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The Three 'C' Pressure Points for AP Payment Errors

BY: Tom Flynn | 06/29/21

In the late 1990s when I was getting started in the recovery audit industry, I was warned that duplicate payments were a dying breed. Innovations coming out of companies like Oracle, SAP, Lawson, PeopleSoft, and other enterprise resource planning (ERP) platforms promised advancements in screening software that would all but eliminate the possibility of duplicate payments as well as many other payment errors. In addition, ePayables solutions were just coming to market which helped companies move off paper and reduce cost per transaction while also promising a reduction in duplicate payments and other payment errors.

Around the same time, several large professional associations began to take shape and established a series of regional chapters and national conferences. I began hearing that emerging networking opportunities would soon help accounts payable (AP) professionals to spread game-changing best practices. Based on critical improvements in naming conventions, vendor on-boarding, payment processing, and other functions, we would soon see the elimination of a host of payment error types.

Eventually, the mid-00s ushered in a wave of outsourcing, and the new story was that these very affordable outsourced groups would provide AP leadership with the necessary manpower to drive new levels of quality assurance (QA) and, as a result, human error would now be reduced to a statistical zero. Unfortunately, errors continued, and in some cases, they became worse because companies were now laying off knowledgeable staff, adding communication style barriers, and miscalculating the cost of change, among other issues.

At about that same time, several service providers joined in with preventive software that would identify all the errors that remained—even after the ERP scans, best practice improvements, and army of QA personnel. Many of the solutions worked, with the caveat that you didn’t mind wading through a large number of false positives and potentially running the risk of freezing a critical payment and then going on hold with a critical vendor.

We now find ourselves in 2021, and a new narrative about artificial intelligence (AI) and machine learning (ML) is sweeping through back offices in enterprises across the country and the world. The promise of robotic process automation (RPA) has the AP world feeling hopeful, once again, that payment errors could finally become a thing of the past.

In parallel with all these advancements over the past 25 years, the recovery industry has still managed to grow steadily. That has happened despite average recovery fees reducing over time due to automation and competition.

So, the question is, “Why?”

Why is the recovery audit industry still relevant after all these years? Why are the largest industry players still comfortably benchmarking .1% in recovery against a client’s annual spend? (Or in simpler terms, $1 million in recoveries per every $1 billion spent on an annual basis.) This is the same number we were quoting back in the 1990s.

To begin to understand, we must first acknowledge that the AP group is not the problem; it never has been. For a recovery audit to drive savings of .1%, a client’s payment process must operate at 99.9% efficiency. Considering what’s involved in the procure-to-pay (P2P) cycle, that number is nothing short of miraculous, and AP departments are to be commended.

I understand that some Six Sigma purists would like to see that 99.9% accuracy rate jump up to 99.99966% but achieving that “next level” of accuracy is unrealistic, bordering on impossible, given the external factors impacting the entire P2P process. And no factor is more disruptive than a specific set of pressure points—complexity, compliance, and change—also known as the “three Cs.”

The Accuracy Ceiling

No matter how many new systems you put in place, nor how many vendors or consultants you engage to eliminate payment errors, the issues will persist due to growing levels of complexity; ongoing pursuit of compliance with controls and regulations; and a constant precession of changes facing the AP department. Let’s explore each of these pressure points separately with the following:

  • Organizational Complexity—Large organizations are complex. In many instances, multiple divisions are doing their best to act as one single company with a set of uniform controls. Unfortunately, and almost without fail, some amount of autonomy within one group will give rise to exceptions—and this process repeats until it has reached a point of impossible complexity for everyone.

Additionally, every company must maintain a series of unique contracts and relationships with each and every unique employee, vendor, customer, partner, investor, director, regulator, auditor, and the list goes on. As much as we wish there was only one single method of interacting with any member of these groups, there are many. In most cases, there are too many of which to keep track, and the complexity can be debilitating.

Finally, no discussion of complexity could ever be complete without mentioning automation systems and database protocols. Most large environments house several different systems and sets of data. Mastering the use of each system is difficult, to say the least, and understanding where the most current data resides, let alone the single source of truth, is impossible.

  • Ever-Present Compliance—Large organizations can often feel suffocated by the compliance required of external regulations as well as by internal controls. The task is difficult because staffers are often required to specialize in a system for which they have been under trained. Add to the situation that they are also asked to comply with issues for which they do not have the proper context or legal training. Despite the difficulty of these activities, AP staffers are expected to perform with precision or they may incur penalties and fees.

In some cases, the failure to meet regulations can also result in a de-regulation of some sort or the wrong key stroke may land a company on an excluded parties list. In extreme cases, the failure to report sensitive items correctly can potentially land a staff member, or more likely an executive, in jail. These instances are few and far between, but with the stakes so high you can start to understand how maintaining a 99.99% accuracy rate is an incredible feat.

  • Change, Internal and External—Change is the most ubiquitous pressure point on the list. Change occurs so frequently that you may have become numb to the impact it has on achieving goals in an AP department—to pay the right party the right amount at the right time.

Daily, AP team members are faced with the fallout from mergers, acquisitions, divestitures, and more. True, a company may not be directly undergoing this type of activity, but it is likely some of the company’s vendors are going through these changes, making it nearly impossible to remit to the correct address.

Change also occurs at a department level. New employees show up at regular intervals to fill retirements, firings, and other employee departures. New internal and external systems are rolled out all the time, and adoption of these new technologies is expected to happen quickly. Departments are restructured, management changes, payroll systems change. New vendors are brought in whether AP prefers them to the old vendor or not. As the old saying goes, “the only constant in your AP department is change.”

I should also add that in the past year we have been introduced to an altogether new “C,” and that is, of course, COVID-19. In truth, COVID-19 may just be a vehicle for delivering even more complexity, compliance, and change to an AP environment, but regardless of how you look at it, the global pandemic has become another pressure point that will likely have you suffering even greater financial leakage for the foreseeable future.

Monitor the Three Cs

The last 25 years has taught us that no matter how many new systems you put in place, nor how many vendors or consultants you engage to eliminate payment errors, the issues will persist. Your only true opportunity to steadily improve your process is to address costly external factors that are challenging your process.

The most critical factors to monitor are the levels of complexity that challenge your AP department daily; your AP department’s ongoing pursuit of compliance with controls and regulations; and finally, the constant procession of changes facing your AP department.

Tom Flynn is Vice President of Marketing at SpendMend. Prior to his current position, he co-founded Lavante, where he served in sales and marketing leadership roles before selling the firm to PRGX Global in 2016. He was tagged a Top-100 AP Influencer in 2020 by the AP Association.

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