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Why Executives View Wasteful AP with Increasingly Urgent Concern

Here are a few key takeaways from this blog post:

• AP automation could reduce the cost of generating one invoice from above $11 to less than $2
• Billing schemes and check and payment tampering are among the leading types of occupational fraud, and automation could greatly reduce instances of these
• Duplicate payments might be inadvertent, but they account for 1.3% of all invoices and average more than $2,000 each; this can also be eliminated by intelligent AP automation
• AP automation leads to other benefits of improved cash management, such as realizing discounts, avoiding late fees, lower cost of capital, less compliance risk and overall improved relationships with vendors and suppliers
• Virtual credit cards are among the many examples of AP automation tools that can reduce transaction time and cost

Accounts Payable: A burning platform fueled by burning money

Accounts payable is the place where revenues become expenses. Nobody in the C-suite likes to talk about it much. More and more, though, executives are coming to see AP as an opportunity to remove inefficiency and error from their companies’ financial controls. We’ll look at four reasons why AP automation has been put on the front burner.

1. Cost per invoice savings
Over the past year, the typical company’s AP unit cost has gone up 8%. It now costs on average $10.89 to process a single invoice, according to Boston-based research and advisory firm Ardent Partners, a number that can be significantly below $2 for leading-edge AP automation platforms like Scrypt AI.

Another way of looking at those numbers: Being average at AP costs you $9 per invoice. A full-time AP clerk processes about 1,000 invoices per month so that’s $9,000 lost in the process every month, or $108,000 a year. That’s about triple the clerk’s salary.

2. Fraud detection
The Association of Certified Fraud Examiners says that fully 5% of corporate revenues end up in the hands of fraudsters — probably more because that’s just the fraud they can prove. We don’t need a such an august global consortium to tell us that AP processes are among fraudsters’ favorite funnels. Nine out of 10 occupational frauds are due to asset misappropriation, of which billing schemes are among the most frequent and the most lucrative. They occur three times more frequently than payroll scams, and each one is likely to yield the perpetrator five times as much as if they were pilfering money out of the petty cash account.
And yet, billing schemes aren’t the biggest fraud problem businesses around the world face. The average cost per breach of $100,000 is eclipsed by the $150,000 loss on each instance of check and payment tampering.

Billing schemes involve payments made for fictitious or inflated services. Check and payment tampering is a little more ambitious. The employer’s funds are intercepted via a forged or altered check or electronic payment drawn on one of the organization’s bank accounts. While this need not be an intended payment to a vendor, it very often is. So a more fraud-resistant AP regimen would significantly cut down on check and payment tampering as well as on billing schemes.

3. Preventing duplicate payment
“Never attribute to malice that which is adequately explained by stupidity.”
That quote, which has been around in some form for 300 years, is known today as Hanlon’s razor. And it perfectly describes the non-fraudulent cash leakage from paying a single invoice twice. According to American Express, duplicate payments result from data entry errors, invoices received or paid via separate channels, software glitches and any number of other honest mistakes. Regardless of the cause, though, it’s very tough to get money back from a vendor once the check clears.

“If your small or midsize business is like most, you could be throwing away as much as $12,000 a month — money that could be spent on staffing, resources, innovation or any number of impactful investments,” according to an SAP report that finds 1.3% of invoices are duplicated, and the average value of a duplicate invoice exceeds $2,000.

4. Better cash management
In addition to plugging these big holes, AP automation just makes the whole process run more smoothly. That said, there are still some cost savings to be had. A company can realize more discounts for early payments, for example and, by the same token, avoid late fees. Improved cash flow forecasting could lead to fewer and shorter cash crunches and, as a result, short-term, high-interest bridge loans can be avoided.

While it’s hard to quantify the what-ifs related to AP compliance issues, they do exist. According to Boston-based management consultant Jon Casher, multiple layers of government have mandates to regulate records retention, independent contract reporting, denied party controls and taxes paid.

Ultimately, though, improved supplier and vendor management is its own reward. Keeping upstream stakeholders happy is just good business. You can’t put a price on reduced aggravation.

5. Books of virtuals
AP automation is not a magic wand. It’s more like a toolkit packed with magic wands.
You might be surprised how unpacking just one could take friction out of the process. Virtual credit cards, for example, enable enterprises to pay in near-real time at near-zero transaction cost. Moving to VCCs would allow a company that still prints and mails checks to leapfrog past those that use wire or automated clearing house transfers. Which is a good thing, considering the expense of wires and slow pace of ACH.

According to a Deloitte survey, respondents found VCCs to be 82% faster and less than one-third as expensive than traditional payment methods. All that aside, they also found improvements to their financial controls, reporting and credit approval processes. And that’s just the payers’ side.

The payees are just as impressed, with the majority noting less effort in chasing payments, better customer relationships and improved reconciliations. They reported getting paid 73% faster while their accounts receivable costs were cut almost in half.

Beyond VCCs, there are more automation tools. Beyond AP, there are other corporate accounting and finance processes that could benefit from them. If you’re still sending out paper checks, consider making your last one out to a firm that can implement such a suite.