How AP Automation is Fueling the Era of Strategic Procurement

The role of procurement is more challenging than ever before. The expansion of spending channels and payment methods, a decentralized workforce, and new vendor scrutiny have added complexity to the process.   

Factor in rising inflation, global political unrest, and ongoing economic uncertainty,  and it’s easy to see why organizations are looking for ways to amp up their budgetary oversight. Every excess dollar spent pokes a hole in profitability.  

With the help of automated tools, like e-invoicing, Optical Character Recognition (OCR), and software-based travel and payment solutions applied to the accounts payable (AP) process, organizations can increase control and take a more strategic approach to procurement and spend management.   

Managing Spend with X-ray Vision 

Processing invoices and expenses manually is not only inefficient and error-prone, but makes these expenditures difficult to manage.  There’s always a lag between what’s been spent, what’s been processed, and what’s been posted, with minimal controls built in along the way. Yet, fewer than 20% of organizations have fully automated AP processes, and an astounding 70% of all global invoice processing is still paper based.

By automating the payable process for travel, expense, and invoice, procurement gains the insight to proactively manage all of this spend, wherever it occurs.  That’s a game-changer.  

In an automated environment, procurement can access spend data in near real time, instead of looking at reports after the fact. They can look at the big picture, then dig in on a more granular level — slicing and dicing expenditures by traveler, department, region, and supplier. And they can effectively monitor key performance indicators, like policy adherence and the use of preferred vendors, track fees, and look for pattern changes in specific spend categories.  

In short, data becomes procurement’s superpower — for better supplier negotiation, improved compliance, and more effective oversight of overall spend.   

Bringing Long-Tail Purchases Out of the Shadows 

What began as a lockdown necessity has evolved into an accepted fact of business life for most organizations: not all employees work in the office. So, instead of going to the supply closet for printer paper and inkjet cartridges, or requisitioning equipment and office furniture, many employees are making these purchases on their own.  

Historically, this long-tail spend — low-cost, high-volume indirect expenditures made directly by employees, from a broad range of non-contract vendors — has had little to no procurement oversight. But, if left unchecked, that blind spot has the potential to cause some serious budgetary damage.  

Those little purchases can add up fast.    

“We’re seeing more and more long-tail spend ending up on expense reports, simply because the volume of this spend overwhelms the AP department,” explained Jeanne Dion, Vice President of the Value Experience Team at SAP® Concur®. “With AP automation, organizations can actually move this long-tail spend off the expense report and into the proper channel, like a purchasing card or an invoice, so, it can be actively managed.” 

This comprehensive view of where and how dollars are being spent enables procurement to more easily spot trends around these types of purchases, and uncover opportunities for vendor consolidation and preferred pricing. They can also standardize and align approval workflows to ensure that only those individuals with the delegated authority to execute certain contracts or approve certain dollar amounts and types of expenses can approve them. This greatly reduces the risk of maverick spend and fraud. 

Positioning for a Changing Business World 

Spending less time aggregating data and more time analyzing it, procurement can develop a more holistic vendor strategy — one that extends beyond contracted cost per item.   

For example, many companies have launched extensive corporate programs around sustainability to meet growing consumer and shareholder demand. But, according to McKinsey & Company, about two-thirds of the average company’s environmental, social, and governance footprint lies with its suppliers.2 So, to be successful, the initiative has to extend throughout the organization’s value chain.  

As a result, more procurement teams are now vetting suppliers’ carbon footprints, looking at their use of renewable energy, their manufacturing process, and their commitment to green initiatives. They’re also increasingly reviewing supplier diversity programs and inclusion efforts, as well as actively seeking out more qualified, minority-owned vendors.  

By automating now, and creating an integrated, end-to-end finance workflow, organizations will be better positioned to add new automation tools for contract management, e-sourcing, and sustainability tracking in the future.    

Big Paybacks in Cost Savings, Compliance, and Time 

While we’ve focused on the strategic spend management benefits that come with AP automation, the inherent operational benefits — and associated cost savings — are impossible to ignore.  

Automating AP reduces processing time by an average of 16%, and decreases invoice processing costs by an average of 29%. When you consider the fact that it costs approximately $9.25 to process an invoice (According to 2022 research by Ardent Partners), it’s easy to see the savings potential.  

Building audit rules within the automated process also has a bottom-line impact, delivering an average cost savings of as much as 20% just by reducing the incidence of non-compliant spend. 

At the same time, because the AP process is faster and more streamlined, there are fewer late payments, missed discounts, and errors. When it’s time for an audit, all the information you need to hand off to your auditors is only a just a few clicks away. 

It’s hard to find a downside.  

The Perfect Storm for Change 

If you’ve been waiting for the “right time” to put your AP automation initiative into action, that time is now. 

“AP automation has the power to increase operational efficiency, visibility, and control, all while enabling organizations to be more strategic and intentional on where and how they spend their money,” Dion said. 

In today’s business environment, that’s a value proposition that every organization can get behind. 

For more on how your organization can automate AP for increased efficiency and oversight into procurement, read our whitepaper and listen to our podcast.