In many organizations, the accounts payable (AP) function is viewed as a necessary cost center to sustain business operations. During the outsourcing boom, some companies moved the AP function to third-party organizations to cut costs. A Google search for “Accounts Payable Outsourcing” produced more than 2 million results.
So I was intrigued when Drew Hofler told me that AP is serving as a compliance engine within networked organizations. He said what has sparked this transformation is a combination of automation and collaboration that’s powered by business networks.
So I asked Drew a few questions about how companies leverage AP to serve a greater strategic role in their organizations.
Q. What’s driving this transformation in the role of AP?
In many organizations, procurement negotiates the supplier contracts and pricing while AP receives and pays the invoices. Procurement doesn’t see the invoices to ensure prices are consistent with contracts and AP often does not have visibility into the contracts to verify pricing compliance on the invoices. The result is millions of dollars in contract leakage … essentially lost savings that companies haven’t claimed because negotiated prices weren’t enforced during the payment process.
Recognition of this lost savings is prompting companies to look more closely at automation and collaboration across their procurement and AP functions. With e-invoicing facilitated on a business network, companies can build business rules that ensure invoices match contracts. If a supplier submits an invoice with pricing that doesn’t match negotiated rates, the network will return it back to the supplier with instructions for correcting the error. Research from The Hackett Group found that businesses can capture $4 million in contract leakage savings for every $1 billion in spend.
Q. What hurdles are companies facing with this type of collaboration?
There are several challenges that are encounter:
Company culture and the silo nature of how work is performed in large enterprises
Procurement and AP reporting to different areas of the organization can make it problematic to find an executive sponsor to lead the initiative
Procurement and AP implementing independent systems that can’t connect and exchange information
Ardent Partners report that nearly 75% of invoices are still paper based. That’s amazing when you consider the thousands of invoices that large companies receive each year and the time and resources it costs to have employees process all that paper. There is a significant amount of savings and efficiencies that companies can capture by pursuing smarter collaboration across their procurement to payment processes.
Curious to learn more? Drew delivers insights on e-invoicing and networked collaboration on Twitter using the hashtag #einvoicing. Follow Drew on Twitter @dhofler and read his blog postings at drew.hofler/content.