Accounts payable – shocking waste revealed by new research

Accounts payable – shocking waste revealed by new research

Posted by Pete Loughlin in Dynamic Discounting, e-invoicing, Electronic Invoicing, Financial Supply Chain Management, Intelligent Data Capture 22 May 2011

Purchasing Insight logoWe all know that manual processes are inefficient. We all know that the use of paper based business processes is increasingly becoming an anachronism in the 21st century and we all know that AP automation is a good idea. But have you ever stopped to consider how much money is being wasted by not taking action?

According to a recent report by Aberdeen’s Scott Pezza, the amount of money wasted in some organizations who fail to adopt best practice is, by any measure, shocking.

While the best in class estimate that it takes on average 3.8 days to process an invoice and cost $3.09, the poor performers – the bottom 30% of survey respondents – take over 20 days to process an invoice at a cost of $38.77 – that is more than 10 times the cost of the best. Even for a medium sized organization processing 100,000 invoices per year that represents a annual leakage of over $3.5 million.

In any other sphere of business, this level of waste would be seen with crystal clarity as incompetence and the board members responsible would be fired. Why are CFO’s being let off the hook?

AP automation opportunities

This report may be seen as overstating the issue. The potential savings achievable through AP automation in the report are significantly higher than other benchmark research would indicate but let’s not underestimate the implications of this report. Whether a medium sized business is allowing $3m or $1m to leak out of it’s business each year is irrelevant because it is still too much.

Awareness of the AP automation opportunity is gaining significant momentum and associated initiatives like dynamic discounting and supply chain finance are gaining traction. Document management techniques to support the role out of electronic invoicing are maturing to a point where scanning, OCR and intelligent data capture is now a credible component  of an AP automation strategy.

Any organization that can identify itself in as a laggard as far as AP automaton is concerned needs to urgently assess the level of waste in its AP function and put plans in place to join the leaders in account payable best practice.

Scott Pezza’s report is available for free download here

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