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How to Improve Efficiency in the Accounts Payable Department

Author

Juan Nieto

https://www.linkedin.com/in/juan-manuel-nieto-casta%C3%B1eda-5712a682/
juan.nieto@auxis.com

BPO Account Manager

In brief:

  • Forward-thinking AP leaders are focused on accounts payable process improvement to help their organizations navigate an unpredictable landscape.
  • Important strategies have emerged, from accounts payable process automation to nearshoring, that are key to ensuring your organization stands ready for 2024.
  • Focusing on these five areas now with the right accounts payable partner can help your organization get ahead of the game with a modernized, future-proof function.

If the 2020s have taught us anything, it is to expect the unexpected. Few departments know that better than the accounts payable (AP) team, which has been forced to adapt its way of work to confront modern challenges.

A severe finance & accounting (F&A) labor shortage, pressure to accelerate digital transformation efforts, and supply chain disruptions that make it more important than ever to pay bills on time have forward-thinking finance executives leading the organizational march toward transformative change.

Optimizing AP process strategies is also essential to increasing margins and freeing up working capital in today’s uncertain economic climate. Improving cash flow stands as the biggest priority for finance executives in 2023, found the Everest Group’s Global CFO Survey, which polled finance leaders about the priorities, challenges, and initiatives of modern finance functions.

As the BPO Account Manager at Auxis, I have helped migrate and optimize the accounts payable process for Fortune 1000 companies across multiple industries and countries. Recently, important accounts payable process improvement strategies have emerged that I see as critical to ensuring your AP department stands ready for 2024.

As we approach the last quarter of 2023 and start planning for next year, here are five areas AP leaders need to focus on now to get ahead of the game. And here’s my perspective on why the right accounts payable outsourcing partner is key to successful transformation.

AP automation is king

Automating back office processes like accounts payable to improve performance efficiency is the top digital investment priority in the C-suite, according to a Gartner survey of CFOs and CEOs. Business Insider reports that an automated AP system can lower costs by 81% and improve efficiency by 73%.

That’s because automating the accounts payable process elevates cash forecasting models. It also keeps goods and services flowing with analytics for tracking invoice status and identifying bottlenecks.

Automation infuses the AP process with efficiency: catching fraud, discrepancies, and duplicate invoices; reducing errors associated with manual data entry; standardizing workflows; and significantly decreasing time and expense. Powerful new AP automation capabilities like AI (artificial intelligence), machine learning, and OCR (optical character recognition) enable advancements like touchless payments, automated invoice approval workflows, and automated processing of paper invoices.

By taking over time-consuming, end-to-end accounts payable processes, automation helps your AP team do more with less headcount. For example, 97% of AP departments waste valuable time with manual processes for managing invoices – a labor-intensive chore that increases the risk of misplaced paper invoices and late or duplicate payments.

In a PYMNTS survey of 200+ executives, 98% of respondents expect automation to help avoid delinquent payments by reducing the time it takes to process invoices. Nearly 90% expect their AP automation solution to improve visibility, avoiding errors that prompt late payments, duplicate payments, or missed opportunities to take advantage of early payment discounts.

Automated vendor portals can also minimize distractions from core responsibilities in your accounts payable department. Vendor portals allow vendors to access all the information related to their accounts in a single place, with real-time status updates and messaging capabilities.

Currently, more than a quarter of AP teams spend 6-10 hours every month fielding vendor inquiries, according to the 2022 State of AP report.

Quality accounts payable partners can help you take full advantage of embedded AP automation capabilities in top-rated, cloud-based enterprise resource planning (ERP) systems like Oracle NetSuite or customize solutions through marketing-leading intelligent automation platforms like UiPath.

Your AP team becomes a strategic asset

Thanks to the increased use of automation, accounts payable organizations have the bandwidth to take on high-value work that transforms them into a strategic asset to the business.

The result: a streamlined, digital department where traditional AP clerks are replaced by AP analysts who can draw on their business administration/accounting knowledge to analyze data, ensure the right controls are in place, and identify growth opportunities.

For instance, applying AP automation to report creation enables accounts payable staff to shift into an advisory role. That can include analyzing real-time reports and proactively identifying challenges like AP process gaps, projected dips in available funds, and vendors failing to meet minimum requirements.

Strategic AP functions can also recommend improvements for cash flow and business health.

Finance leaders favor nearshore outsourcing

However, increasing accounts payable process efficiencies can also lead to increased costs. According to information collected from Robert Half’s finance and accounting salary guides, the ongoing F&A labor shortage increased the cost of a U.S. accounts payable clerk by an average of 20% between 2019-2022.

Retaining staff creates another challenge, with 54% of finance managers still seeing increased quits in the red-hot job market.

The impact is severe: Three-quarters of CFOs say the talent shortage impacts revenue, while about half also indicate constraints on full-capacity operations.

Not surprisingly, 51% of finance leaders are turning to outsourcing to combat the labor shortage, rising AP processing costs, and other challenges (Deloitte’s 2022 Global Outsourcing Survey).

And increasingly, they favor the stronger communication and collaboration enabled by geographically close destinations, states ReportLinkr’s 2022 finance & accounting outsourcing report – driving the highest productivity and performance.

Infographic that shows that Latin America has emerged as a key destination for Finance Operations for the Americas

Latin American markets like Costa Rica and Colombia stand as leading destinations for North American finance operations, and the accounts payable process is often shifted first. These markets provide instant access to a deep pool of highly skilled talent at a labor arbitrage averaging 30-60%, according to Auxis’ latest finance & accounting labor savings report.

Nearshoring also avoids challenges that have many CFOs rethinking Asian-based outsourcing models, such as language and cultura