Companies that leverage technology to automate their accounts payable (AP) function can achieve sustainable, long-term benefits by aligning cost optimization objectives to their long-term vision and strategy.

 
By Shubha Subramanian, Ved Vyas, Rajagopal NVS
Infosys BPO
 
The current economic condition has caused companies to experience severe revenue and cost pressure and an uncertain future. As a result companies are banking on technology to deliver benefits beyond just "cost savings" and help create transformational benefits that can help them not just in turbulent times but in good times as well.

One area which is becoming an important agenda item for companies all over the world is the automation of AP function because even today an overwhelming majority of invoices in companies are paper based. With billions of dollars worth of invoices getting processed every month, inefficiencies in invoice processing and delayed payments to suppliers can lead to increased costs and end-user dissatisfaction. Given that manual processing of supplier invoices cost anywhere between $10 to $20 per invoice, and keying in information from paper invoices is the most time-consuming and the least value-added task in AP departments, companies are increasingly looking at technology to drive down costs and improve efficiencies in their AP processes.
 
Companies that have successfully automated their AP function have managed to bring down costs to less than $5 per invoice resulting in transformational cost benefits and significant bottom-line improvement. Other benefits include faster ROI, minimized impact of process failures and delays, cash management and working capital optimization, improved decision making, enhanced controls and supplier satisfaction.

Traditional approaches to technology involve understanding of immediate concern areas and gaps, and investing in software solutions to address those short-term concerns.

We believe that companies that embark on transformation through technology enablement should do a two way assessment on before designing the optimal technology landscape for its AP function. The assessments involve a detailed review of the following:

• Existing processes and technology the company currently has;
• Profiling and segmentation of their supplier base and evaluation of suppliers' capabilities and fitment into the overall technology solution.

 
BPO service providers play a major role in helping companies tailor technology solutions to meet their needs and requirements, and more importantly, in translating their long-term vision into action. The sections below describe the approach to be followed for the initial assessment phase.

Technology Maturity Framework and Gap Analysis
Technology maturity refers to a company's ability to leverage technology to automate its manual, non-value added tasks and provide real-time information to enhance decision making capabilities. The technology maturity framework is intended to help companies assess their current level of maturity vis-à-vis an evolution roadmap. There are 4 levels defined in the maturity model.
 
Level 1 is primarily targeted at controlling paper workflow of the company.
Level 2 involves integrating the imaging and workflow solution with ERP and sets the foundation for simplified invoice processing.
Level 3 involving integration between invoice processing software and the ERP system also includes an electronic workflow. This integration can empower decision making process by providing real-time visibility of invoice status, informative dashboards, automated escalations and alerts.
Level 4 is primarily applicable to large organizations that operate in multiple geographies, languages and have large volumes of data. This level requires heavy up-front investment in supplier data management solutions, e-invoicing, Supplier portal, payment factory.
 
The tools and technology solutions currently used and their capabilities thereof will need to be mapped against the maturity framework. This will help a company in identifying its current state of technology maturity and benchmark its capabilities against best-in-class (Level 4). This benchmarking exercise can help companies identify investments and capabilities required to transform its AP function.
 
As companies aspire to move up the maturity model, there would be varying levels of investments required at each level. Any investment in technology should be planned in such a way that it acts as a business efficiency enabler and provides tangible business benefits. The high technology investment required to automate some of the manual, non-value added activities in the AP process is one of the major reasons for outsourcing the AP function to BPO service providers.

Supplier Profiling and Segmentation
Another important evaluation involves a detailed study of the supplier database to understand the profiles of the suppliers the company deals with and their historical behaviour pattern. Companies with insights and understanding about their suppliers are better placed to collaborate with suppliers to innovate their products and
 
service offerings. Technology acts as a key enabler that facilitates this collaboration with the extended enterprises. Data analysis can help in identifying distinct supplier segments and understanding the characteristics and constraints that define each of the segments. The questions to be considered while identifying the supplier segments include:
 

• Are the suppliers regular or one-time suppliers?
• Do the suppliers supply goods or services?
• Are the suppliers high-volume or low volume suppliers?
• Are the transactions with the suppliers of high- value or low value?
• Are the purchases from the suppliers against a PO or are they non-PO supplies?
• Are the transactions with the suppliers simple or complex in nature (attributes to be considered include language capabilities, invoice formats, geographies, tax related issues etc)?

 
More often than not, companies will have to deal with suppliers with varying degrees of technology maturity. The supplier profiling and segmentation exercise can provide pointers about the type of technology investment required to optimize ROI. The company should consider investing in 3 ERS and EDI / e-Invoicing for high-value and high-volume suppliers. Though the company has to make upfront investment in setting up the technology platform and process for reconciliation, long-term benefits (by way of improved working capital predictability, improved on time payment capabilities and significant reduction in processing costs) can be quite significant. For the suppliers, the benefits would include prompt payment, better cash forecasting, lower bad debts etc. On the other hand, for low-value, high-volume suppliers, P-card implementation might be the optimal solution. Similarly for suppliers who are in the mid-segment, a company may decide to implement image scanning integrated with workflow as it requires no investment from suppliers but can yield significant benefits to the company.
 
Therefore a thorough understanding of the supplier segments and their characteristics can go a long way in engaging with the suppliers and designing the most appropriate technology interventions for each of the supplier segments that can provide win-win situations for suppliers and companies.

Designing an Optimal Technology Landscape
Evolution of technology is not a linear process and a single approach to technology should not be uniformly applied to companies. Rather a "one size fits all" approach to automation needs to be replaced by a strategy that is customized to fit a company's overall strategic vision, needs and expectations from technology solutions.
 
The optimal technology landscape should be finalized after taking into consideration the following factors:- current technology capabilities, relationship maturity of the supplier segments, tangible and intangible benefits expected from automation and strategic long-term vision of the company. Identification of the desired state in maturity model will help in identifying gaps, prioritizing resources, focus areas and will, more importantly, aid in chalking out an action plan to get to the desired state. It should also enable the company to cope with the immediate constraints and challenges while making it agile enough to adapt to the changes that the business might undergo in future.
 
 
Companies do not have to go through the various levels of technology maturity in sequence and can adopt a multi-pronged approach to realize optimal benefits from the automation process. There are tangible benefits to be reaped in each of the levels of the maturity model and based on priorities, pain areas and resource constraints, companies can, with the help of BPO providers, move up the evolution chart either in a fairly short time-frame or over a longer period of time. For example, companies that are at Level 0 (of the technology maturity model) can leverage outsourcing and technology expertise of their BPO partners to move to Level 3 in the short-run. However not all of its suppliers would be ready or willing to invest in technology for several reasons including ROI, strategic importance of the supplier, value of business transacted between the company and the suppliers etc. It is, therefore, imperative to adapt to other alternatives to accommodate suppliers unwilling to invest and overhaul their existing processes.
 
In the process of automating functions, it is important to align process improvements with technology solutions and create a synergistic value to companies. Only then can the benefits be truly enduring. BPO providers have the requisite capabilities to combine expertise in process outsourcing and technology in a synergistic way within the AP framework to provide integrated value benefits to companies.
 
Proven technology and optimization expertise of BPO service providers can enable companies to scale up the automation of their AP functions at reduced cost and in a relatively short period of time. BPO providers will work with companies not just in automating and harmonizing their internal AP processes but also in analyzing and working with the various suppliers to design optimal technology solutions for each of the supplier segments depending on their relationship maturity levels.
 
Companies all over the world suffer from an over-reliance on manual processes. The inefficiencies of the manual processes are often overlooked during times of high growth but become prime candidates of focus during times of recession. New tools, technology and platform solutions have evolved in the last few years that can automate the manual, non-value added tasks inherent to AP function and provide transformational benefits to companies.