What hope is there to beat friction in accounts payable departments?

Are friction and inefficiencies a permanent fixture of Accounts Payable departments and something that will always haunt the payment process? We know, from our own research, that every year the average business loses thousands of pounds due to clunky payment practices causing friction in their supply chain.

Inefficient and unwieldy invoicing processes affect the productivity and well-being of finance professionals, as well as the business’ bottom line. According to research conducted by Tungsten Network last year among financial decision makers and process owners in large, small and medium-sized businesses, the average business spends around 6,500 man hours a year chasing purchase order numbers, processing paper invoices and responding to supplier enquiries. The research also found that businesses were spending around 55 hours per week doing manual, paper-based processes and checks, 39 hours chasing invoice exceptions and errors, and 23 hours responding to supplier enquiries.

As part of our research, we wanted to dig deeper into the issue and ask finance professionals about their top five friction factors. They identified the high proportion of paper invoices received as well as: too many non-PO based invoices, a high volume of supplier enquiries regarding invoice or payment status and the lack of automated exceptions and lack of automated approval.

In science, friction removes energy from a process and slows down forward momentum – in the context of accounts payable, therefore energy-sapping processes are costing businesses time, money and control over their working capital position.

Eliminating this friction can give businesses a genuine competitive edge. That’s why we wanted to understand the issue better and we have established a Friction Index, looking at what causes friction within procure-to-pay and whether it is more or less prevalent in large, medium or small companies. As we pulled together the index, we were staggered by the scale of the problem and the knock-on effect to suppliers. We discovered that friction is a global epidemic that many companies want to address.

A way forward?

It is time for the digital age to touch the back-office of businesses worldwide, as well as their front operations. Digital transformation is at the heart of overcoming inefficiencies within a business and automating processes will free up valuable time for employees, while eradicating errors and creating a more efficient way of working. Rather than being consumed by processing invoices or receiving follow up phone calls from suppliers, finance professionals can be allowed to explore opportunities for growth with new and existing customers.

Another important element of digitising the payment process is the impact it has in addressing late payment. Late payment is insidious and can have devastating consequences for smaller businesses – in fact, according to our research back in 2015, it is putting one in four firms at risk of insolvency.

Governments worldwide are trying to address the issue and earlier this month, the UK’s Small Business Minister Kelly Tolhurst announced that she wanted to explore the potential for innovative technologies, such as e-invoicing and other accounting software, to help companies manage their back-office processes more efficiently. Digital technology can be the key to eliminating late payment and removing friction from the supply chain.

Tackling late payment

According to our own data, the time it takes firms using electronic invoicing to pay suppliers is improving year on year. Since 2016, it has improved by 14% with payments taking on average 42 days in 2018 compared to 49 days in 2016.

Figures also show the UK is performing much better than the rest of Europe, with payments being made in 42 days on average versus 52 days on the continent but lags one day behind the US. This is tangible proof that companies getting to grips with digitising their back-office are seeing signs of improvement, something that will benefit the UK as a whole.

Room for further improvement

Sadly, too many businesses are still using manual and paper-based invoicing, and there are various sources of friction within procure-to-pay processes. Finance professionals see on a day-to-day basis the many hurdles and inefficiencies. As with all areas of problem solving, identifying and quantifying the issue is the first step to change and that’s why we are keen to create a second Friction Index, building on last year’s insight, which will explore the current state of payments processes and further highlight the pressures that finance professionals are under. To do this, we need your input. If you would like to take part in the research to find the friction in your business (and stand a chance at winning an Amazon Echo Dot), please visit this page.

About Connie O’Brien

Connie O’Brien is Chief Marketing Officer at Tungsten Network. As CMO, Connie is responsible for the Tungsten brand and ensuring the company is at the forefront of the digital transformation of the purchase-to-pay process, with a focus on how we delight our customers through automated, scalable, dynamic and personalised experiences.
Connie joined Tungsten from Affinion Group, an international membership and loyalty company where she was Chief Digital Officer. She has over twenty years’ experience driving digital marketing strategies for businesses, and has delivered campaigns for brands including GlaxoSmithKline, P&G, Kraft Foods, AXA, John Hancock, AT&T, Vonage and Verizon.

About Tungsten Network

Tungsten Network aims to be the worlds most trusted business transaction network by using data intelligently to strengthen the global supply chain. Tungsten Network brings businesses and their suppliers closer together with technology that revolutionises invoice processing, maximises efficiency and improves cash flow.