For CFOs, the accounts payable (AP) and accounts receivable (AR) functions have always played a central role in managing cash flow and working capital, but automation and outsourcing will increase the strategic value of AP/AR by enabling them to reduce costs and increase efficiencies.

Prompted to a great extent by COVID, finance leaders have turned to automated, cloud-based technologies to manage repetitive processes. The three dominant touchless tools have been intelligent document processing (IDP), robotic process automation (RPA) and artificial intelligence (AI) powered digital assistants, all of which have application in AP and AR functions.

“We’re particularly seeing a lot more automation on the AP side,” according to Jess Scheer, executive editor at The Institute of Finance and Management (IOFM). “It was roughly 50-50 before COVID in terms of companies that were automated versus those that were paying their bills 100% manually. Now 77% of companies have some form of automation in place.”

In a recent study, IOFM calculates automation has reduced processing costs per AP invoice from $6.30 to $1.45, and that AP teams could process twice the number of invoices in the same amount of time.

Strategic shift

The higher capacity is helping AP teams turn to more consequential work. “Finance is becoming more strategic,” Scheer said. “AP aren’t just the people that are paying the bills any more, but they’re regulatory experts. They’re cash managers. They’re being asked to do more big data analytics, and they’re often the last line of defense of fraud.”

Automation also enables AP to have greater transparency into the future cash position of the company, marking a shift from operations to strategy, Scheer said.

Accounts receivable is getting a similar strategic facelift, according to Bryan DeGraw, senior business advisor and program manager, customer-to-cash and purchase-to-pay, at The Hackett Group.

COVID shone a light on AR processes for many companies, particularly those whose business thrived as people worked and shopped from home. “These companies were previously getting by with sub-par technology tools, but if they wanted to continue to service the new level of demand, they had to invest in the tools to support it,” DeGraw said. 

Research into the AR automation market suggests this investment trend is likely to continue. 

The global AR automation market is set to grow by 12.6% a year, from roughly $1.9 billion to $3.9 billion in 2026, according to estimates from Mordor Intelligence LLP.

Although AR is often perceived as a strictly operational activity, poor AR processes, the Mordor report says, have strategic impacts by affecting credit and borrowing decisions, liquidity management, and the status of a company’s financial position at any given point in time, among other things. Its growing strategic role also relates to customer service.

“For AR, automation has streamlined customer service,” DeGraw said. That’s “a big factor, because even though you may have a great product, if you're difficult to do business with, or you can't resolve issues, then the customer may look to the competition.”

Operational trends

In addition to turning to automation, finance leaders are increasingly comfortable having their staff work remotely, which could push further changes in AP/AR operations. 

“Going forward, AP directors are going to have an increasingly hard time convincing staff that they can't work from home,” Scheer said. 

Meanwhile, other options are becoming available for AP/AR processing, including offshoring, which promises further efficiencies by reducing the need to attract and retain staff.

“Most of our customers are anxious to reduce the total costs of hiring, including recruiting and wages,” according to Jamie Stewart, CFO of Cloudstaff, a business process outsourcing service in the Philippines. “Or [they] need to scale their businesses quickly, thereby avoiding the long process of attracting and on-boarding AP/AR staff.” 

Most AP/AR tools now offer automation, DeGraw said, but next level strategic wins in the area will come with digital transformation. Digital tools are taking AP/AR to the next level by integrating with business intelligence and analytics, he says, and since staff can be located anywhere, it opens up a world of opportunity to hire the best talent. 

“COVID and the uptake of AP/AR technology has shown us that we’re no longer anchored to an office or certain location,” he said. “It comes down to how we need to be connected to our customers, either internal or external, and ultimately what insights AP/AR can brings to the table, regardless of where they’re located.”