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Accounts Payable

The Important Shift to Strategic Accounts Payable

on October 30, 2020

A significant shift is underway in the world of Accounts Payable, as the department moves from a processing department to an essential financial analysis team. As such, AP's value to enterprise has never been higher; 55% of all businesses rate AP as either "very" or "exceptionally" important to organizational operations, according to Ardent Partners' study, Accounts Payable Metrics that Matter in 2020.

It's a rise built on the back of technologies that reframe the role of the AP Processor.

Historically, the AP processors' role centered around the execution of payments flowing out from the company. Risk management teams later performed cursory analysis on about 5-10% of the processed total spend, in the form of sample audits.

Those audits catch around 1% of all the mismanaged spend. They provide a snapshot of things that have already happened, and they organizations what they already know: that there are occasional errors in vendor payment taking place. Those errors, it turns out, occur at a predictable rate of 0.5-1% of spend.

It sounds like a small number, but one percent of $1B is a hefty $10M lost to error, a dollar figure large enough to give life to the entire recovery audit industry.

Large organizations understandably do what they can to retrieve the money lost to errors in vendor payments. They recover what they can through internal audits, and they hire external recovery auditors to provide secondary audits across payables. Those organizations identify a more comprehensive picture of duplicate payments and lead the effort to get money back.

But these companies work on a contingency fee. They charge 10% or more of recovered money as a finder's fee. Suddenly, $10M in duplicates costs $1M to get back, and there’s no effort to identify the root cause of issues and fix the problem once and for all.

Today, organizations with the right tools are empowered to dismiss recovery audit teams with in-house tech.

With the right tools, organizations can stop payment problems before they happen and easily identify the source of the problem whether it’s a particular vendor or a process breakdown, for example.

Today's technology has grown to allow organizations to monitor and analyze 100% of spend near real-time. These tools allow for every transaction to be assessed automatically for errors and risk and to be flagged for review in advance of fraud, misuse or waste.

With purpose-built, AI-driven technology solutions, organizations today can quickly scan large volumes of data from multiple source systems to identify, prioritize, and mitigate otherwise undetectable risks, transforming their AP processes' effectiveness. It's a set of capabilities that is fundamentally reshaping the role of AP from clerical to strategic.

The automation of so many once manual tasks frees up talent, giving AP the time to analyze data, build process improvement, stave off threats posed by fraud, and prevent future misuse and abuse of company funds in advance. The organizations that have already undergone this transformation from clerical to strategic in AP are using data monitoring and analysis to detect fraud 58% faster.

And importantly: where once these organizations spent a million or more dollars in recovery audit, today they spend zero. Setting aside the money saved from recovery auditors and only comparing the technology costs against regained revenues, these in-house spend management programs typically show ROI in 3-6 months.

But, it's still an emerging effort. Only 60% of organizations have implemented AP tech to drive analysis or automation, per Accounts Payable Metrics that Matter in 2020. This statistic suggests that billions are still needlessly lost each year in fraud, misuse and waste, and millions more in fees to recovery auditors.

And so, the mission remains to educate organizations and leaders. If your organization isn't utilizing AI to redefine AP, or if you still hire recovery auditors to track down your fraud, misuse and waste, give us a call.

Nathanael L’Heureux

Nathanael L'Heureux is Vice President of Solution Consulting at Oversight Systems. He holds a Bachelor of Science degree in electrical engineering and computer science from the University of California, Berkeley.

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