ISG Software Research Analyst Perspectives

Irked by the need to account for every penny of his college expenses, poet Robert Frost penned the lines: Never ask of money spent Where the spender thinks it went. Nobody was ever meant To remember or invent What he did with every cent. Though Frost might bristle, in our digital age, it is possible to keep track of even trivial outlays with a minimum of effort. Every cent, in fact. Historically, it’s been difficult to convince CFOs to invest money in technology that makes it easier to spend money. That’s probably because before digital technologies, the natural impediments to spending stood as crude but effective strategies for fiscal control. Today, however, not using technology to streamline corporate spend actually increases costs and decreases control. Integration of technology can transform two important aspects of handling outlays: Modernizing requisition-to-pay, especially by automating accounts payable (AP) processes; and digitizing employee spend. The right software can increase visibility, provide always-vigilant automated supervision, and enforce process conformity. Organizations can then take positive measures that rein in maverick spending by facilitating seamless compliance with policies and procedures. One bonus is that the use of technology to pay legitimate invoices quickly enables organizations to negotiate and take early-payment discounts from vendors. However, for many small and midsize businesses with limited access to financing or with a cost of capital above the returns to be had from taking discounts, it’s reasonable to be parsimonious in disbursing cash. Those businesses aren’t able to accurately process paper fast enough to take advantage of discounts and therefore can’t negotiate discounts effectively. But in an era of low or negative real interest rates, getting a 5-15% discount for paying invoices within a week or two of presentment can provide savings that amount to a very rich return on capital. Digitizing AP is a prerequisite for streamlining this requisition-to-pay process. Our market assertion is that by 2024, more than one-half of organizations will have digitized their accounts payable function to increase staff efficiency and take advantage of early payment discounts. Compared to manually processing and storing paper in file cabinets, the act of scanning a paper invoice, using optical character recognition to automatically extract the information contained in the invoice, then saving that image for future reference saves time, reduces the chance of data-entry error, and facilitates document retrieval. And digital processing is essential with a significantly mobile workforce, or when people just aren’t able to get to an office. Integrated digital AP functions can then support an organization’s flexibility in who and where to hire, and how requisitions reviews and approvals take place. The basic technologies for digitizing AP have been around for decades, but recent advances have made using them easy and inexpensive enough for even small and midsize businesses. Many software offerings now use a smartphone to capture images of invoices and receipts, and can then manage the process of storing, performing the required levels of matching and approval of payment. Mobile devices also are used for notifications and data access, which substantially reduces process friction and workloads. Many software vendors also offer simplified access to a central database of invoices for fast and handy reference. Some applications also integrate a purchase order (PO) capability to automate the management of a full requisition-to-pay process. Those organizations with policies that require an approved PO can help facilitate compliance by using an application that makes it relatively easy for an individual to create a PO and then automatically route the document within the application to the appropriate individual(s) for approval. Then, by reducing the effort of the requisition process, organizations can opt for requiring purchase orders for an even wider set of purchases, which provides more accurate forward visibility into expenses and cash flow. Managing employee spend effectively has come to mean a cloud-based, mobile-centric approach that enables people to easily access and manage expenses end-to-end. This includes scanning receipts and grabbing data from credit or debit cards, through the creation of an expense report, to final approval, all happening wherever and whenever it’s convenient. Spend management software ranges from simple applications aimed at smaller businesses to global expense reporting that offers a range of currency and language capabilities. The extra functionality is especially helpful for multinational organizations, because many must comply with complex international tax requirements and the regulations of specific country or tax jurisdictions governing employee spending and reimbursement. Another area of spend where we’ve entered the digital age is with the physical or virtual employee spend card. These streamline routine purchases and substantially reduce manual data entry and administrivia, while potentially also improving control. The cards can be configured with the individual’s roles and responsibilities, which defines where and how the cards are used (for example, fuel or supplies from specific vendors), and can prevent use where possible conflict is detected. Approvals, where necessary, can be automated or automatically routed to the appropriate individual. Data from the purchase is captured at the source, making it possible to forgo manual entry, and each purchase can be categorized for immediate detailed visibility and compared to budgets. Topping-up balances on debit cards also can be automated with built-in approval routings and notifications that alert when someone’s attention is required. Digitizing finance and accounting is something that organizations are embracing to increase efficiency, lower costs, enhance control, deepen visibility and ensure continuity. This is happening on both sides of the ledger, for receivables as well as payables, as we recently wrote. AP and employee spend are areas that are ripe for change because affordable and available technology can have a measurable positive effect on the department’s performance, costs, and employee satisfaction. I recommend that all companies assess their AP and employee spend processes and procedures, and investigate how software can improve performance. Regards, Robert Kugel

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