Every year, the average business loses thousands of pounds because of clunky payment practices causing friction in their supply chain. This is a real headache and affects the productivity and wellbeing of payment professionals, as well as the business’ bottom line.
According to research Tungsten Network conducted 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 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.
When we asked what people perceived to be the top five friction factors, they identified the high proportion of paper invoices received; too many non-PO based invoices; high volume of supplier enquiries regarding invoice or payment status; lack of automated exceptions and lack of automated approval. Many of these problems result in time-consuming administration and cause friction that impacts the bottom line.
Hope of change?
The question is, can anything be done about it? Are friction and inefficiencies a permanent feature and something that will always haunt procure-to-pay processes?
The answer is a resounding “NO.” In this day and age with all the progress that digitalization has brought, there is no need for the payment process to be held back by lack of automation, leading to errors and inefficiencies.
Friction removes energy from a process and slows down forward momentum – this is the last thing you want to experience with your cash flow. In the context of accounts payable therefore, energy-sapping processes are costing businesses time, money and control over their working capital position.
The wonderful thing is that if businesses aren’t tied up processing invoices or receiving phone calls from suppliers, they have more time to explore opportunities for growth with existing customers and go after new ones. Technology exists which will do away with these tiresome and menial tasks that clog business work streams.
Identify the problem
At Tungsten Network, we believe in eliminating this friction. In order to do this we must first shine a light on the sources of friction and quantify them. We need to discern what causes friction within procure-to-pay and identify whether it is more or less prevalent in large, medium or small companies. We need to observe the knock-on effect of friction – how it affects staff wellbeing and morale, and whether it impacts payment times and relationships with suppliers. Also, how it contributes to the overall productivity of the company and what it costs in terms of man hours and money.
As finance professionals, these may be questions you already know the answers to or you may have a gut instinct. As with all areas of problem solving, identifying and quantifying the issue is the first step to change.
Last year, in conjunction with the Institute of Financial Management (IOFM) we considered many of these issues in our inaugural Friction 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.
Businesses can be taking simple steps to remedy this. Digital transformation is the key to 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.
We know that change is afoot and that organisations are tackling friction head on. Many are looking for ways to streamline procure-to-pay processes and others have already turned to digitisation, but manual processes remain prevalent, particularly in smaller businesses where the benefits may seem less obvious. For this reason, we are conducting our research once again: to measure the forces that are hindering payment processes and make a year-on-year comparison.
Our intention is to create a second Friction Index, building on last year’s insight, which explores the current state of payments processes and further highlights 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, please click here.
Let’s commit to a frictionless future. Automation is the first step towards eliminating paper, duplications and errors. It can transform the payment process and provide companies with up-to-date insight into the exact status of a particular invoice. It can save time, money and countless headaches, meaning that payment professionals can be freed to get on with the role they were trained for. By cutting friction in this way, the businesses can give themselves the control they need over their working capital position to innovate, succeed and grow.
Rick Hurwitz is CEO of Tungsten Network.