Accounts payable: Is it time to change the status quo?
Verschlimmbesserung: An effort to improve things that actually makes them worse than they already were.
We’ve all experienced situations where that German term painfully applies. An excellent example is managing company expenses. Somewhat ironically, many of the systems adopted by finance teams, used in the hopes of getting a handle on how their employees spend company money, end up creating increased workloads and inefficient processes. There are systems for handling corporate card spending, systems for handling expense reimbursements, systems for handling invoiced payments, and separate systems again for capturing approvals. Fortunately, unlike many other verschlimmbesserung situations, a solution is at hand. When the problem is viewed in its entirety, it’s clear that all parts of company spending should be included in one comprehensive spend management solution that views corporate card spending as part of the AP function, not separate from it. A solution that actually improves things provides end-to-end accounting automation for all forms of payment, while syncing seamlessly with your ERP. When it does so, with notable improvement to the core area of accounts payable, you’ve made things better for everyone.
The problem: Accounting for expenses while spending patterns shift.
The shift to decentralized spending means employees make their own purchases. Instead of having to go through a central procurement department, they are empowered to buy what they need to do their jobs, which improves productivity. However, this has meant that AP has become correspondingly inefficient as the team scrambles to account for transactions they can’t see — a true case of verschlimmbesserung. A recent survey found that 60% of surveyed businesses lacked automated approval workflows. As a result, the average time spent processing a single invoice was 25 days. That’s a lot of wasted time, especially when simpler solutions are out there.
The shortfalls of legacy AP solutions.
At first glance, a good solution for managing AP would seem to be one of the many products available that focus on payments, such as Bill.com. After all, these tools use automation to streamline payments and specialize in reducing AP pain points. However, while there’s no question accounting automation makes life easier for AP teams, these solutions create a siloed approach to processing AP. As a result, these legacy systems run the risk of creating more work, not less, for AP teams.
Many of these problems originate at the very onset of the procurement process. Legacy AP platforms miss a critical first step: expense approvals.
In contrast, when approval is built into the workflow, problems are identified up front, not after spending has occurred. This shifts the role of AP departments in a way that can’t be underestimated: Instead of policing employees for expense-reporting compliance, they’re able to offer support and solutions because they have insight into employee spending as it occurs, rather than when it’s too late. It also means that data reflects what is actually happening in real time. When expense approvals are tied to spend, it’s easier to adjust the levers of control in response to shifting budgets. This clarity helps to create a culture of accountability, for employees making purchases and for budget owners.
Disconnected approval processes also make it difficult to track down the source of an approval. When businesses use a cobbled-together combination of Slack, email, or Google Forms to approve expenses, somebody has to connect those approvals to the money spent during an audit. But when approvals are tied to payments in a more comprehensive solution, an audit trail is automatically created and that information is available at any time.
Another problem arises because legacy AP platforms lack visibility into all kinds of spend. When credit card spend isn’t built into AP platforms, financial information will never truly be up to date until the credit card statement appears at the end of the month.
Even with an automatic sync to the General Ledger, reporting on all non-payroll spend won’t show what is actually available until after the month ends, once reconciliation with credit card statements has occurred.
But when a comprehensive spend management platform combines corporate and virtual cards, ACH payments, and checks into a single platform, all non-payroll spend is available at any time to anyone. Accounting teams can spend less time closing the books every month, since financials are always up to date, and it’s even possible to move towards a continuous close. Plus, when information is captured while spend is happening, there is no need to complete time-consuming expense reports.
And the 25 days it takes to process an invoice? Definitely improved without a hint of verschlimmbesserung. When an intelligent spend management system receives an invoice, all supporting documents, including the relevant email chain, are included, so AP teams no longer have to chase down employees to find missing information. And intelligent automation can match an invoice to a purchase order, further saving tedious work.
Without cumbersome reporting, finance professionals can focus on more strategic work. Lisa Slater is VP Finance at Eko Health, a rapidly growing digital health company. When she first joined the company, one of her first goals was to streamline their finance operations, which included a combination of Brex and Bill.com under the AP umbrella. Although each of the systems worked adequately, the whole process simply took too much time, and Lisa needed those hours to work on bigger, more valuable projects. She quickly realized the benefits of consolidating multiple systems into a single spend management platform. “Before, I’d have to close, sync, and reconcile reports from different systems to get up to speed with spending,” she remembers. Now, she has instant visibility into spend while it happens. The time gained has allowed her to focus on more value-added activities to support the company’s growth.
Why managing AP through an ERP isn’t the solution.
Legacy bill payment platforms don’t ease all the pain points of managing Accounts Payable. Another alternative is using the AP module of an ERP. On the surface, this might seem like a viable solution. Many growing businesses implement an ERP to streamline their operations and improve efficiencies. As the business environment grows more complex, ERPs are becoming the gold standard for finance operations, with the global ERP market expected to exceed $70.3 billion by 2025. However, ERP platforms aren’t often able to address accounts payable pain points in a meaningful way because they lack the capacity for AP-specific workflows. They also fall short when it comes to consolidating the many facets of spend management, particularly when it comes to visibility.
While it’s true that many ERPs provide real-time reporting functionality, reports will only be as current as the data held by the ERP. For example, in order to incorporate spending data from a shared corporate credit card into reporting, bank statements for the card typically have to be reconciled with expense requests, then recorded in the ERP through a manual process, such as importing a .csv file. That delay blocks access to the accurate and timely data that is so important right now. When a spend management system can sync seamlessly with an ERP, like NetSuite or Intacct, the GL is always current.
AP teams don’t have to shoulder the burden of verschlimmbesserung when it comes to managing expenses. Comprehensive spend management systems offer more complete improvements over legacy systems or ERP modules. When all aspects of spend management are consolidated into a single platform, finance teams can optimize automated processes in order to increase visibility, improve accountability, and reduce errors.
Ready to learn more? Contact Airbase today!
Airbase offers a one platform solution to manage all non-payroll spend. It provides oversight and control over spending with real-time reporting and automatic syncing directly to your general ledger. Control all payments – physical cards, virtual cards, ACH, and checks – from one place. Close faster. Empower employees. Control spend.