Posted by Steve Wilcox on Tue, Aug 18, 2009 @ 01:06 PM
Many years ago, I owned a 2-story condo in Silicon Valley. Unbeknownst to me, I had a leaky pipe in the upstairs bathroom. I guess it started as a very small leak that was undetectable. One weekend, I went skiing at Lake Tahoe. When I returned, I was horrified to find the entire condo flooded! That darn leaky pipe had burst, flooding the entire 2nd floor ... and ... the water leaked through the 2nd floor to flood the entire 1st floor ... and ... water leaked through the 1st floor to flood the neighbor's unit below! What a disaster!!!
The water damage was extensive ... and the repair costs prohibitive ... all because of a tiny leak.
Tiny leaks can turn into BIG leaks ... very swiftly. This is especially true when it comes to paying invoices.
If a company is struggling to meet its working capital requirements, a broken AP process is like a leaky pipe that can cripple cash needs. We all know that manual, paper-driven processes are ripe for "leaky" errors ... errors that can critically affect working capital. Keying errors, lost and/or misfiled documents and matching errors, as examples, can lead to duplicate payments & overpayments.
These payment errors directly affect available cash. And CASH IS KING right now.
In manual processes, most errors are human errors. As corporations continue to cut SG&A costs, human errors are going to rise. Count on it.
With the downsizing of finance departments, there is going to be a rise in careless accounting and transaction processing mistakes. Nowhere are the risks greater than in under-staffed finance departments - especially AP.
And here is where the real danger lies. In over-worked AP departments, small leaks (payment errors) run the risk of becoming a BIG leak that threatens precious operating cash reserves. Cutting staff in AP is invariably going to lead to more mistakes and errors in manual, paper-intensive operations.
Here's an eye opening statistic from Jon Casher, a well-respected procure-to-pay expert:
For $1 billion in spend, $2-20 million (0.2% - 2%) is erroneously paid
Drifting to the 2% end of the range is very risky at a time when working capital optimization is a top priority.
The solution? Automate your AP processes. And get rid of the paper as early in that process as possible. There is a direct correlation between automated processes and lower error rates (more on this in a future blog post).
-Rakesh Shukla
@rakesh170
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