The world of finance is froth with corporate fiefdoms. But in the realm of AP/AR, automation is king. And if such a king exists then the wisest of kings holds court in the cloud. Cloud solutions have consistently demonstrated the growing, successful ability to facilitate increased, yet more efficient production. This has ultimately resulted in better forecasting and decision making. So journey with me, far away from medieval spreadsheets and jester-like platforms, and embrace the future of AP here in the cloud. For the future is here and now.

BRING INVOICE PROCESSING COSTS BACK TO EARTH WITH AP AUTOMATION IN THE CLOUD December 2015

Keir Walker, Senior Research Associate, Financial Management & GRC

Report Highlights

Leaders are 3.8 times as likely as Followers to utilize AP automation in the cloud.

Organizations with cloud-based solutions are 100% more likely to enjoy real-time visibility into cash positions.

Cloud-based solutions are 27% more likely to purvey centralized invoice management processes.

Operating in the cloud averages 20% savings on each individual invoice processed.

p2 p4 p6 p8

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The Aberdeen Maturity Class is comprised of survey respondents. The data is used to determine overall company performance. Classified by their self-reported performance across several key metrics, each respondent falls into one of the two categories: • Leaders – Top 35% of aggregate

performance scorers: o Process time – 5.95 days o Error rate – 21% (percent of

invoices arrived as incorrect or w/ incomplete info)

o On-time payment rate – 90%

• Followers – Bottom 65% of aggregate performance scorers:

o Process time – 17.83 days o Error rate – 13% (percent of

invoices arrived as incorrect or w/ incomplete info)

o On-time payment rate – 65%

The challenges faced by organizations seeking to improve their financial management processes by-and-large are not new. For the most part, they are the same today as they were years ago. By narrowing the scope of focus to accounts payable, Aberdeen Group’s 2015 AP/AR Benchmark Survey uncovered the following four pressures dictating organizations’ improvement efforts around invoice management (Figure 1).

Figure 1: Top pressures driving companies’ improvements of invoice management

What is new, however, are the solutions available to overcome such challenges. Leaders were found to be at the forefront of the emerging trend in maximizing AP Automation in the cloud, by being 3.8 times as likely as Followers to utilize AP automation in the cloud — a solution that has only recently become possible (see Figure 2). Aberdeen Group’s research uncovered three primary technology enablers that capitalize on the capabilities of the cloud (to be further discussed below): Enterprise Resource

27%

27%

35%

42%

0% 10% 20% 30% 40% 50%

Economic uncertainty

Unable to handle exceptionsin a timely manner

Demand for expeditedfinancial information delivery

Need to manage growingvolume of transactions

Percentage of respondents, n= 84SOURCE: ABERDEEN GROUP, SEPT 2015

The challenges faced by organizations seeking to improve their financial management processes are not new; the solutions are - embrace the cloud.

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Planning (ERP) platforms, AP automated solutions, and Electronic Purchase Orders. Leaders are 16% more likely to engage in ERP platforms than Followers, and 13% more likely to engage in AP automation than Followers (see Figure 2).

Figure 2: Solutions and Cloud Usage

Heavenly Cash Management in the Clouds

Cloud-based AP/AR automated solutions can tie directly into other systems, such as ERP or integrated treasury/risk management systems, and process fully automated analytical data and reports. The insight provided in these reports can be used to help better analyze AP management. Streamlining the process via automation improves other finance-based functions,

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20%

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EnterpriseResource Planning

(ERP)

AP/Invoice processautomation

Purchase ordersreceived

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AP Automation inthe Cloud

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SOURCE: ABERDEEN GROUP, SEPT 2015

Leaders Followers

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Organizations with Cloud-based solutions are 100% more likely to enjoy Real Time Visibility into cash positions.

such as more accurate cash forecasting or projected operational expenses. This is of particular benefit to larger companies that may have multiple business units operating in silos. Segregated accounting functions that take advantage of cloud-based solutions can ultimately collaborate, in an automated fashion, across entire enterprise systems. The enterprise-wide collaboration surrounding AP functions results in expedited and more accurate real-time data. Organizations with a cloud solution are 39% more like to have AP systems fully integrated with ERP or financial solutions (see Figure 3).

Figure 3: Cash Management Capabilities Enjoyed in Cloud-Based/SaaS Solutions

The ability to more effectively manage cash has obvious benefits for all treasury functions. Financial decision making is predicated on the quality of data and analytics available to users. In fact, the primary pressure identified by the respondents of Aberdeen’s AP/AR 2015 survey is “the need for real-time data.”

78%

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31%

56%

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AP systems fullyintegrated withERP or financial

solutions

Ability to forecastcash flows

Real time visibilityinto cash positions

Multi-currencyfunctionality

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, n=

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SOURCE: ABERDEEN GROUP, SEPT 2015

Cloud No Cloud

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The survey reveals that organizations with cloud solutions are 100% more likely than those without to have real-time visibility into cash positions, and 7% more likely to have cash flow forecasting capabilities related to managing cash (see Figure 2 above). Where multi-currency functions are available, this ensures that data is more accurate by accounting for differences in FX rates. Solutions residing on the cloud are 24% more likely to apply this capability.

Keep Your Head in the Clouds and Find That Which You Seek; Improved Information Management

As previously mentioned, the third prevailing corporate pressure identified is the difficulty locating/managing paper-based documents. Cloud-based solutions can greatly alleviate this pressure. Document imaging is an automated process that translates information from paper invoices into electronic data — thereby reducing manual processing and freeing employees and resources to be dedicated to other functions. This feature is strongly supported in the cloud, and is 66% more likely to exist in such solutions as opposed to non-cloud-based offerings (see Figure 4).

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Figure 4: Cloud Solutions Provide Greater Information Management Offerings

Furthermore, an integral component of the improved management of all manner of financial information is centralizing data and processes. The less siloed or segregated data and associated processes are, the more accurate and expeditious the turnaround time on invoice-related activity becomes. Cloud-based solutions are 27% more likely to purvey centralized invoice management processes. The ease and availability of information from any location via internet browsers or dedicated applications creates vastly superior remote entry points compared to locally hosted or networked solutions. This ensures workflows and key stakeholder approval is always accessible, and that processing times are significantly faster.

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Ability to matchinvoices to

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audit histories

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DEN

TS, N

= 84

SOURCE: ABERDEEN GROUP, SEPT 2015

Cloud No Cloud

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Other such AP-related capabilities that are more likely to be supported by cloud-based solutions are electronic approval workflows (98% more likely), invoice matching to purchase orders (35%), and transaction audit history (68%).

Electronic workflow facilitates greater ease and accessibility of payment approval or invoice review by the necessary people. Through such workflows, key stakeholders can be quickly alerted electronically and via mobile SMS, while also highlighting current actions be taken. This can reduce bottlenecking of payment processing and ensure that all internal invoice/payment policies and protocols are adhered to.

Purchase order-matching to invoice is an AP reconciliation tool to ensure that amounts being paid mirror original (anticipated) purchase order amounts. Essentially, it acts as a checks-and-balances system. When discrepancies exist – these create alerts for review by key personnel.

And lastly, the transaction audit capability allows for historical review of all transactions, which of course is a great benefit for customer service or discrepancy reviews. All these capabilities improve information management and are better served in the cloud.

Treasures Found at the End of the Rainbow; ERP and AP Automation Solutions in the Cloud

Enterprise Resource Planning — Integrated ERP solutions encapsulate a wide variety of business lines, such as treasury, finance, and governance, working in unison to perform related tasks. Pertaining to AP, ERP systems prioritize which invoices are

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to be paid, as well as adjust amounts (often automatically based on tolerance levels or set thresholds). Both income and outgoing revenue are recorded in ledger balance. The downstream reports and audit trails are accessible for numerous finance functions, including cash positioning and cash flow projections, as well as automated ledger management.

AP/Invoice Process Automation is similar in functionality to ERP platforms. The fundamental difference is that it is typically a standalone solution. These solutions are attractive to companies with tendencies to grow inorganically. The external nature of this solution means that, as more companies are acquired, the integration of the new data can be exported more easily. This is in contrast to more complex, enterprise-wide IT integration or absorption onto the legacy system. Operating in the cloud, therefore, makes sense, as these solutions ensure an agile platform (as opposed to being confined to an internal network).

The Results of AP Automation in the Cloud

There are several benefits to operating within the cloud. IT bandwidth and infrastructure are improved by freeing up resources, particularly where updates and maintenance is concerned, as well as associated cost-saving benefits. Operating in the cloud also enhances remote usage from simple internet browser accessibility and dedicated applications. Cloud offerings are also typically more environmentally responsible and green in nature (no pun intended) by virtue of their drastic reductions in need for paper copies. The corresponding benefit to this, of course, is the reduction in manual processing and archiving, which brings us full circle in addressing many of the initial pressures identified at the beginning of this report.

Security in the cloud is a justifiable concern, and was often the main source of hesitancy towards adoption. Case studies, as well as various other research on the security of cloud-based solutions, have uncovered that many SaaS companies have superior security over their hosted counterparts. These providers tend to more heavily invest in their IT security, and work to exceed externally audited industry standards.

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While there may have initially been some industry trepidation on cloud security, these fears are often misguided. SaaS providers have a supremely vested interest in ensuring their security is often of the highest offering. Top cloud providers are able to legitimately highlight their security and R&D commitments as service differentiators. Case studies, as well as various other research on the security of cloud-based solutions, have uncovered that many SaaS companies have superior security over their hosted counterparts. These providers tend to more heavily invest in their IT security, and work to exceed externally audited industry standards.

It’s all well and good to make claims that SaaS platforms and solutions that reside on the cloud have many benefits, but the proof is in the (performance) pudding. The table below illustrates many of the attractive benefits discussed above. Of particular interest are the cost savings. Operating on the cloud averages 20% savings on each individual invoice processed. These invoices are also processed, on average, 4.24 times faster on cloud-based systems. However, as illustrated below, these are but a handful of many quantifiable benefits enjoyed on the cloud.

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Table 1: Benchmarking the Benefits

Performance Benchmarks Cloud No Cloud

Processing time – the total time required to process an invoice from initial receipt until approved for payment (including weekends)

days 2.67

days 11.33

Invoice Processing Cost – the total cost of labor and fees (transaction-based, postage, etc.) for processing a single invoice from receipt through approval

$8.10 $10.08

Straight Through Process rate – the percentage of invoices that are received, validated, and approved for payment in a completely automated manner

57% 39%

Exception rate – the percentage of invoices that are flagged for management review 17% 12%

Percent of accounts receivable that are PAST DUE 6% 12%

On-Time Payment rate – the percentage of invoices that are paid on-time, according to their payment terms

92% 83%

Key Takeaways

If ever there were areas in any business or organization that can appreciate the benefits of saving money, increasing productivity, and centralizing data integral to both critical decision making and client service, it must be finance. Maximizing cloud-based AP solutions minimizes these pain points (even entirely removing others). These cloud offerings tend to demonstrate more cost sensibility, free up internal resources, improve cash and risk

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management, and satisfy regulatory compliance, all while operating in enhanced security environments. In order to take advantage of these benefits, consider the following recommendations:

Automate and integrate an appropriate AP solution; but do so in the cloud – The benefits of cloud-based offerings and SaaS are irrefutable. AP invoice automation achieves reduction in manual processing, and therefore equally enjoys the improvement of accurate, real-time data. Because such a system is solely dedicated to the AP (and/or AR) function, the costs of such solutions may be attractive to smaller companies, as well as the agility in operating in an external environment, should future inorganic growth be anticipated. So even this isolated cloud-based solution has tremendous value. One need only determine which environment is best suited for your organization.

ERP solutions offer AP automation functionality, but are potentially more limited than dedicated automated AP solutions. The true benefit of top ERP services lies in their integration of enterprise-wide corporate data and capabilities under a singular umbrella platform. They afford departmental synergies and are well-served in environments that naturally increase intra-organizational collaboration. When AP, AR, treasury, and supply chain management, to name a few, all operate in full cohesion, benefits in analytics and productivity are certain to follow, but at a potentially greater cost. If singular improvements in invoice

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process automation are desired, then AP is more cost-sensible. However, both clearly have their merits.

Take the time to thoroughly review and understand the benefits of a cloud solution – Finance and treasury have historically been the slowest adopters of cloud-based technology. Concerns over security, however, are proven to be ill-placed. Operating on antiquated spreadsheets ensures that knowledge sharing is limited. It also demands employees’ time and company resources to execute, all while limiting the downstream capabilities that are afforded in cloud-based, integrated solutions. Evidence clearly supports the value in (at minimum) considering cloud-based, integrated SaaS, if not fully transitioning to this environment.

The arguments are compelling, and the debate is rapidly becoming moot. In the world of finance, AP and AR automation is king. The expediency and accuracy of the data provided is proven, the cost saving benefits are clear, and concerns over security are often misguided. Thus, in the world of AP, if automation is in fact king, then court is held in the cloud.

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Related Research Automation: The Solution to Efficient Financial Management; September 2015 Improve Treasury and Risk Management Through Integrated Cloud Solutions; August 2015 The Guidebook for Financial Transformation Best Practices; June 2015

Ensuring Timely and Accurate Financial Plans, Budgets, and Forecasts through Automation; April 2015 Ensuring Timely and Accurate Financial Plans, Budgets, and Forecasts through Automation; April 2015 Real-Time Financial Reporting: The Need for Speed; July 2014

Author: Keir Walker, Senior Research Associate, Financial Management & GRC (keir.walker@aberdeen.com)

About Aberdeen Group Since 1988, Aberdeen Group has published research that helps businesses worldwide improve their performance. Our analysts derive fact-based, vendor-agnostic insights from a proprietary analytical framework, which identifies Best-in-Class organizations from primary research conducted with industry practitioners. The resulting research content is used by hundreds of thousands of business professionals to drive smarter decision-making and improve business strategy. Aberdeen Group is headquartered in Boston, MA.

This document is the result of primary research performed by Aberdeen Group and represents the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group.