82% of executives at mid-market companies admit that digital transformation is shaking up their core business operations. We live in a digitally-driven, innovation-centric, and competition-heavy ecosystem. Supply chains are being reforged by the ever-growing complexity of Industry 4.0 and Globalization 4.0, consumer demands are changing, and the global marketplace is undergoing monumental shifts in the face of crisis and change.
As we all continue to face unprecedented challenges in today's ecosystem, finding ways to scale and grow against the grain is difficult. How do you grow when the market is under pressure? Believe it or not, the answer may be simple. It may come down to your finance department. To clarify, let's look at the broad challenges middle-market businesses are facing right now, and then dive into some of the granular components of finance that help break down those barriers.
Digital Transformation Challenges in Mid-Market Organizations
The more things change, the more they stay the same. According to IFAC, the top challenges faced by mid-market organizations in 2016 were:
- Rising costs
- Technology developments
- Cash-flow and finance
- Talent acquisition
- Growth & scale
- Compliance
In addition, mid-market companies often face logistical and supply chain issues, often linked to their accounts payable structure or governance struggles. Finances has always been the weakest link in the mid-market. According to Gartner, most mid-level organizations admit that technological disruption is most likely to impact their finances center — since finances are tangibly linked to cash flow, liquidity, and vendor relationships. In other words, accounting, accounts payable, and finances are the invisible threads that keep mid-market players viable in the supply chain.
In 2020, SMBs are facing the same issues — just magnified by the recent economic crisis. The U.S. Chamber of Commerce's recent report on Middle Market Businesses shows the recent economic shock has permeated every layer of operations. 37% admit that they're dealing with a downturn in hiring, 44% expect reduced expenditure across-the-board, and 51% expect an overall decline for their business — all of which are expected to continue for at least six months according to the 404 participants in the survey.
Digital transformation is the lever that keeps business afloat during crisis, but embracing the digital trends isn't always easy for mid-market businesses already dealing with shock. After all, companies have been dealing with cash flow, scale, and technology issues for decades. When you add fuel to the fire, it's much harder to put out.
In particular, we want to focus on finances. Again, it's the bridge between liquidity and operations. There are many use cases for digital disruption in sales, marketing, and day-to-day operations. But we're in the middle of an economic downturn. Scale is hinged to finances. Businesses that maintain their roles in the supply chain, eliminate redundancies in their accounts payable departments, and accurately forecast and align to future-proof budgets will see themselves viable in today's climate.
The Evolving Role of Accounting and Finances in Mid-Market Organizations
McKinsey suggests that every business build a cash war room to survive market dips. The idea is to accurately forecast budgets and create solidified spending architectures that help you reduce spend without disrupting viability. This process starts in accounting and finances. Business finance organizations that leverage technology and improve operation efficiencies during economic downturn are positioned to be "resilients." These are companies that find growth during economic downturn. According to McKinsey, economic disruptions put CFOs in the driver's seat. They're the primary lever that determine whether a company pushes itself into that "resilients" bracket or brick-walls against economic pressure.
We've identified the four core pillars of digital transformation that mid-market accounting and finance organizations need to embrace to create resilience against the grains of economic disruption:
- Shifting value to technology-driven automation across your finance process pipeline
- Budgeting and forecasting
- Lowering working capital through vendor relationship management
- Reducing paperwork and manual processes to facilitate speedier delivery, capture better vendor terms, and alleviate headcount issues
All four of these "core pillars" revolve around accounts payable. It's the gateway to liquidity, vendor relationships, and budgeting and forecasting. If you want to reduce cost burdens, capitalize on your existing role in the supply chain, and create hyper-manageable, paper-free ecosystems, you need to automate your accounts payable process.
An Accelerated Approach to Accounts Payable in the Mid-Market
Winning against rising challenges requires a solid financial foothold. You need to understand what your overall accounts payable process looks like, when and where money is coming in and going out, and what types of vendors you have on tap to help you weather the storm. All of this relates directly back to AP. If you understand your AP process and dependencies, you understand where you are positioned in your market. We consider AP to be the cornerstone of digital transformation, and, by association, the solution to many of the problems mid-market organizations are facing in today's marketplace.
Three-quarters of mid-market companies are dealing with supply chain disruptions due to COVID-19 (and the economic downturn it precipitated). Accounts payable is like supply chain glue. It keeps vendors happy, informed, and financed. And, in turn, it keeps your pipeline flowing with deliverables.
It's hard to put a value on AP automation. But we're going to do our best. We consider there to be six value-drivers of AP automation:
- Paper reduction
- Vendor relationships
- Headcount variability
- Value-added discount generation
- Remote facilitation
- Organization, explorability, and scalability
1. Paper reduction
Believe it or not, paper is a significant cost factor for your organization. Businesses spend over $120 billion a year simply on paper. And the physical cost of paper sheets is the smallest bucket. Employees spend up to 40% of their day looking for paper, and half of employees admit that they have difficulty finding documents — oftentimes abandoning the search altogether. Over 40% of paper documents are thrown away at the end of the day. 7.5% of paper documents are lost. And the cost to replace a lost or misfiled document is over $700 when you combine labor and processes.
In other words, reducing paper saves money in the immediate. Of course, transitioning to digital AP process also provides intangible benefits. Ponemon Institute studies showcase that 70% of internal risks come from compromised documents due to human error. In fact, there are costs for simply storing paper. Some sources estimate that it costs $25,000 per year to fill a four-drawer filing cabinet — not to mention $2,000 annually to maintain it.
Unfortunately, a massive 80% of invoices are still processed on paper. Eliminating paper with digitized solutions can instantly improve cashflow and reduce cost burdens, which can help mid-market players tackle some of those larger problems.
2. Vendor relationships
We would consider AP to have the strongest correlation with vendor relationships out of business functions. It's their pay. You can categorize vendors into data profiles, organize risk, and use fancy dashboards for days; if you start missing payments — your relationship will go downhill. The average manual, paper invoice takes 25 days to process. That's a problem — especially since manual invoices have a 3.6% error rate.
AP automation helps vendors get paid accurately and timely, which helps breed solidarity and solidity in your supply chain. Keeping tight relationships can help you weather the storm.
3. Headcount variability
52% of organizations admit that an over-reliance on people and paper are their two biggest AP hurdles. During economic downturn, you need the agility to reduce headcount or shift talent across your organization to more critical departments. When AP is a manual, labor-intensive department, you don't get the opportunity to rearrange employees. You're stuck.
AP automation lets your finance department focus on more critical-thinking-centric projects, and it gives you the ability to flux headcount during crisis and market downturns.
4. Value-added discount generation
We already mentioned that the average paper-based invoice takes 25 days to process. Early bird discounts typically stretch to 10 days. 2/10 net 30 discounts may seem small, but they add up fast. On the other end, there are late payments. Again, these are liquidity-sappers. You should be getting every early discount at your disposal — especially when margins are tight.
Vendors want to give you 2% off your list price. They need their capital. AP automation helps you meet early bird demands — forging relationships in the process.
5. Remote facilitation
The boom in remote work isn't going away. The increased flexibility for employees and reduced financial burdens for employers makes remote a future-proof work architecture. But remote work calls for new, digitally-native workflows. We've discussed how AP automation facilitates remote work before (link to remote post), but it's sufficient to say this: you cannot create a remote AP ecosystem without automation and digitization. You need digital workflows and remote-facilitated approvals to process invoices without being on-site.
6. Organization, explorability, and scalability
Finally, there's organization, explorability, and scalability — three intertwined layers. AP automation is hinged to digitizing invoices and routing them through an automated workflow. This opens up new areas of explorability and scalability for your AP department, and it keeps documents intrinsically organized in your financial management software.
How Dooap Can Help
At Dooap, we believe that accounts payable is your first (and last) line of defense against supply chain disruptions, cashflow issues, budget forecasting frictions, and productivity interruptions. Our cloud-native, mobile-first AP solution is built to handle accounts payable automation and digital workflow needs for mid-market organizations looking for AP department maturity.
We built our solution on Azure to naturally integrate with Microsoft Dynamics 365 FO. Instead of using ad-hoc, siloed data lakes, our solution can immediately utilize your in-place MSD365 FO data to expedite the onboarding process. We're a conflict-free, integration-ready solution that follows 365 FO data logic, and we're scale-ready with Azure-based cloud nativity.
With Dooap, you can migrate your AP workflows digitally, saving you time, paper, money, and headaches. We're also remote-capable out-of-the-box, and we leverage our best-in-class machine learning algorithms to automate AP routines that burden your employees and create hurdles for your AP flow.
Dooap natively includes features like:
- Conflict-free AP automation with Dynamics 365/AX2012
- AP business process automation with built-in mobile integrations
- Hyper-scalable cloud infrastructure built on Azure
- User-friendly interface that's fresh, simple, and immediately recognizable across any platform or device
- Optical Character Recognition as-a-service, workflow automation, and automated coding and matching
With Dooap, you can accelerate your AP processes, resulting in fewer errors and lower purchase-to-payment processing costs. For mid-market organizations, this means faster approvals, access to early-bird discounts, supply chain stability, vendor relationship improvements, and an overall more robust and rapid AP environment. Your business is dealing with plenty of challenges. Don't let AP become one of them. Instead, leverage AP as a problem-solving business unit that helps you tackle crisis-driven challenges to create sustainability and longevity.
Are You Ready to Unlock the Power of Accounts Payable?
Let's cut the red tape and transform your AP department. Why should your AP department be a money-draining department focused on need-oriented workflows? Shouldn't AP be a profit-driver that helps you secure and solidify positions in the supply chain? Can't AP become a value-generating department that delivers discounts, pain-free payments, and superb financial optics?
At Dooap, we believe in the power of AP. It's the knight in shining armor that holds your business together at the seams. We're here to make AP easier. With Dooap, you don't have to worry about painful, redundant, and mundane workflows that sap energy, time, and money. We'll help you automate your entire AP department by adding tangible automation value to your ERP.
Are you ready to take the next step? Book a free demo of our software. As a mid-market business, you have plenty to worry about. AP shouldn't be on the list. Let's leverage the power of accounts payable to help you solve problems — not create them. Contact us to learn more.
