80% of organisations are not ready for growth. This stark finding from a Tipalti report based on a survey of 500 finance leaders in the UK and US within fast-growth businesses entitled: AP Trends in Fast Growth Businesses. The reason is the respondents feel that their account’s payable function cannot scale. No doubt the 80% is much higher if considering the wider business.
Historically accounts payable has been a manual process, including invoice processing, PO Matching and payments. Some organisations may have automated invoice processing using OCR technology. However, that is only a small component of what can be automated. The impact is felt beyond the time and cost within finance. It can lead to cash flow issues and customer and employee dissatisfaction. Perhaps the biggest risk is fraud. 82% of finance leaders believe fraud and risk exposure is the biggest AP challenge.
Enterprise Times asked Rob Israch, Tipalti GM Europe, the difference in the findings between the UK and the US?
Israch stated: “Both the UK and US were closely aligned in the significant time being spent on manual AP processes. Both cite similar vulnerabilities they are left open to as a result. On average, finance members are spending just over half of the working week (51% UK / 53% US) on manual AP tasks. Leaders fear that the current AP process cannot continue to enable business growth (78% UK / 80% US).”
If automated, this would free up time for staff to spend on growing the business in other areas, according to 83% of the respondents. It isn’t clear what the other 17% would do, though.
How is Accounts Payable holding back growth?
The research found several ways that inefficiencies in the AP function are holding back growth. 43% of the end-to-end AP function is currently manual or paper-based. The impact is on eight core processes:
- Obtaining and validating supplier details (61%)
- Order requisition/PO generation (58%)
- Matching POs to invoices (55%)
- Payment authorisation (55%)
- Payment execution (54%)
- Invoice and payment reconciliation (53%)
- Supplier invoice approval (52%)
- Supplier invoice data capture and GL-coding (52%)
It takes an average of 50 minutes to process a supplier invoice. Additionally, the delays at period ends are significant due mainly to AP processes. For organisations with many invoices, it means that 53% of finance time is spent on manual AP processes in a typical week. This impacts the business in several ways.
22% of supplier invoices are paid late. It comes at a time when the UK Government has updated the Prompt Payment code. It wants smaller firms to be paid on time. The target payment is now 30 days rather than 60 days. Late payments impact the relationship between the supplier and the business, finance and the wider business, especially procurement and operations. 63% of respondents have received negative feedback about AP inefficiencies
Chen Amit, Co-Founder and CEO at Tipalti, commented: “The negative impact that manual AP processes are having on business growth, exposure to fraud and finance teams’ reputation, just to name but a few, should serve as a wake-up call to businesses. Too many hours are spent doing manual tasks that could be automated.
“Understanding the benefits of automation is key – teams have more time to spend focusing on strategic initiatives that help scale the business, in addition to finding new opportunities for growth. Furthermore, it improves visibility and control – which is crucial for fast-growth businesses today.”
Did Covid have an impact?
The world is changing, and as organisations look to transform their organisations digitally, they cannot ignore the opportunities within finance. Enterprise Times asked Israch whether Covid had contributed to the pressure?
“Typically, the most manual process within the finance team is accounts payable. It often involves paper invoices being processed by hand before the finance team log into multiple systems. It includes entering the invoices in to the accounting system and executing payments within the business bank account. In addition, invoice and payment approvals are typically handled by corresponding with teammates across the business, and this gets more difficult when working from home.
“This disconnected process means most finance teams are shackled to the office and finance systems. It creates a real challenge to establish an effective remote or hybrid working model.
“The pandemic did force finance teams to digitise more of their processes, with finance modernising processes through cloud technology to enable the work to be done from anywhere. However, systemising the end-to-end AP process using technology not only enables the finance team to embrace hybrid working, but also reduces the risk of errors, fraud and accelerates business visibility.”
Changing supply chains, Covid, Brexit and the Ukraine war has brought increasing complexity and bigger challenges:
- 38% of respondents have an increasing number of supplier invoices to process each month 38% have more and different types of suppliers to pay (38%)
- 34% are under pressure from the wider business to transform AP/finance processes
- 33% have increased the number of cross-border supplier invoices and payments
- 32% are impacted by the speed and scale of business growth
Despite or perhaps because of Brexit, the internationalisation of supply chains continues. The war in Ukraine has been another big factor. 27% of supplier payments are cross-border/international. This means organisations need to look for a solution that offers the automation of global payments. Preferably one that is integrated into the existing ERP solution with a single sign-on capability.
Enterprise Times asked Israch if firms know the tax implications when trading internationally?
“Whilst finance teams are generally aware of the differing tax requirements when working internationally, many of the finance systems used are not designed with multi-entity requirements in mind. This creates some real headaches and creates manual workarounds to ensure compliance, with a significant risk of errors that could result in penalties.
“At the end of the day, digitisation reduces manual workload. Within the AP team itself, Tipalti’s research shows 73% of finance leaders are concerned about their team’s productivity as a result of manual work, a worryingly high proportion given the high cost to businesses each year lost to poor productivity.”
ET asked Israch how Tipalti helps with that challenge?
“Tipalti VAT features are designed to help businesses with VAT compliance to strengthen their position if they are ever subject to HMRC VAT inspection.
“For non-UK subsidiaries, local tax ID & form collection, validation, and document storage are available. For US entities, the solution meets IRS requirements with a KPMG-reviewed and approved AP tax engine.
“Tipalti enables businesses to collect local tax IDs in 50 countries and digitises the tax form documents for supplier completion and applies 1,000+ validation rules, including TIN matching, to ensure the proper data has been provided.”
Other challenges include foreign exchange, where companies might have dealt solely in Euros. Looking further abroad brings additional challenges that Tipalti can help solve. Andrew Jenks, Assistant Controller at Lucidworks, commented: “PO matching allows us to initiate financial strategies and control spending. I don’t think about FX or currencies anymore – we pay bills out of Tipalti and exchange them into any currency. That’s essential for a growing, international business.”
As firms grow, if they do not automate, they bring additional pressure on existing staff. 78% of respondents say that too much manual work is overwhelming staff. 73% admitted staff productivity and morale is a concern. 32% believe it could lead to burnout and churn. Hiring new staff will not be easy as Glassdoor or other platforms could share employees’ woes.
One of the biggest risks for firms has always been cash flow, where AP automation can also help. Israch explains, “Businesses that still rely on manual AP processes and no formal purchase requisition process will always struggle to plan for the spend required on a month-by-month basis. Only when they have the foresight of the spend as part of an automated end-to-end AP process, are they better placed to forecast and proactively manage their cash flow.
“To do this correctly, you have to not only address invoice processing but also the supplier payments execution in one seamless workflow. In addition to giving your business real-time view into spend, it also results in instant reconciliation which accelerates the monthly close significantly.”
Enterprise Times: What does this mean?
Interestingly, there appears little difference between the state of the UK and US finance teams. AP automation is still mainly a manual affair. While some organisations have adopted automation to solve specific problems, the complete end to end AP process is rarely considered. It means that the whole process is still largely manual, with often broken handoffs between systems.
It is this landscape of flawed AP processes that Tipalti aims to solve with its end-to-end AP solution. The research identified the challenges that exist. Will organisations look to invest in Tipalti or other solutions to solve an issue that will only grow worse? For growing companies, it would seem vital to do so. Or, they face growing resource requirements in the back office finance function. Even for existing companies, there are potentially huge savings.