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3 Factors That Shape AP Into a Modern, Strategic Function

BY: By Billie 'Akau'ola and Leann Taylor | 08/30/22

Traditionally, accounts payable (AP) has been viewed as a tactical invoice processing function, excluded from automation initiatives, or having some processes improved as an afterthought until the COVID-19 pandemic revealed AP as a critical function for survival. Before the pandemic, businesses commonly managed higher-than-usual invoice volumes or seasonal challenges with additional labor. In such cases, managers commonly use more nonexempt labor while trying to control related overtime hours. These additional AP staffers often execute manual processes rife with re-work and redundant processing within the everyday workflow.

Today, AP functions need to reassess these often inefficient approaches to resourcing, with labor shortages and remote workforces showcasing the importance of AP automation and digitalization for workflow continuity. These factors provide a great opportunity for businesses to move beyond tactical activities and create a modern, strategic AP function. This can be achieved by the following practices, which include:

  1. Leveraging a remote workforce and digitalization for resourcing
  2. Using automation to reduce manual processes and enable digitalized procure-to-pay (P2P) and source-to-settle solutions
  3. Drawing on business intelligence to make data-driven supply chain decisions about cost reduction, vendor consolidation, payment terms, and inventory levels

Embracing a Remote Workforce

Businesses have become increasingly comfortable employing a remote workforce to overcome the labor shortages brought about by the pandemic. Remote work trends are likely to continue for the foreseeable future. According to a CNBC poll that was published in December 2020 and updated in February 2021, an estimated 36.2 million Americans will continue working remotely through at least 2025. This is an 87% increase from pre-pandemic levels. As a result, there has been an influx of organizations opting to hire either remote or freelance labor. According to a future workforce report published by Upwork in December 2020, the COVID-19 pandemic accelerated the use of freelance labor. While this labor force is a growing trend that management can tap into when facing resource constraints, over half of hiring managers are stretched, according to an Upwork survey. The need to keep up with digitalization, growth projects, and the rising volume of invoices that have accompanied the reopening economy are favorable to a remote working environment. While leveraging a remote workforce, AP departments can expect an increased volume of invoices, along with more freelancers, independent contractors, self-employed workers, different reporting requirements, and other changes they will need to accommodate. Despite the associated complexities of these changes, it will be important for organizations to find modern, relevant ways to bolster the workforce considering remote work expectations and the tight competition to attract labor.

Modernizing AP Processing Through Automation, Digitalization

Digitalization has also accelerated during the COVID-19 pandemic. AP departments can embrace the increasingly digital world by investing in automation and implementing tools to modernize their AP processing.

Automation reduces manual and paper-based AP processes that are cumbersome and carry risks of human error. For example, P2P and source-to-settle solutions can be automated to modernize a company’s processes. These solutions have existed for some time now, but they have most commonly been implemented and used by enterprise-sized organizations with more than $1 billion in annual revenue. Meanwhile, middle-market companies with $50 million to $1 billion in annual revenue and smaller organizations with less than $50 million in annual revenue have typically continued using manual structures for some processes or have used individual best-of-breed tools to manage each step along the way. Businesses using best-of-breed tools may employ technology solutions that are not fully integrated and rely on third-party plugin tools instead of a homegrown custom-tailored technology solution or enterprise resource planning (ERP)-based software. Regardless of the technology solutions that fit a company’s needs, investment and implementation initiatives should center on automating manual tasks, reducing manual errors, and enabling remote workers. This will help AP professionals to focus on more strategic work and adding more value to the business. In a constrained labor market, the right technology investments could also ensure that AP workers desire to remain at a technology-enabled company rather than move on to another organization that prioritizes a modern workplace experience.

Business-to-business (B2B) payments, in particular, are expected to become a strategic business process that modernized organizations will implement. According to the ACH Network, B2B vendor payments increased by 11% in 2020. By contrast, manual, paper-check-initiated ACH payments declined by 21%. AP organizations can expect high adoption rates for electronic payments on the ACH network to continue in the years to come.

Developing Business Strategies Using AP Data

AP functions have access to large amounts of vendor spend data. Modernized businesses capitalize on this data by using business intelligence (BI) to monitor what items are being purchased and the associated costs. BI can help bring order to unstructured data to efficiently discover insights, track metrics, identify trends, and influence procurement strategy development. For example, a company’s AP data could be used to determine that its business gets better shipping rates if procurement places an order before a certain date each month, enabling the company to adjust its purchasing accordingly. The data may also determine if raw materials and supplies are being purchased at different prices from the same suppliers, allowing a company’s procurement team to work with suppliers to negotiate lower rates. Businesses can expect more AP functions to work cross-functionally with procurement functions as a result of the accelerated digitalization that occurred during the pandemic. These functions can collaboratively implement and use BI to identify opportunities to reduce costs, consolidate vendors, and negotiate payment terms, or other favorable items such as cash back rebates from vendors.

Businesses can also expect AP functions to work more cross-functionally with supply chain functions, using BI to create cash flow analyses that influence supply chain strategies. Businesses that are strategically leveraging their AP data will be better equipped to develop and execute plans to avoid customer-facing supply chain disruptions the economy is already experiencing. For example, if a company uses a just-in-time ordering strategy, it will often maintain a low level of inventory to save on costs. However, supply chain shortages can cause disruptions to just-in-time inventory strategies and lead to increasing stockout rates, unfulfilled customer orders, and ultimately decreases in revenue. To mitigate these risks, AP functions can work cross-functionally with supply chain counterparts by using AP data to model various inventory levels’ impacts on cash flow. This allows organizations to forecast the appropriate amount of available inventory to avoid stockouts and maintain profitability. AP professionals can expect to become a strategic function and provide visibility to the financials that will improve cash flow and the planning process. This will require having clean, structured data that can serve as the source of truth. Businesses can achieve significant, positive returns by defining and deploying these strategic approaches to AP. By aligning goals and KPIs with how, when, and where money is spent, businesses can prioritize their efforts on the most beneficial areas that will drive the organization’s overall health and sustainability.

Ultimately, using automation, data, and a sound BI approach across an organization will help elevate the role of AP from a tactical player to a strategic business partner. Using technology to enable more efficient work and appeal to an increasingly remote workforce and freelance AP talent pool will also help companies proactively address ongoing labor realities. These modern elements will ensure AP leads the charge for driving new value within an organization, optimizing payments and vendor management, and avoiding supply chain disruptions while tapping into the needs of the emerging workforce.

Billie 'Akau'ola is a Director at national business advisory firm Riveron, where she leads client service efforts and business performance improvement initiatives. With 14-plus years of experience with business transformations improving clients' finance, accounting, and supply chains, Billie has managed project portfolios for public and private companies across many industries including energy, chemicals, consumer products, manufacturing, healthcare, and financial services. 

Leann Taylor is a Senior Associate at Riveron focused on business performance improvement. Her experience includes organizational and process design, procure-to-pay and order-to-cash process improvement, working capital optimization, and strategic sourcing.