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3 Reasons to Hate AP Automation

Webinar Transcription

Brittany: Hello everyone and welcome to today’s webinar on the Top 3 Reasons to Hate AP Automation. My name is Brittany Davey and I’m the marketing programs coordinator for AvidXchange and I’ll be serving as the facilitator for today’s event. We’re joined by a wonderful speaker today, Chris Elmore who is an automation expert with AvidXchange as well as the renowned speaker and author. He’s published multiple books on the subject of AP Automation, including, “The 8 Pitfalls of Account Payable Automation.” And now I’ll pass it back to our speaker for today Chris Elmore.

Chris: Okay, Brittany, thank you for putting this together in quarterback, and that’s a picture of me. I really look like that. That’s the most amazing thing about this whole webinar. So here the little bit of the agenda. Now when I was asked to do this webinar, I thought to myself, “Why would anybody hate AP Automation?” So, my goal here is to have a little fun with the material. And you can see our outline, they’re basically three points. So, why is efficiency bad? Okay, hang on here. Why AP Automation is too safe for risk takers and why wasting time and money is a good thing for the bottom line.

Hopefully, at this point, you notice that we’re trying to be a little funny here. So, we’re gonna go through efficiency, safety, and then saving time. So basically, that’s what the content of this webinar is. So, let’s get into it.

So, why efficiency is bad and paper is good. For some reason, I’m having a hard time even saying this, but here’s the thing. So, one of the things that is very interesting about paper is that one, it’s been with our entire business career. And two is that it has inherent problems. And one of the things that I like to tell folks that they’re kind of evaluating…if they’re kind of evaluating automation and if they’re kind of thinking about what the difference is between being efficient and then having paper. Now, notice that I didn’t say being efficient and being unefficient or inefficient. And that is the whole point behind efficiency and Account Payable Automation. And the whole point behind paper is this, paper has paper problems. I hope that strike somebody. I hope that kind of…well, let me explain just a little bit there because I was trying to be purposefully diplomatic here. And paper has paper problems. And some kind of paper prop…just to give an example. One of the biggest problems that paper has is that it can go someplace and it can hide. Now, it’s true I remember I was working with a company in Chicago gosh, about 14 years ago when we first kind of launched this whole AP Automation initiative.

And the reason why they engaged us and got us to come into the opportunity and wanted to talk with us even though we were a teeny tiny company at the time, we were barely kind of had the software up and running, but their willingness to try us was so powerful because the EVP of accounting, which was the decent sized organization had gone to one of the branch locations, picked up a stack of invoices that they estimated was about $500,000 worth of expenses. It was a decent stack of invoices. And she accidentally left the stack on the train in Chicago. And it caused all kinds of headaches and it was really embarrassing to her. I give her a lot of credit because that’s an example of a pretty extreme paper problem is that somebody with good intentions when she was at the branch was, “Well, you have a stack of invoices, I’m going to the corporate office I’ll just take them with me.” You know, all kinds of good intentions. And what happened is, she left the stack on the train. And those expenses they had, it took them months to reorganize those expenses and shut offs, and late fees.

But anyway, that’s a pretty tragic example but there were other examples of being inefficient because paper has paper problems. And you know, one is getting lost, another is getting mis-shuffled, but I think another one that I should call out is that you can have multiple versions of it. And you know, it sounds something like this, “Okay, well, I saved the invoice in, and it’s now at a certain location being approved but it is not getting the attention that it needs and it may be sitting there for a couple of weeks. And then the vendor or a supplier decides to call someone else in the organization let’s say accounting, which is in a totally different location and they say, “What’s going on with my invoice?” “Well, what’s the invoice number?” You guys have heard this story many times. And the answer is, “Well, we don’t have the invoice.” And the vendor says, “Let me just send you a duplicate.” and they’re like, “Great, that’s fine.” So now you have two versions of the same expense floating around.

And so back to my point, it’s not inefficiency versus efficiency, it’s efficiency versus paper. Paper has paper problems. So, what happens when you have paper and you have paper problems, what you start to do is to create a process that has checks and balances that serves that paper. And so, what I mean by that is it that you have a process to where you have different gates, and different locks, and different checks, and I already said different balances to where they all ensure that the paper has actually been there and there’s only one copy of the paper. And that’s the thing that’s really interesting is that over time accounting and finance and especially AP people, create these incredible skills to make sure that the paper doesn’t fall through the cracks proverbially and literally. And so, that’s what we mean by efficiency versus paper, is that not efficiency versus inefficiency.

And then on the upside of that is that, you know, once you’ve gotten rid of the paper because that’s something that we wanna do. And by the way, if you’re at all interested in how we get rid of all the paper because here’s the thing, we still have handwritten invoices coming to our customers, but we’re able to digitize that. And that’s a nice little secret that we’ve perfected over the last 12 years that we’d love to share with you because it’s a very interesting way of dealing with the paper. But once the paper is gone, and once the efficiency there in place, you know, we put all of this stuff in a piece of software, then you can be like this guy, with his suit pants rolled up checking out the dooms at the beach. Who in the world would do that? Who would approve their invoices at the beach? I guess we all would if we had a chance. So, you can work anytime anywhere, but the thing about this tool is that you gain efficiency and get rid of the paper and then put the digital invoices inside a piece of software that can be accessed. It can be accessed anytime anywhere.

The other thing is it will start watching really interesting things for you. I like to tell people that we do not replace an accounting system. We don’t replace the functions of an accounting system. But what we do is, think of it this way, we can greatly…because it’s digital and there’s no paper…that’s what we mean by efficiency. We can greatly improve the accrual process which is the whole process of where invoices are during a certain accounting period. We have incredible visibility to who’s doing what, when, where, and why. And then you overlay that with things that are getting ready to become past due, or where discounts are getting ready to expire. The second block here is that you’re gonna have greater visibility to your finances. And one of the reasons why is because we have the ability to capture the invoice and digitize it the moment it’s left the vendor.

Now, again, I can explain how that happens, not on this webinar, but that might be a little easier for those of you that are interested. But when we do that, just think of it, you’re able to start managing the expense the moment it leaves the vendor versus the moment it shows up in the accounting system. So, we love to give people an extra view and sometimes that could be as much as a week, to two weeks of extra views.

Again, another appeal. I hope I don’t get really emotional on this because this, by the way, it’s my favorite piece of it. And that is, we have the ability…let’s take the quadrant to the right first and talk a little bit about this typical paper process. And what I attempted to do here is just give you an idea of what a flow looks like. And you can see that the invoice comes in, it’s attached to a purchase order, may be reconciled to get to the PO, coded, approved, maybe checked on budget. Typically, now that’s usually done on the PO. But then it’s entered into the accounting system and then from the accounting system, a check is produced. And then everything is filed for research later. And hopefully, this is clear enough on your screen, but if you’re able to see the slashes. What this does is that it…really our job with our software…and by the way, it’s a combination of software and services. But our job is to eliminate as many manual tasks as we possibly can. And the caption here is to eliminate repetitive tasks.

So, I like to tell people, and this might be your one to two, to three take away. I like to tell people that if you wanna kind of at a high-level finger to the wind, back of the envelope, if you wanna kind of figure out what the impact of Accounts Payable Automation is for you, and I think it is really important because everyone’s a little bit different, is if you look at tasks like the opening of the mail, or accounting systems data entry, or someone physically putting checks into envelopes, or do what I call the paper shufflers which is where you toss the stuff around in an inner office mail, or put it on somebody’s desk or anything like that or if there’s any filing that needs to be done, or anyone going to the filing cabinet, you know? All of those things are considered repetitive tasks. Those are the ones that we wanna take. Those are the ones that we wanna eliminate.

Again, a lot of mystery around how we do that. we’d love to spell it out to you because once you get to know how we’re doing this, it becomes less and less mysterious. However, it’s not a void of powerful because it’s extremely powerful. It’s a simple idea that’s really powerful and the point is, when the paper is gone, the efficiency goes up, but the great upside to this is I like to say this and that is, “It’s only as good as the time that can be freed up.” I’m actually gonna talk just a little bit more about that later, so I’ll just kind of pause right there, shift over to the making payments easy and quicker because the check that’s slashed is we have the ability…what we’ve done is we’ve created a mechanism that can take your check registry file and instead of it being the payments are sped out at the printer. Instead of that, you take all that wonderful information and you have the ability to just send it into our software, and our software can determine if the vendors paid electronically or by way of a paper check.

And the way that we’re able to do that is we physically call the vendor and supplier, there’s 300,000 of this that we have in this network and we ask them how they wanna be paid. But it’s not a simple as just saying “How do you wanna be paid?” they tell us. They tell us and you guys know this better than anybody. They tell us how they wanna be paid, which method they wanna be paid in, what the remediate information is, in what form does it need to be, where they need to be sent to, what rules to make the payment. All of that is part of this. So, what happens for you, the icon here is that it’s easy to make payment using one file and software will do the rest of the work. This is very interesting. Again, I’m being mysterious here, but we’re talking efficiency here. No one needs to stop envelopes, no one needs to meter him, you know, it doesn’t have to be sent out. It’s just real simple. One file out, the payments are made, and the payments are watched through this piece of software.

So, that’s what we mean by efficiency. Brittany, how are you doing? Are you there? Hopefully, you haven’t fallen asleep by this. Maybe you can…

Brittany: I’m here.

Chris: No, and you’re pretty excited. Did you learn anything? No, don’t answer that. This could start to get weird.

Brittany: Yes, I have.

Chris: There you go, good, shoo. Let’s see if the folks out on webinar land can answer this call question, so yet. So, obvious rated here while it’s obvious. Now, for those of you that are brand new to go to meeting all you have to do is just select the one that represents your answer the most and then Brittany has got a little nice look crop on here that tells her what percentage of folks have answered this. So, wake up your mouse, hopefully, your computer hasn’t fallen asleep which is really stupid of me saying that. So, what are your AP goals? So, we obviously want to hear from you. Brittany, did you wanna read this? Am I stealing your thunder?

Brittany: No, no. You got it. I know even after one second longer, “What are your AP goals for 2016?” And I close that now, and I share the results, so we’ve got 62% who say their goal is to automate more AP processes. Five percent to improve collaboration between AP and procurement, and 19% to reduce operational costs, with 14% make AP more strategic and agile. So, a whopping 62% said automate more AP processes.

Chris: You know what, I like that and we can hold on this screen for just a little while…Oh, well, that’s fine, we can put it right there because there’s a couple of things that I wanna call out. And one of the things that I wanna call out and AvidXchange is pretty particular about this with our experience is that…and Brittany, thank you for doing this. We’ve got a couple of other poll questions later, so this is…be on your guard.

So, the reduced operational costs. When we first started this company, we thought that that’s what we were gonna do. We thought that was gonna be our big kind of go to market, you know, return on investment, people get money back. One of the most fascinating things about that is in order to do that, you actually have to reduce head count. Now, and you know, by the way, the business world is notorious for whenever someone can figure out how to reduce headcount, they’ll do it, and you know, it’s true. But the thing that’s fascinated about that is that…and the reason why it hasn’t been a big push for us and I’m glad everyone on the phone is kind of, not everyone, but you’re mostly in line with this is that, AP Automation or return on investment for AP Automation is a little bit of what I like to call “Funny money.” And in just a minute we’re going to get to this, but in a little more detail, but maybe just at this stage is that our average return on investment is about $97,000, or anywhere from about 75 to 97. I just liked it, uneven number 97,000.

So, no one’s gonna write anyone a $ 97,000 check, and we’re gonna talk about that in just a minute. Because it’s not one of those return on investments where it’s the material to the bottom line. And on top here where the majority of folks have said, “I wanna automate more AP processes.” And one of the places that we see great improvement it’s payment process, and you know, the other piece is that having done this for so long, and I don’t want to sound like an old man but really, it’s a new industry and we started in 2000 with the same just kind of bubbling up at that point and really the…so folks over time have started to do things like backhand scanning or maybe using emails to get questions answered. And all of that is a form of automation.

But really what we’re trying to do is we’re trying to help people realize that if you get rid of the paper early, put it into an approval process, if you watch it, report it, that it really starts to get where it gets really good, and then you attach the payment process to that. So, I’m glad that people are thinking about automating more air quotes because folks have already kind of found something that they typically do. And it’s a good chance to kind of improve or take the next step.

Okay, so let’s talk about safety here. So, I love this so much because accounting and finance, folks, by the way, if there’s one thing I know about accounting and finance folks, that I absolutely love is that, at their core their…and I’m generalizing here, but hopefully, this will resonate with you. And sometimes when I call this out, people will say, “I’ve never really thought about that.” But at their core, accounting and finance folks are excellent risk mitigators. So, I don’t know why they say that. They’re excellent risk mitigators. And the reason why is, I think that there is…if you think about what our job is, and like I said, I’ve been there myself, if you think about what the job is, it’s really to protect the company’s money. And I know that sounds maybe partially crass or somewhat true, but if you think about it, protection, you know, this is the idea of just flat out front.

And this is a survey from The Association of Certified Fraud Examiners, I’m just reading from the bottom. And really, it’s the medium duration of fraud and if you can focus in on that it approaches almost three years, it’s a solid two years. And by the way I want you to focus in on a couple of things because if you see down here, registry and then cash on hand, you know, skimming. All of these things to the bottom kind of half of this are kind of dedicated to more retail type fraud. But if you look at the top, the number one, payroll obviously is the big one. I don’t know why it spiked like that in 2012, very mysterious. But check tampering is probably one of the biggest ones. And we say check tampering, you know, what it is maybe someone just stealing preprinted check stock and filling this out. That’s barely where I think one of the bigger ones is check washing if you’re familiar with that where someone gets the check and they just, you know, they have the solution. It’s pretty complex solution where they just wash off the name and then put their name or maybe adjust the dollar amount, you know, that’s check washing. That’s considered tampering. I remember a friend of mine was telling me a story that someone had taken their check and just…with their finger and their tongues they just wiped off, erased the… smudged off the ink on the check, and this was years ago, smudged off the ink on the check, and then just put their name in it. And so, the CFO of the company, the treasurer of the company, and the director of accounts payable, all were fascinated by this so they took the check that had been tampered with and we’re doing the same thing trying to wipe it off with their thump and their DNA, and then they called the F.B.I. Well, they called the police and the police called the F.B.I. and that actual F.B.I. agent showed up and said, “Was this the check we’re talking about?” and they said “Yes.” and he took out some tongs and put the check inside of a plastic envelope to do DNA analysis which they were gonna find the CFO, and the treasurer, and the director of accounts. Okay, why did I tell that story? I don’t know. I thought it was funny. Hope you’re laughing on heat.

So, check tampering, fraud, it’s a big thing, some stuff around that is that about 48% of paper fraud is tracked back to a paper check. And so again, kind of this idea of…so let me read the other one, the percentage of corporate fraud that victims of check fraud about 70%…I wanna give you another step that’s on here that I’ve thought was fascinating about that study by the fraud examiners. And the stat is about 50% of all check frauds…so the case that I’m trying to make is that, again, paper has paper problems. A paper check has some considerable paper problems because the check can just get put into someone else’s hands and like I said, the tampering piece of it is pretty straightforward. You know, unfortunately, the criminals seem to be smarter than the enforcement. I hope with that doesn’t rub anybody wrong, but that’s typically the way that it works. They’re always kind of one step ahead because they really have to be, because once you’ve kind of figure something out…I’ll give you an example, positive pay stops a lot of check tampering. And if you aren’t familiar with positive payoff, if you have it, and all the checks that you cut, that’s something that we did. You know, we put a positive paid program that affects for every check. So, if it’s tempered or changed in any way, shape, or form, the thing doesn’t clear. I think that’s one of the better advances.

But one of the most remarkable things that’s about check fraud, check tampering to be precise, is about 50% of the fraud is prosecuted on. So about half of the fraud that happens…and I remember doing this session live, and I had asked the group live why they thought this was the case. And the answer came back, which I thought was really interesting. And it was based on personal experience. And the answer came back which was quite frankly, people were a little embarrassed about it. And so, I think that’s an interesting thing to bring up is that you have fraud, most fraud is perpetrated on a paper check. We’ve all been involved with it and maybe one more stat to kind of talk about here is that over the past two years as much as $750 million has been lost to fraud. Fraudsters according to the FBI, right?

So, it’s a big number, it’s a really big number. And like I said, everyone on their phones, and I wish this was live, because this is typically the part where I feel, “You’ve got a story?” And I’m always impressed because I always practice at the backstage, who’s got a story. And I always say, “Now, by the way, the story doesn’t have to be about you.” But they always tell something personal, and they’re always absolutely fascinating. And so, I’m gonna make a point about this, but I don’t wanna take one step further here and that is, remember that thing that I said about the criminals being one step ahead, this wire fraud thing…I think this is called the CEO fraud. There’s a couple of names, CFO fraud. It’s not fraud by the CEO. But this wire thing has become…wire fraud has become a remarkable… it’s really, I mean, it’s absolutely gotten people. And when I’ve asked people in the live session to tell stories, they’ll tell stories about this. And I remember one session was really interesting because they got a… they’re very crafty. These people will set up companies and email addresses that look almost identical to yours. There might be a letter, or a dash, or a dot. You’ll have to look at it closely to find anything wrong with it. And they get the CEO’s name exactly like the email they would have, and then they would send someone in the accounting or finance department an email that says, “We’re bad straight here, we need you to wire a sum of money to this account. If you could just do it as soon as possible, that will be great.”

And I remember, I remember in one of my sessions, a woman said that she had almost done it but she had caught one of these emails and it was just so convincing, and I hope you can laugh about it because that sounds kind of hilarious. And that is the reason why it stuck out to her as not being from the CEO, and the reason for doubting it is because the email said, “Please and thank you.” How about that? So, if they hadn’t said please and thank you if they had known a little bit more about the relationship the CEO had with his accounting and finance people, then they may have gotten away with it, which was her point. So, it’s a new one. This is interesting fraud where an email comes and it asks for wired sum of money and then it looks legitimate

And so, these are big things, but I got to tell you. In terms of safety, just kind of, you know what, I’m not gonna read this but I’m gonna give you the highlights on this and that is, when you get rid of paper, whether it’s invoices or checks, and you start all the way from the invoice piece, all the way to the payment piece and string it together electronically with the accounting system put in there, what you have is the ability. Now here’s the thing, whenever there is a fraud situation, the first thing that it’s usually someone in accounting or in finance sees it. And it’s usually one person. And what they have to do is they have to say, “Okay, am I seeing this right? Am I getting this right? Okay.” And once they’re convinced that they’re seeing it right what they have to do is they have to make dang sure that the next step is they’re gonna have to bring someone else in to double check this. And in order to do that they have to be really sure that what they’re seeing is legitimate fraud.

So, if you’re ever kind of tiptoeing and then you bring somebody else, and then you have to as a small group you have to make a decision, “Okay, is this something that we need to bring to the powers of this?” Because someone’s probably gonna get fired over this, right? Especially with the internal fraud case. And then when that happens, you go make your case and you’ve got to be really…it’s got to be an airtight case, so you have to have all of your facts together.

So, that’s what life is like when you are paper based. Because you’ve got to make sure that you’re all set. When you’re automated, what happens is the software proactively can track those things. Let me give you an example. We helped an organization stop someone who was stealing from the company. And what she was able to do…see, one of the thing that’s difficult about fraud is that the people who perpetrate it, especially inside of the business, which is the most egregious and is the one that goes on for the longest, and it’s usually the biggest dollar amount, that’s someone on the inside. What happens is over time your processes and procedures become quite frankly a little well predictable. I was almost gonna use the word soft so I could be like cool people, but it becomes predictable. And so, this young woman at a pretty large organization knew that if she was able to create a purchase order under a certain amount of money, she could get that purchase order approved. And as long as that purchase order was approved and the invoice matched, it would actually be paid. And so, what she was able to do was she was able to completely fly under the radar and the long and short of it is…and this is basically in a paper world.

The purchase order was electronic, but the fulfillment of the purchase order and the reconciliation of the purchase order with the invoice was paper-based. And so, she was able to fly under the radar and she was able to buy furniture at Staples and have it delivered to her house. Here’s how she got caught. Is that when we automated it, we were able to very easily find out that the shipping address didn’t match any shipping address that was in the ERP, and then we bumped that address up against the employees, and we found that person pretty easily.

So, that’s the thing, is that automation can proactively create the cases for you and they can look for certain things. And by the way, there were two crimes that were perpetrated in that one incident, is she stole from the company by buying Staples furniture and having it shipped to her home. And crime number two is she outfitted her house with Staples furniture. I know everyone’s got, “Oh, well.” I hope no one has bought Staples furniture for their house over the phone.

So anyway, when you’re automated, you can set proactive things in place. Let me give you another example. We check for duplicate invoices three times. When the invoice comes in, against the invoice number, and when the invoice goes to the accounting system against the invoice number. The third time is we check the date, the dollar amount, the location and the vendor regardless of the invoice number. And if all of these things match, it’s a potential duplicate and we put it on our report called, “Duplicated invoice and fraud monitoring.” Because what it does, is going after those vendors and suppliers that have realized if they change the invoice number, they have a potential of getting this invoice paid twice. So, we track that. That’s one of the powers of automation.

Wasting time and money is a good thing, who agrees with me? Well, by the way, time is our unofficial currency. We can’t get any more of it. It’s valuable. We say things like “Time is money,” you know? And really, that’s one of the biggest powerful drivers of automation.

So down here the stat is that the amount of time per AP staff that’s spent performing manual tasks is about four hours. My friends at PayStream Advisors put together. And really, if you wanna kind of do the math yourself, you know, we’re gonna get you this about how many invoices do you process, how many payments do you process, and how many AP staff do you currently employ. And if you look at this kind of the math, you can kind of see it’s based on 1000 invoices, 1000 payments. By the way, if you have 1000 invoices you gonna have about 750 payments, two AP staff. So, you’re able to free up about 160 man-hours per month, which the total saving is about 14,000.

But here’s the thing that I’d like to do, here’s the thing that I’d like to kind of point out. And that is, every time I ask someone if they’re interested in AP Automation, one of the things that I say is, the person doing the accounting system data entry which is the biggest place. If that was to go away, that person, what else could they do that could benefit the company? And if you can answer that question, “What am I gonna do with the time that’s freed up?” So, that graph that I showed you earlier where our job is to free up as many manual tasks as possible, and I had mentioned that the ROI is a little bit of funny money which is no one is arriving at $97,000 check, you know, in general.

The idea is that I’m gonna free up anywhere from 2000 to 5000 hours annually. What could you do with that time? By the way folks, if you have an answer for that, “Here’s what I’d do with the time.” You’re a perfect candidate for automation. And if you don’t, that’s something we’d like to help you out with, because we have multiple places that, oh, I thought I had a slide for that. We have multiple places where folks have the ability to utilize time wiser.

Okay, let’s do this, Brittany, let’s wrap it up.

Brittany: So, thanks very much, everyone, for your time and attention today.

Interested in learning more from an AP Automation expert?
Hosted By:
Chris Elmore
Director of Product Strategy at AvidXchange