Introduction
By necessitating a move from our physical offices to remote work, COVID-19 has given us the opportunity to reflect on the way we do business. For most of us, the absence of a business continuity plan has required the confrontation of weak points across our operations, and the construction of changes to better prepare for an uncertain future.
As we work through the current crisis and ready ourselves for a possible economic downturn, the accounts payable department stands out as a clear source of inefficiency, outdated processes, and unacceptably high cost and risk. This article will examine three categories of challenges that have had the greatest impact on AP teams in recent years, and that have acquired new significance during the global pandemic. We will explore how these areas of concern can be effectively addressed, and suggest actions that can be taken to overcome these obstacles and keep AP running during the current and future crises.
Top challenges in AP
Hidden costs
There are several different types of costs embedded within a manual, paper-based
AP process.
Let’s consider the isolated labor and other common costs:
- Labor costs: Let’s assume you have one AP clerk processing invoices full-time at $20 per hour ($3,440 per month). One clerk can typically process about 300-400 invoices monthly, which would cost your business $9-12 per invoice.
- Other costs: When you’re dealing primarily with paper documents, the cost of stuffing checks, stamping envelopes, filing cabinets, space, rent and maintenance can add up over time. Since you are required to store seven years of documents at all times, the costs keep going up year after year.
Examining the process as a whole more closely, we can see that costs can be incurred continuously from the initial receipt to final payment. Received invoices often need to be downloaded from various sources, such as email, mail, or vendor portal. These invoices then need to be printed and enter the approvals cycle. The routing of invoices physically or by email to approvers often results in invoices getting delayed or lost in the approval chain. Paper-based processes offer no ability to track where invoices are in the organisation, making it difficult to recover lost invoices and hold the individuals causing delays accountable.
Furthermore, following up on invoices that haven’t been approved on time is itself a lengthy process, which we have found takes up to 20% of a typical AP clerk’s time. The final task of data entry and coding take roughly 57% of the day, and this doesn’t even take into account discrepancy handling, scanning, and filing. All of this culminates in potentially inaccurate accruals on your books, frustrated vendor calls, and a significant amount of wasted time and effort.
Fraud and abuse risks
Many companies are under the impression that their paper-based policies provide strong internal controls. However, the reality is that increased sophistication of scammers and opportunities for human error have made it much more difficult to minimise the risk of loss without the aid of technology.
The first two common types of AP risks stem from simple mistakes and carelessness. According to research from 2019, waste (in the form of duplicate payments to vendors) is one of the top payments-related pain points for companies. This often results from the purchasing company receiving the same invoice in different formats, or due to an employee error. Expense abuse is another form of risk that materialises when employees unknowingly take advantage of the company’s expense policy. Not many employees read the fine print of the agreements they sign and end up buying items on the company account that are not covered by the expense policy. We have been able to catch these types of infractions through our approval channel, and correct misguided employee assumptions.
External fraud, the third common type of AP risk, has been on the rise since the start of COVID-19, with bad actors using the volatile situation to gain access to company accounts and confidential information. Common scams involve fraudsters submitting false invoices or attempting to change vendor bank information, and we have seen hackers mobilising their efforts in the recent months to expand the number of attacks.
Phishing scams have increased by 350% since the start of the pandemic.
To make matters worse, they are also getting more sophisticated. Clickthrough rates on phishing emails increased from less than 5% to 40% in April 2020.
The FBI has reported that Business Email Compromise (BEC) fraud has also become more prevalent. BEC is a type of crime that uses an email to attack organisations that regularly conduct wire transfer or have suppliers abroad. In a recent case, a financial institution received an email supposedly from the CEO of another company. In this email, the CEO requested that the date and recipient account be changed for an upcoming $1m transfer “due to the Coronavirus outbreak and quarantine processes and precautions.” This email, which turned out to be fraudulent, was almost identical to the CEO’s real email address, with only one letter altered.
This increased risk of fraud demonstrates the need for finance teams—particularly the AP department—to be more vigilant with details, and to implement processes to reduce the chances of scams being successful. For example, Google could have likely avoided being duped out of $100 million by having the purchaser of the goods and their manager approve the fraudulent invoices.
Remote work
COVID-19 has forced many organisations to face their inability to accommodate the demands of a remote workforce. A recent poll conducted with 500 businesses revealed that with their finance teams working from home, only 54% are in a position to make all their payments. Furthermore, more than half of respondents expect the current health crisis to have a significant effect on invoice processing.
Employees are also feeling the strain on their abilities to carry out day-to-day tasks. Based on recent surveys, 85% of respondents wish their employer would do more to help them adapt and manage remote work. The new challenges faced by employees stem from the resources and structures which cannot be easily reproduced outside the traditional work context. With colleagues working from home, it’s harder for employees to follow-up for approvals. Furthermore, some activities can only be handled in the office, like managing paper invoices and cutting paper checks. For some teams, company software can only be accessed from the office, as most traditional accounting software is on-premise rather than cloud-based. With people, documents, and software becoming increasingly inaccessible, due to remote work, it is easy to see how the manual processing time of invoices—which already averages 16 days—can become even longer.
Solutions to keep AP running in a crisis
What steps can we take to refine workflows and processes and eventually overcome these challenges? We have identified several tools and methods that organisations can invest in to become more adaptable and efficient in the future.
Electronic payments
By switching from a paper-based to an electronic payment method, AP teams working remotely can easily process payments without interruption. There are several options available:
- Outsourced payments: Providers like Nvoicepay and EFT Canada help you set up vendors for ACH or EFT payments. Some providers even take on vendor management and liability for payments, which lowers your risk and saves your team time.
- Virtual credit cards: Virtual credit cards enable you to make secure electronic payments to vendors while earning rebates.
- Bank payments: Going directly through your bank often gives you the best prices for digital payments such as EFT and ACH. However, opting for this path means that you will still need to manage your vendors and payments in a separate system and reconcile them.
Workflow tools
Using platforms like Zoho or Sharepoint keeps processes organised by allowing you to share information with colleagues and build workflow steps for documents. You can also track workflow progress items such as approvals, and manage projects and time with these tools. However, these tools are often not well-integrated with your accounting software, resulting in the additional work of having to transfer and maintain information between the two systems.
Document management
A document management system like Confluence helps you to organise your AP documents, and integrates with popular tools such as Slack, Sharepoint and Trello. Some platforms also provide compliance and data-security, which are crucial components of AP. Although managing documents in the cloud is a step above paper, these solutions often either lack integration with accounting systems, or do not solve the workflow problem of tracking and following up on the full workflow from POs to payments.
Accounts payable automation
Accounts payable automation solutions (like Quadient AP) often seamlessly integrate with accounting software, saving your team valuable time by syncing lists, invoices, POs and payments. AP automation is a key tactic for overcoming the current challenges faced by AP teams, and plays a significant role in keeping AP running in a crisis.
By reducing labor-intensive and inefficient tasks, organisations with AP automation have reportedly saved 60-80% of the costs associated with invoice processing, rounding out at about $2 per invoice on average. These organisations have also gained an 83% reduction in data entry.
Additionally, AP automation tools significantly reduce the fraud and abuse risks faced by finance teams. By enabling more levels of approvals and flagging suspicious activity (such as duplicate payments), such tools greatly increase the likelihood of fraudulent documents and errors being caught. Furthermore, the generation of digital audit trails allows you to gain 100% visibility into the approval process, and makes it substantially easier to find and track every document within the organisation.
Finally, cloud-based automation tools empower remote finance teams, allowing employees to access critical information and manage AP from any location. Approvals can be completed quickly and digital payments can be made instantly on the web or through a mobile app.
Conclusion
As we move forward and strive to remain competitive in these times, it is important to remember that while many aspects of our current environment are uncontrollable, our ability to think, plan, and act is not. The organisations that are going to come out on top are the ones that aren’t afraid to tackle the challenges we have discussed in this article head on and invest in different, more efficient ways of doing things. We implore you to look critically at your current situation, see what changes you can make to better support your employees, and explore how the solutions we have outlined can fit within your business plan.
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