Editor’s Note: Today’s article is a sneak peek into the findings from Ardent Partners’ latest AP research report, “ePayables 2016: Eyes on Prize,” available for download here. Throughout June and July, CPO Rising will feature several articles highlighting key discussion points from the new report.
Moving to the “next level” of performance is not an easy journey for the accounts payable (“AP”) team. The central nature of the function to enterprise operations means that pushing AP to a higher level is often a multi-stage, multi-year project involving numerous moving parts and extensive pre-planning. Transforming the AP function is often further exacerbated by the multiple stakeholders involved (including the CFO and CPO), and the differing goals each brings to reshaping the accounts payable process.
Why AP is Positioned to Move to the “Next Level”
AP has become well-positioned to ascend to a higher level of performance in recent years because of a combination of factors. First is that many AP teams have eliminated paper from the front end of the invoicing process, which has driven increased efficiencies throughout the approval workflow. There is only so much to be gained from increasing process efficiencies, however, and a new recognition that AP can offer value in the form of operational and financial data has taken hold in many enterprises.
Executives are consistently searching for more data to support business decisions, and this has resulted in them seeking to improve back-office functions to extract additional value. These forward-thinking organizations have realized that AP possesses significant financial and operational data, and in the face of the new attention AP teams have begun to build out their capabilities. This has resulted in AP slowly gaining more influence outside its historical role as an invoice processor, which in turn positions the function to reach a new level of performance.
What is the “Next Level” of Performance?
The “next level” of AP performance can mean different things to different organizations. Key characteristics of next-level AP performance, however, include deep collaboration with functional partners as well as involvement in strategic business decisions, such as cash management and operational intelligence. Collaboration can also take a few forms; between procurement and AP, it takes the form of information-sharing, which can help each function through increased data visibility on both sides. Collaboration between AP and treasury most often takes the form of deeper AP involvement in cash management. Consider that supplier payments are often the largest single non-payroll cash outflow in the enterprise. If supplier payments are integrated into treasury’s working capital optimization plans, and managed effectively, then AP can drive significant cost savings to the bottom line and play a key role in cash management.
AP teams that have achieved the “next level” of performance also drive value through providing financial and operational intelligence. AP’s unique position in the enterprise makes it possible for the function to provide intelligence that can support cash forecasts and financial planning, as well as play a role in supplier performance management and supplier rationalization. AP teams that recognize this aspect of the function have made a concerted effort to develop these capabilities, as well as increase visibility into the data the function regularly collects.
AP as a True Strategic Partner
To truly reach a higher level of performance, AP must become a strategic business partner for its functional peers in procurement and treasury. This is especially true for the interaction between AP and procurement, as these two functions occupy the two sides of the procure-to-pay (“P2P”) workflow—a key internal process that can drive enormous operational value to the enterprise. Similarly, a closer connection to treasury can showcase AP’s value in the financial arena and lead to an acknowledgement that AP is a key piece of the enterprise’s cash management strategy.
Building on these connections is vital if AP truly wishes to climb to the “next level” of performance. Treasury and procurement more often have a direct connection to executives, which means these departments could be valuable advocates for achieving AP’s future goals. As AP integrates more closely with these functional peers, it becomes more likely that it will garner the executive support necessary for future transformation projects.
The AP teams that can build close relationships with functional stakeholders, garner critical executive support, and have the capability to transform raw data into financial and operational intelligence are well-positioned to evolve from the tactically-focused days of the past and into a future of deeper strategic value.
Download the ePayables 2016: Eyes on the Prize report today (click here) for more about the state of the AP marketplace and how the function can improve in the years to come.