Accounts Payable Metrics that Matter in 2023
Ardent Partners’ 2023 Metrics that Matter report, in association with Tradeshift, highlights AP’s growing reputation as a center for strategic insight and actionable intelligence. But if 2023 is the beginning of a new era for the accounts payable function, then it’s an uneven transition.
Insights by Michael Creeden, Manager, Solutions Consulting, Tradeshift
AP’s Golden Era Faces Performance Problems
Accounts payable has been on the frontlines of a tumultuous period for businesses worldwide. Time and again, AP teams have demonstrated their strategic value across a range of critical business areas, from supporting supply chain resilience to positively impacting working capital and improving bottom-line performance.
According to Ardent Partners’ latest report, senior leaders have noticed AP’s significant contribution to overall business performance. Two-thirds (66%) of executives polled by Ardent say they view the activities of the accounts payable department as either “very valuable” or “exceptionally valuable” to the broader enterprise, up from just 33% who felt this way in 2017.
Ardent Partners suggests this is the start of a new era for the AP department as it cements its position as the center for strategic insight we have long known it had the potential to become. But the report also hints at some underlying tension between the value executives say they place in AP and the teams leveraging senior leaders to help drive transformation projects forward.
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No AP initiative will get off the ground without an executive champion to shepherd these investments. So it’s a little alarming that just 36% of respondents believed executive buy-in for transformation would be critical for their success. The danger is that AP projects will simply end up sidelined or deprioritized in favor of initiatives that built a consensus of executive support from the outset.
Hitting an AP Automation Performance Ceiling
For all the outward signs of a potential ‘golden era’ for accounts payable, Ardent’s report reveals huge pockets of untapped potential and a litany of all-too-familiar challenges that leave AP teams mired in manual processes when they should be rising higher.
Top challenges among accounts payable professionals remain heavily skewed towards tactical problems, including delays to approval, high exception rates, and elevated processing costs, which is hardly surprising given that 48% of invoices are being received manually.
Throughout the report, there is an obvious correlation between e-invoicing and sizeable reductions in cost, time, and error rates. But even as AP automation has increased, average invoice exception rates remain stubbornly high at around 22.5%. Straight-through processing rates have also remained flat at 30.2% of the total. The inference is that even some businesses that have swapped paper processing for electronic processing are reaching a performance plateau.
Tradeshift and Ardent Partners on the latest AP Metrics That Matter
Vice President of Research at Ardent Partners
Manager, Solutions Consulting – North America
The Wrong Tools for the Right Job
Definitions of what constitutes an ‘electronic’ or e-invoice vary significantly, and there are big differences in the outcomes that different approaches can deliver. Here’s my take on what separates the best-in-class performers from the electronic also-rans.
PDF vs Digital e-invoicing:
According to Ardent’s report, a little over half (52%) of businesses now receive invoices electronically. Break this down, however, and document scanning remains the dominant approach businesses are taking to turn paper invoices into electronic versions. Instead of eliminating problems, businesses are essentially turning mounds of paper into static and unstructured PDFs. I’ve said this many times before, and I’ll say it again here – AP automation is either digital, or it isn’t; there is no in-between.
Granted, technologies like OCR can be a useful stopgap for businesses that want to apply a veneer of digital to static PDF documents. But the benefits are incremental at best. It’s no coincidence that 88% of best-in-class businesses in Ardent’s report have deployed fully digital e-invoicing solutions. Companies that want to reap the true benefits of AP automation should start by making digital invoice submission the default across their organization.
AP leaders seem to have a clear vision for the future of their department, but they’re trying to run before they can walk. According to Ardent’s report, the biggest priorities for AP in 2023 are:
- Better reporting and analytics,
- Implementing AP automation, and,
- Eliminating paper and/or reduction of manual tasks.
It isn’t until we reach priority number four that we get to enabling suppliers to submit invoices electronically. Businesses have little to no hope of achieving the first three priorities before tacklingever achieving the first three priorities before they have tackled number four. Aspirationally, AP teams are targeting higher-valuehigher value outputs, but their approach is completely backwardbackwards.
Ardent’s report puts supplier buy-in to electronic initiatives at around 47%. That’s certainly a step up from the 15-20% success rate that has long been the benchmark for ‘success’ in certain corners of our industry. But that still means a majority of suppliers will continue to submit invoices in precisely the same way they always have – either in the mail or, if you’re lucky, as a PDF attachment in an email. It’s also telling that just 32% of respondents are currently providing any kind of self-service supplier engagement tools. If you’re not giving suppliers transparency and the ability to address issues for themselves, then you’re unlikely to see any meaningful reduction in exception handling, supplier queries, or payment delays.
The accounts payable workflow conundrum
‘Touchless’ processing has long been considered the nirvana for AP teams. So it’s interesting to see that progress towards 100% touchless AP processing seems to be stalling. No wonder when the majority of companies have done relatively little to address the fundamentals of getting better, cleaner data from suppliers. Vendors across our industry have long touted impressive new workarounds to help AP teams fix errors that inevitably arise as a result of poor-quality data. But here’s the thing, every shiny new workflow button that comes out means just one thing for the AP department – more work.
If you’re about to embark on your AP automation journey, start by questioning every aspect of the processes you already have in place and whether or not they really need to exist. Instead of applying band-aids to problems when they come into the AP department, our philosophy at Tradeshift has always focused on automating as early as possible in the process, using AI to verify data and remove errors at the source. Be very wary of any tech vendor coming to you bearing an armful of shiny workflow buttons.
I’ll discuss the above and more on a webinar with Ardent Partners’ VP of Research, Bob Cohen in March. Register here to get reminders closer to the date.