Financial services should prioritize accounts payable digitalization

June 1, 2020 Alexa Bradley

It’s been over a decade since the last financial crisis, and financial services firms again find themselves under intense pressure. Almost overnight, the market turmoil caused by the Covid-19 outbreak has put the industry’s focus back on securing cash flows and minimizing risk. 

A lot has changed since 2008, and financial institutions are today better capitalized and more closely regulated. FinTech has already disrupted many traditional financial services business models, and this looks certain to continue as new products and services continue to be launched at pace. 

At the same time, digitalization of many back-office functions has so far been overlooked.

Accounts payable is one of these areas. 

A recent survey by IDG Connect, ‘The digital transformation delusion: are financial firms really changing for the better?, took a close look at what large and mid-size financial services companies across Europe are doing in the accounts payable area, and what their plans for the future are. 

Going electronic doesn’t equate to digital transformation

The survey provides strong evidence that financial firms have focused most of their AP digitization efforts on making existing processes more efficient, rather than on transforming them. The top three digital transformation objectives given by the respondents were improving process efficiency (42 percent), reducing cost (42 percent), and reducing time to approve invoices (40 percent).

This focus also shows in the technologies that companies are investing in. For example, 56 percent are streamlining their invoice recording process using tools like OCR. As one finance manager at a Danish insurance company said: “We are updating the invoice scanning system to ease the automation process and have adopted a combination of hardware and software systems that work to reduce manual tasks.”

This, in theory at least, reduces some of the pain associated with receiving large volumes of paper invoices. 

However, it brings us to a much bigger issue. According to the survey, there’s a perception that introducing tools such as OCR equates to digital transformation.

While these technologies can help bridge the gap between paper and digital, they are unlikely to have a major impact when it comes to digitally empowering users and transforming the role of accounts payable within the business. 

Reinventing the role of accounts payable in financial services

A fully digitalised accounts payable function is the perfect springboard to reinvent the procure-to-pay (P2P) process and beyond. With the ability to collaborate and transact in real time across a network of suppliers, banks and other financing partners, companies can take maximum advantage of early payment opportunities and optimize their working capital. 

These benefits also extend to sellers. This is important, often a lack of seller engagement limits the success of accounts payable transformation projects. But with faster invoice approvals and direct access to multiple financing possibilities, suppliers stand to gain just as much. All of this helps to build trust and strengthens the overall customer-supplier relationship, paving the way for better collaboration and more innovation. 

Better decision making

Just imagine if all the data and information that passes through the accounts payable department could be harnessed and made available for analysis. Up-to-date information about every supplier, every contract, every invoice, discounts, legal terms and delivery performance—all in one place. 

Now imagine the knowledge you could extract if you could effectively analyse this information. Not to mention the value these insights could bring if shared within the company. What if you could query every supplier in your network in real time, and find the best option for your specific need? What if you had a complete picture of your spending patterns? The potential is huge. However, the survey showed that only a minority of companies—36 percent—considered access to data to support better business decision-making to be one of their main digital transformation objectives. 

A finance manager from a Danish insurance business shared his outlook: “The areas we believe need to be resolved are losing invoices, data breaches, continuity problems, complex invoicing and time-wasting. In the future, AP automation will allow us to predict financial outcomes, make better business decisions and bring transparency to the department.”

So what’s holding accounts payable digitalization back?

The business benefits are clearly there, and not just from a cost-saving perspective, but also from a more strategic and growth point of view as well. The technology needed to make it happen is already here too, including all the services needed, such as supplier on-boarding. 

So why is the digital transformation of accounts payable not progressing at a faster pace? Why are financial services companies still focussing resources on isolated, department-specific projects, instead of on delivering an end-to-end supply chain payment solution? 

According to the IDG Connect survey, the vast majority of financial services executives agree that digital transformation will significantly change the role of AP in their company in the next five years. Add to this the unprecedented level of global uncertainty due to the COVID-19 crisis, and there’s now a clear need for this timeline to be accelerated.

However, it is equally clear that the urgent need to transform accounts payable is not yet backed up by investment in truly transformative initiatives. Until senior management is fully on board and understands the strategic value of an integrated AP function, this will remain the case.

Download your copy of the IDG survey to find out exactly what your financial services industry peers are doing with regards to AP and P2P transformation, their goals and priorities, and where they struggle to make a difference.

About the Author

Alexa Bradley

Alexa Bradley is the Regional Vice President of Enterprise sales for Tradeshift. Alexa is based in Denver and is responsible for managing a team of sales professionals for western US and Canada. Alexa has over 20 years of industry experience, specifically expert knowledge of software practices in the F&A and P2P space. During this time, Alexa built several sales organizations from the ground up, improved brand awareness and was publicly recognized on multiple occasions for customer excellence and sales performance. Alexa is originally from the hill country in Texas but now calls the mountains home.

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