Mindshifts to modernize AP and AR processing

Digital business processes represent the future for enterprises of all sizes. Today, most corporate treasurers, accounts payable (AP) and accounts receivable (AR) leaders have their sights set on achieving automation, ease, efficiency and greater insights. But too often, outdated systems,  internal resource constraints and “we’ve always done it this way” processes hold them back.

Modernizing means adopting new digital tools and technologies and making room for different opinions and approaches. This message came through clearly in the results of new industry research.

Inaugural AP and AR research findings

Deluxe and Strategic Treasurer teamed up to survey finance professionals around the country about their goals, challenges and progress related to modernizing AP and AR processes. The candid responses collected revealed:

• A digital progress report for AP and AR
• Insights on straight-through processing
• Technology adoption levels and spending plans
• Growing popularity of outsourcing
• Key drivers and obstacles to modernization

The survey also addressed how COVID-19 and work from home environments have affected finance professionals and enterprises as a whole.

A new sense of urgency to automate

Today, few firms believe they are highly automated. Only 17 percent of AP respondents and 11 percent of AR respondents claim this label. The majority—nearly 60 percent—rank their respective functions as a mix of some automation along with manual processes.

Interestingly, one in four organizations describe their AP and AR functions as still operating in a manual or highly manual environment. The AP side shows more maturity and a slightly higher level of automation compared to AR.

More than 75 percent of those surveyed operate their AP and AR departments in-house, giving them full control of the systems and processes used to manage these to critical functions.

Activities ripe for automation include:

Accounts payable

• Issuing purchase orders
• Receiving invoices
• Receiving shipping documents
• Paying invoices
• Disputing and resolving invoices

Accounts receivable

• Processing orders
• Distributing invoices
• Processing remittance information
• Receiving payments
• Resolving disputes

While the survey shows a sobering progress report on the state of AP and AR modernization, the silver lining is that most companies are now accelerating their move to digital processes.

COVID-19 is creating a new sense of urgency; 48 percent of finance professionals note they are fast-tracking their company’s efforts to digitize payments and information transfers.

The pandemic has prompted an increase in electronic activity for both AP and AR—but not without some disruption. Electronic activity within AP increased net eight percent. AR, on the other hand, took two steps forward and one step back with its digital progress, for a net seven percent increase in electronic activity. Orders, remittance information and payments received saw the biggest movement. However, at the same time, 11 percent of companies surveyed actually decreased their use of electronic payment and remittance methods in AR during the work from home environment, perhaps indicating a lack of business continuity planning or capabilities that translated to the work from home environment.

Impact of COVID-19 and work from home

Not surprisingly, the pandemic impacted numerous aspects of day-to-day operations across finance and other departments. Almost overnight, the work environment shifted from office to home, putting business continuity plans and electronic workflows to the test.

With the ongoing safety of employees, customers and suppliers still a key priority, many of these “temporary” shifts may become permanent.

Treasury, AP and AR leaders indicated:

• 63 percent plan to allow more work from home after the coronavirus subsides
• Nearly 40 percent expect to allow permanent work from home for some or all staff

Far fewer companies revised their thinking on the importance of end-to-end electronic processes, which are a cornerstone of successful (and modern) environments. COVID-19 prompted only 14 percent of AR leaders and 18 percent of AP leaders to consider greater integration—a perception that demonstrates the need for many to let go of legacy mindsets and expand their views. Greater integration typically improves straight-through processing, which in turn reduces paper-based processes, manual intervention and the delays that can be prevalent in point solutions and legacy systems.

The unexpected onset of COVID-19 also revealed gaps in business continuity planning. While most organizations surveyed reported their business continuity plans as “adequate,” AR teams felt the most pain. When put into practice, ten percent of AP departments identified significant gaps—more than double the rate of issues for treasury management. Six percent of AP leaders reported business continuity gaps.

This finding corresponds with the lag in automation for AR compared to AP. For example, those still relying on paper processes likely incurred greater challenges with limited public transportation and office access, such as picking up mail, printing checks or redeploying equipment. Those with full electronic processes or outsourcing strategies experienced less disruptions.

COVID-19 significantly disrupted most planning, strategies and tactics for treasury management, AP and AR. As a result, nearly one in three organizations are now planning or have already made changes to their processes, systems or policies.

More plans to increase outsourcing

Buying or building new technology is not the only option that supports a modern AP or AR function. Increasingly, finance professionals see outsourcing as a viable alternative with huge potential upside.

AP expects rapid adoption of outsourcing solutions, with greater than 50 percent growth predicted by respondents—an increase that would more than double the current volume. Companies surveyed are looking at a mix of full or partial outsourcing methods.

Some of the most popular activities for AP outsourcing include payment execution. Checks, in particular, remain difficult to manage internally with COVID-19 precautions keeping most staff (and signatories) far from the office.

Digital payment platforms provide a smart alternative. Because there’s no software to install or extensive IT integration, companies can be up-and-running on a platform within a few days. Some platform providers offer a hybrid approach. A hybrid approach allows AP to maintain full control of payment processing and approvals, using their regular check workflow, and then sends transaction details to the platform provider for outsourced check printing and mailing to recipients.

Electronic payment file generation is the least likely AP component to be outsourced, with only 32 percent indicating interest.

AR is pushing hardest to outsource paper-based work, with at least two task categories predicted to experience rapid growth of 50 percent or greater

• Invoice receipt processing and imaging
• Electronic invoice processing and delivery

Survey respondents indicate COVID-19 may prompt a doubling of outsourcing volumes in AR.

Digital billing and integrated receivables are two growth areas for AR outsourcing. Digital billing platforms empower B2C and B2B billers to ditch paper and the associated inefficiencies and business continuity issues that accompany it. Instead, customers receive an email notification that their bill is available, then view a PDF or web version through a secure online portal.

Electronic invoicing also helps AR migrate customer payments from checks to electronic methods by enabling businesses or consumers to “click and pay” directly from their online bill.

Integrated receivables solutions leverage cutting-edge technology like artificial intelligence (AI) to address the manual work that often comes with even the most well-intentioned electronic payments. Too often, ACH payments lack sufficient remittance detail to enable posting. Staff must sort through disparate emails and rekey data, which slows cash flow and impedes straight-through processing. Modern AR departments can integrate an IR tool with their existing lockbox feed to receive a single, consolidated and correctly formatted receivables file that’s ready for use.

Growth potential with new technology

In addition to innovative tools provided by outsourcers and trusted financial services partners, AP and AR teams are exploring a number of promising technologies for in-house deployment.

Bots, such as robotic process automation (RPA) software, are chief among these. Bots add value by automating routine and repetitive tasks for finance staff, such as logging into portals or copying and pasting information between systems.

The biggest modernization and efficiency opportunities are in bots with “eyes” and bots with “access.”

Bots that can “see” leverage optical character recognition technology to “read” documents, such as customer invoices or remittance emails. The technology then extracts relevant data into a file format that’s usable by AP or AR systems.

Bots that can “access” are programmed to automatically retrieve information or to log into customer AP systems in order to provide electronic payment information, such as a credit card number.

In AP, 44 percent of respondents currently use OCR technology, with another 24 percent interested in its adoption. In AR, nearly half report scanning invoices upon receipt, with another 24 percent interested in this capability.

Other technologies on the radar for respondents include workflow management, vendor management services and sanctioned party filtering.

Key drivers of modernization

Modern AP and AR operations yield many benefits, from greater productivity for staff and greater visibility for stakeholders, to improved security, stronger business continuity and faster processing for the organization.

By far, the biggest drivers of automation are efficiency and error reduction.

• 72 percent of AP leaders and 68 percent of AR leaders cite efficiency as their primary rationale for modernization.
• Half of AP and AR leaders point to greater accuracy and fewer errors as the most important reason for migrating to electronic options.

Other drivers of automation include:

• Control
• Security
• Forecasting accuracy

The survey revealed familiar impediments to change, which highlight the need for finance leaders to work diligently on changing mindsets and behaviors within the organization. For corporations to truly succeed in building a modern, efficient and highly automated treasury, they must be open to new ideas and embrace new ways of operating.

Those surveyed noted these top challenges to modernization:

• Lack of IT resources
• Differing management priorities
• Internal competition for resources
• Lack of interest in greater automation
• Financial ROI for automation

Fortunately, conquering the most common impediment, cited by nearly half of respondents as lack of IT resources, is relatively simple. A number of current solutions, including outsourcing, require little to no IT involvement. Cloud-based tools and APIs also reduce the development workload compared to the electronic options of just a few years ago.

A final obstacle to greater efficiency and electronic processing is a company’s perception of just what “efficiency” entails. For most, the end goal of AP or AR is straight-through processing, or the movement of a transaction from origination to reconciliation without the need for manual intervention.

Yet most finance leaders surveyed take a limited view of the beginning and end points of the AP and AR cycles. Only one in four respondents include customer, supplier or solution provider interactions in their definition. This truncated view impedes some of the opportunities available for true end-to-end automation.

Move ahead with these mindshifts

Overall, the research shows a high level of resiliency among treasury, AP and AR leaders who are simultaneously grappling with the daily uncertainty of a global pandemic, massive change to the work environment, customer and supplier needs and the increased demand for digital tools and processes. This strength will enable corporate treasury, AP and AR teams to move forward.

Creating a modern, efficient and highly automated AP or AR function does take time, and most corporations still have work to do to achieve their end goals. In addition to aligning with the right technologies and external partners, successful organizations must examine their internal processes, approaches and perceptions.

As you continue your automation journey, consider these mindshifts:

• Expand your view of straight-through processing. Make the most of today’s tools and solutions by incorporating customer, supplier and provider interactions for a true end-to-end cycle of automation.

• Break the link between competing demands. COVID-19 is accelerating digital transformation across finance. A strong business case with business continuity, efficiency and customer experience at the core can help garner company support for key initiatives.

• Set goals around “and” not “or.” Too often, point solutions and a partial view of AP and AR processes result in missed opportunities. Instead of setting modernization goals like efficiency or working capital, look for ways where digital tools and modern outsourcing options can benefit multiple areas of the organization.

Read the full report now to see how your enterprise’s automation progress stacks up.