The Top 5 Finance Trends & 3 Ways AP Can Help Control Cash Outflow in 2023
09-01-2023 9 min read
Economic uncertainty, political discord, and environmental factors all play a part in the market conditions that will continue to shake the business world in 2023. Staying abreast of the current trends in finance will help AP leaders understand how to maintain control over organizational cash outflow over the next 12 months. Below, we’ve outlined the five biggest trends we see for 2023 and three ways the AP department can contribute to a healthy bottom line.
5 Finance Trends That Will Impact Accounts Payable in 2023
While no one knows what the future may hold, current indicators show that the trends that emerged in 2022 will continue into 2023. These trends include rising inflation, talent shortages, growing tax and audit requirements, and the continuing threat of fraud. Best-in-class finance organizations indicate that they are ready to invest in new technology to meet these challenges and support their increasingly complex global business and data security needs. Each of these finance trends will impact the accounts payable department differently.
1. Inflation & Economic Unpredictability
The US and Europe are currently facing very high-interest rates. Consequently, CFOs will look for ways to preserve cash in 2023. Cost-cutting measures will be a top priority, but they may not be enough; CFOs will need to look for savings elsewhere within the business. AP can play an important role in helping the CFO battle inflation and preserve cash by acting as the first line of defense in controlling vendor payments and unplanned spending.
2. Skilled Talent Shortages
The impact of the great resignation can be felt everywhere in the economy, including in finance. According to PwC, 13.2 million people resigned in Q1 of 2022 with mass layoffs continuing in many industries. In this climate, finance teams will struggle to retain highly skilled employees and maintain productivity. Stressed-out and overworked finance team members are also looking for greater job flexibility and modern tools to help them complete tasks in less time and with less effort. Therefore, to prevent critical shortages in 2023, AP should use technology to transform their team from « paper pushers » to a strategic part of the corporate cash outflow machine.
3. eInvoice Mandates and Global Tax and Audit Requirements
After years of prolific pandemic spending and reduced revenues, governments are introducing new tax and audit requirements that, according to EY, finance teams will need to review (e.g., the SEC’s cyber proposal). At the same time, new einvoice mandates will be coming into effect in 2024, in countries such as France and Poland. AP departments will therefore be spending at least part of this year preparing to support these new einvoice formats and tax reporting requirements.
4. Increasing Fraud Risk
Fraud remains a constant threat to global organizations. The Association of Finance Professionals reports that 71% of all organizations were subject to fraud attempts in 2022 and that 58% of all email fraud attempts targeted the AP department. The same survey shows that the risk of fraud increases with the size of the organization and the number of payment accounts being managed, Evidently, AP will need to be vigilant in 2023 to protect their organization from payment fraud.
5. Technology at a Tipping Point
Despite a « soft » economic climate in 2023, Gartner research shows that 69% of CFOs plan to increase their spending on digital technologies. This increase in spend illustrates how critical modernized processes are for delivering real-time, accurate financial data to the organization. The looming deadline to move to SAP S/4HANA by 2027 will also force many AP departments to rethink their existing processes as they go through this period of IT and business transformation
3 Ways AP Can Positively Control Cash Outflow in 2023
As a part of the Procure to Pay process, AP can play an important role in controlling cash outflow – a top priority for CFOs in this economic climate. Here are three things AP can do in 2023 to support those efforts.
1. Focus Digital Transformation on Cash Flow Optimization
Research shows that CFOs are still open to investing in digital transformation. AP leaders, therefore, should collaborate with colleagues across the Procure to Pay process and prioritize projects that will address the CFO’s top concern: cash flow. Three high-value options for maximizing cost savings and optimizing outbound cash flow include:
Increase Process Speed and Accuracy.
Today’s fast and highly accurate, digital invoice capture solutions provide organizations with the earliest possible visibility into their vendor invoices. Digital capture technology works 24x7, which will provide your AP team with fast and accurate invoice data and your Payments team with the pending payment information it needs to control outbound cash outflows. It will even provide your Treasury team with better cash flow forecasting data.
Prioritize automation projects that will deliver the best value to the organization. For example, automating data validation at the start of the AP process can reduce downstream workloads by up to 50%. Robots can use rules to quickly detect and reject duplicate or incomplete invoices as soon as they are received, saving AP time and effort. Similarly, fraud monitoring can also be automated to prevent potential cash losses. Robots can quickly scan large volumes of invoices and flag them for further investigation by a fraud specialist so that organizational cash is protected from fraudsters.
Deliver Results with AP Reporting and Analytics
Digitizing AP processes can deliver a wealth of data to your organization and put key cash flow metrics at your fingertips. Look for solutions that will allow you to measure AP processes in realtime. Then, track and measure every step in the process to uncover friction points. With information on total invoice exceptions, percentage of digital invoices, and time spent answering vendor queries, you will be able to determine where you need to improve processes and invest in future digital transformation initiatives.
2. Optimize Vendor Payments with Effective Communication and Prioritization
Handling invoice exceptions is a time-consuming process for AP, and contribute to vendor payment delays. According to Ardent Partners, even if there is a purchase order in place, almost one-quarter of all purchase order invoices (PO-invoices) have some form of an exception, which the AP department must resolve. Here are some suggestions on minimizing exceptions and optimizing vendor payments in the new year.
Automate and Standardize Vendor Communications.
Vendors just want to get paid, which can lead to them submitting invoices that do not meet your specific policies or procedures. Vendors therefore might send duplicate invoices or omit information that the AP team needs to process an invoice (e.g., PO number, ship to or bill to information) as quickly as possible. If this sounds familiar, consider automating and standardizing responses to vendors whenever an invoice is rejected. The messages should provide clear guidance on why the invoice was rejected and how to fix it. Standardizing vendor communications will gradually train your vendors on how to submit higher-quality invoices so they can get paid quickly.
Optimize Processing for Your Top Vendors First.
Fixing all the problems that exist with vendor invoices can seem like an impossible task. This is especially true if the AP department processes invoices from hundreds of vendors. By optimizing processing for your top vendors, you can devise strategies that work for those vendors and then apply the same strategies to others. Standardizing invoice formats, streamlining purchase orders, or establishing a process whereby vendors submit individual versus batch invoices are all strategies that can reduce the number of rejected invoices and increase the number of auto-posted invoices for each vendor. When top vendors are reliably paid in a timely manner, it will strengthen your supply chain and business partnership – which will be a crucial advantage in this economic environment.
Centralize Communications in a Vendor Portal.
By now, most companies have switched to digital communication (e.g, email) with their vendors, which is faster and easier than using the phone. However, exchanging emails with your vendors can reduce process transparency. The information can be lost in an individual email inbox and difficult to share with others in the AP department or with the vendor or buyer. Using a B2B Vendor portal will centralize all vendor communications in a single location where everyone involved can view the complete invoice history with up-to-date status and payment information so that exceptions can be resolved quickly and easily.
3. Use AP Reporting Data to Create a Corporate Cash-Culture
Accounts Payable has a unique position in the organization because it sees every invoice that passes through it – whether it is for materials, services, or legal fees – the AP department will ensure that the invoice gets paid. This gives AP a very central role in helping build a corporate cash culture that will preserve cash and protect working capital for the CFO. Here are some ways that AP can help the organization be more cash conscious in 2023:
Highlight the Value of Lost Discounts.
Many vendors provide discounts on invoices if they are paid in 10 days or less, yet according to Ardent Partners, it takes an average of 10 days to process an invoice. This means that a good percentage of invoices are being processed and paid after the available discount has been lost. By creating a report that illustrates the value of potential discounts and the actual discounts that are captured, AP can quickly highlight the money that is “left on the table” when invoices are not processed quickly. This type of report can encourage everyone to focus on processing invoices quickly – inside AP and across the organization.
Emphasize the Importance of Fast Approvals and Exception Handling.
Reviewing invoices is not the primary job for people who work outside of AP – the buyers, approvers, master data managers, etc. Hence, AP should explain to those individuals why it is important to quickly approve an invoice or resolve exceptions (hint: it saves money). However, AP also needs to understand the unique requirements of those individuals as well. Perhaps they work in the field and do not have access to the ERP system? Or maybe they just need an automated reminder? Understanding the requirements of everyone will allow you to choose solutions that will improve the process for everyone involved and accelerate cash outflow.
Win Vendors Over by Monitoring the Time to Payment.
After AP posts an invoice, the actual payment to the vendor is made by the Payments team. AP reporting and analytics, therefore, should include key metrics such as Days Payable Outstanding (DPO), which show how long it takes to process an invoice from initial receipt through to payment. This type of AP reporting can clearly demonstrate that the team is working efficiently to provide its vendors with timely payments. Organizations can use this information in many ways: to build trust with vendors, to negotiate better pricing, or to enable CFOs to measure overall process efficiency and cash outflow.
By understanding the impact of these current market conditions and finance trends, and taking appropriate actions, AP leaders can help maintain control over organizational cash outflow. Focusing on AP improvements in these three areas, teams can maximize the value of their digital transformation efforts, optimize vendor payments, and build a corporate cash culture. Embracing these effective changes will elevate the status of the department in the eyes of the CFO, who will see AP as an important contributor to the organization’s healthy bottom line.
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