Thanks to digital, everything — from online shopping and mobile ordering to peer-to-peer payments — has speeded up. Yet invoicing and payments haven’t kept up with the times. Many accounts payable departments are still operating in an analog world.
The check might be in the mail, but who knows how long it took to get there.
For the new Payables Friction Index, a collaboration with Corcentric, PYMNTS surveyed executives at 2,570 firms and scored accounts payable (AP) processes on a scale of 0 to 100, based on performance in onboarding, receipt, approval and payment.
The average index score among our survey’s firms was 57.3 out of 100.
This so-so score is due to a number of factors. The vast majority of firms (80.8 percent) still use paper checks to pay invoices. Far fewer use ACH (63.8 percent) or same-day ACH (13.0 percent).
On the client side, there was also a sense of being stuck in old ways. A significant share of invoices (43.8 percent) are still delivered via fax machine, and an even greater amount (72.4 percent) arrive via postal mail.
But only around half (51.3 percent) of firms said they were “very” or “extremely” satisfied with checks. Paper checks may be tried and true, but not many consider them to be efficient.
In the study, 42.3 percent of invoices were approved between one day and one week, and the process slows down depending upon how many people are involved. Only 42.9 percent of invoices are processed in less than one week when three to five people are involved.
Automation would seem to be a solution for reducing friction. AP firms do have interest in electronic invoices for obvious reasons. Around one-third (35.5 percent) wanted to implement eInvoices to reduce manual processing and a similar figure (34.2 percent) wanted to reduce the number of people involved.
Fewer than half (46.4 percent) considered electronic invoicing implementation a top innovation priority.Because invoicing is behind-the-scenes, it doesn’t get the same attention and focus on innovation as more public-facing operations.
The lead factors holding back firms were the existence of more important priorities (14.3 percent) as well as the perception that innovations will take too long (11.5 percent) or be too expensive (9.1 percent).
When looking at the top performers, clear trends emerged. The more invoices processed per month, the higher a firm’s average index score. Firms that processed 20,000 or more invoices per month scored an average of 61.8 points.
It’s logical that firms that process higher volumes of invoices would be more likely to have established an efficient process.
Additionally, a firm’s annual income was also a key factor in adopting invoice-related innovations. Firms that generate between $100 million and $500 million in annual revenues are in expansion mode and disproportionally ahead of other sample companies.
For example, 85.1 percent of firms that generate between $100 million and $500 million in annual revenues use eInvoices. This bracket was also the most likely (72.9 percent) to use optical character recognition (OCR).
Use of artificial intelligence (AI) in invoice processing didn’t appear to correlate with annual revenues, but hypothetically it could improve revenues.
The future of invoicing and payments will likely be driven by AI and OCR. With payments automated and removing human intervention, the data from those transactions can be scanned and categorized.
With greater efficiencies, in time, accounts payable won’t be costing money. Instead, it could be positively generating revenue due to better control over processes.