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Digitalk

Blog March 23, 2016

Digitalk: Automation will not be accomplished by changing the system alone

The current Finnish Accounting Act has been in effect since the mid-1990s. A change in legislation enabled paperless accounting and electronic processing of purchase invoices. Today, digitalization of financial administration covers the entire P2P (Purchase to Pay) process. However, something is awry. Big promises concerning the automation of the routines of financial administration have not been sufficiently materialized. Automation is not simply a question of replacing a system with another. The entire process must be developed and managed in a comprehensive manner, taking an end-to-end view.

Over the course of years, Enfo’s staff has surveyed the financial administration of a large number of mid-sized companies. Nearly 80 to 90% of companies have purchased an electronic system for purchase invoice circulation. Most companies receive 70 to 80% of their purchase invoices in electronic format.

While the system for circulating and approving purchase invoices, in place at many companies, has enhanced the controlling and monitoring of purchase invoices, the process nevertheless saddles especially key personnel with unnecessary administrative routines. Real introduction of automated processes has remained at a modest level and the promises of a system change have not been fulfilled.

Only few mid-sized companies are able to reach a reconciliation rate of even a few dozen percent in their purchase invoiced automation. In many cases, the circulation system for purchase invoices has remained unfinished, with no efforts being taken to develop a reconciliation system, either due to lack of time or sheer laziness. Supplier registers at many companies are also heterogeneous and in need of a major overhaul.

Similarly, the challenges facing the P2P process are a great deal more than just surface-deep. Simply replacing a system with its competitor is not an answer to problems hidden in the process. When regarding the process as a whole, processing purchase invoices is only the tip of the iceberg.

Such a situation comes as no surprise to anyone who has carried out dozens of mappings; after all, at many companies, the purchase invoice process has been relegated to a status of a back office support function that is not regarded as part of the company’s core business. In the modern world, companies do not invest in their back office. And, as they do not invest, the individual responsible for accounts payable will find it easy to cut corners. Regrettably few companies even measure the KPI (Key Performance Indicator) values of the P2P process on a regular basis.

The P2P process should be developed bearing in mind the end-to-end viewpoint of the entire process.

Juha

Real automation will be impossible to achieve if the front end of the process, the subsurface procurement part, is left untouched or if it is not put in order as a first step. A system reform as such is no panacea. However, few companies have any real desire to invest in such systems. Therefore, the task should be assigned to a party that takes a genuine interest in it and regards it as its core business. Outsourcing the P2P process to an external partner not only helps to uncover a huge savings potential; it also provides the company performing the outsourcing with an opportunity to focus on its core business. The traditional model under which a company acquires system licenses, attempting to develop its back office function whenever the staff find time outside their other professional responsibilities, will not bring the desired result.

An ideal partner will assume the total responsibility for the daily development of the P2P function. For the partner, this must be its core business in which it invests and the implementation of which it measures and develops on a daily basis in collaboration with the customer. As long as development is carried out in a centralized and standardized fashion, the process may bring substantial improvements in efficiency and cost savings.

Under the partnership model, the putting in place of applications will not stop half way; instead, applications will be pushed to their limit. The aim is to ensure that the subsurface portion of the process will also be in focus and that the invoicing data will be put in order in a single step at the front end of the process, starting from the procurement phase. In all of this, the customer will retain the crucial role of the P2P Process Owner, which is a prerequisite for the comprehensive optimization of the process.

Author Juha Heiskanen holds a Director’s position at Enfo