 month implementation.
Summary
Once you are clear on where you are, where you are going and how you are measuring success, you are all set to evaluate different accounts payable solution options.
Your answers to all of the discussed questions don't have to be perfect but having done this upfront work puts you in a better position to discuss next steps with your technology partners.
Relay is an invoice payment platform that includes an accounts payable automation solution. If you want to have a chat about all things AP automation, feel free to book a no-strings attached, free consultation.
