"It's the Money, Stupid!"

Wednesday, August 06, 2014

During Bill Clinton’s first campaign for president, his advisors famously hung signs in his campaign headquarters that read, “It’s the economy, stupid!” Clinton’s advisors did not want staff to become distracted by marginal campaign issues, and lose sight of what would truly motivate voters that year.

Clinton’s winning campaign strategy offers a lesson for accounts payable (AP) professionals.

Many AP professionals bemoan the difficulty of getting automation projects approved by the C-suite. Only 22.8 percent of AP departments currently have a high level of automation, according to IOFM’s 2013 AP Department Benchmarking and Analysis. Tight capital budgets are partly to blame for stalled AP automation projects. But the primary roadblock is that most proposals emphasize the departmental benefits of AP automation (a marginal consideration for the C-suite), rather than the technology’s ability to help organizations optimize working capital management (the C-suite’s top priority). Seventy-five percent of CFOs at best-in-class companies identify liquidity management as their top job priority, according to 2013 research by research and advisory firm Aberdeen Group. Similarly, cash flow analysis is the top job priority of 70 percent of CFOs at best-in-class companies.

That is why it is shortsighted for AP professionals to focus automation proposals on the technology’s operational benefits. To be sure, AP automation results in lower costs, better accuracy, less paper, higher efficiency, reduced headcount, and improved auditing. But these benefits pale in comparison to the working capital value that the C-suite is looking for. In fact, Bavelos Group estimates that 80 percent of the value of AP automation comes from improvements in working capital management.

Automating AP optimizes working capital management in several ways:

  • Automated vendor onboarding to facilitate increased electronic payment adoption and new discounting and financing opportunities
  • Faster invoice cycle times with fewer late payments and more early-payment discount opportunities
  • Accelerated resolution of disputes through powerful tools for automating the validation of invoices and facilitating online collaboration between trading partners
  • Integration with any legacy ERP or financial system for improved financial visibility and reporting, including AP cash flows, AP process metrics, and financial KPIs (e.g. DPO)
  • Robust spend analysis and category spend and volume intelligence for contract compliance, supplier rationalization, supplier performance, and more informed buying decisions
  • Enhanced trading partner relationships resulting in lower cost of goods

Aberdeen Group finds that AP automation enables best-in-class companies to achieve an 87 percent rate of visibility into overall organizational cash flow on a daily basis, a Days Payables Outstanding (DPO) rate of 22.3 days (13.4 days better than laggards), and a Days Sales Outstanding (DSO) rate of 25.8 days (8.6 days better than laggards). Importantly, AP automation can deliver millions of dollars annually in discount capture opportunities for large companies, according to Bavelos Group.

Compared to incremental operational improvements, these working capital improvements are far more likely to motivate C-suite executives to get behind an AP automation project.

So if your organization is campaigning to automate AP, remember: “It’s the money, stupid.”