3 Ways AP Can Help Businesses Weather an Economic Storm
Elizabeth Allen 
April 6th, 2023
We are entering into a tumultuous time. Finance departments, specifically, are about to experience some unprecedented financial challenges. With rising interest rates, sky-high inflation, clogged global supply chains, and a tough labor market- it looks like an economic slowdown is on the horizon.
That’s where accounts payable departments can make an incredible impact, as long as they use the right tools. Below, we’ll talk about what’s happening on a macroeconomic scale, what’s currently tripping finance up from being the ballast in these times, and how automation of your end-to-end AP processes is the action plan all organizations need to exit this uncertain economic climate not only intact, but ready to continue progress towards growth. Discover how to prepare and grow during a recession.
What Is Happening?
According to 38 economists surveyed by Bloomberg, we are anticipating a 70% chance that the US will enter a recession in 2023 (that number is up from a 65% chance reported in November and a 30% chance reported in June). With that news, many companies have begun bracing for the impact.
And all of this makes it hard for businesses to see tremendous growth in 2023. However, the good news is that most economists believe that any upcoming recession will be short-lived. Therefore, it’s imperative that companies not only focus on financial stability, but that they keep an eye to growth in a time where that doesn’t seem instinctual.
“ These are interesting times when it comes to finance departments. We are in a tumultuous time. We have this combination of rising interest rates, sky-high inflation, clogged global supply chains, and a challenging labor market just to top it all off. And all of this together has made it look likely that a recession, or at least an economic slow-down, is in our future. ”
Mark Brousseau, President, Brousseau & Associates
A complicated labor market changes what we expect
Usually, the very first move we see companies make when the economy appears to be in turmoil is to start staff reduction efforts. Lay-offs generally are the first sign that things are about to get bad, financially. And recently, there have been major tech companies such as Spotify and Meta that announced significant staff reduction, but the numbers of reported lay-offs don’t seem to align with what we generally see in these situations.
It appears that this is because organizations are trying to hedge their bets as to how bad the recession will be – trying to ensure that when things start to ramp back up again, they have the workforce in place to start focusing on growth again. It is taking longer to fill positions. We’re seeing fewer annual salary increases or signing bonuses specifically within AP roles. And currently, 30% of AP staffers are either actively looking for new jobs or are expecting to begin a job search within the next 6 months. Pair that with the loss of the typical influx of recent graduates to AP – as many of these candidates are flocking to better paying service industry jobs instead – and companies simply need to make sure they don’t end up having to rebuild their workforce during a highly competitive labor market.
Shifting CFO priorities
As the needs of the global market change, the priorities of CFOs have been morphing. Less focused on the typical corporate growth, they are now dedicated to ensuring financial stability during a time where that could make or break a company. By rooting out inefficiencies in the AP process, CFOs are looking to do more with less, being able to continue a successful operation as companies are attempting to reduce headcount. They have also recognized how little control they previously had over corporate spend. They are working to rein in unnecessary expenditures while knowing how much the organization is spending, who is spending it, and who they’re spending that money with. Lastly, CFOs now understand that they need to adjust quickly to changing economic conditions, disruptive competitors, or the entrance in new markets.
To focus on all of that, CFOs now rely on real-time data that provides insight from the moment of procurement. And in a potential recession, they’re turning to AP departments to get that information. This is a complete sea-change for how AP teams and CFOs have previously interacted- both parties now relying on each other far more than ever before. The AP team has become an information hub for CFOs and all the key stakeholders, just as information becomes the key to a company’s financial health.
“ For too long, accounts payable has been this quintessential back office function. We were a tactical drain on resources. But the fact is that AP can help be a driver of growth to the business if you take the right steps. ”
Mark Brousseau, President, Brousseau & Associates
Eliminate manual work and inefficiencies
60% of the median cost of AP processes I wrapped up in manual labor. These manual, repetitive tasks not only cost money, but staff time is monopolized by things like keying in invoices, managing invoice exceptions, routing payments for approval.
And as 78% of finance leaders are looking to be able to make it through this uncertain time without needing additional headcount, AP teams are going to need to find a way to free their talent up.
Free them up as CFOs will be more likely to charge them with responsibilities like data analysis, trend forecasting, and strategic collaboration with vital stakeholders.
It is costly for a company to be inefficient in its workflow process. This is especially true within AP as they prepare for an economic downturn. Globally, $1.5 trillion is currently being held hostage on balance sheets [PwC Working Capital Study] due to manual processes and interventions. Poor visibility, past-due payments, overworked staff, and difficulty scaling are all unforeseen consequences of departments hesitant to automate.
Mitigate fraud
As technology advances and the world gets bigger, fraud is just an expected risk that all companies take. According to the Association of Certified Fraud Examiners, a typical fraud case results in a loss of $8,300 per month and it generally takes 12 months to detect that the fraud has even occurred.
12% of the fraud perpetrated within an organization occurs in the accounting department while only 6% of fraudsters had a prior fraud conviction.
As financial pressures begin to weigh on individuals with a downturn in the economy, it’s anticipated that we’ll see an uptick in fraud attempts. Unfortunately, those attempts will likely be by people who previously seemed to be trusted allies. The trick is not to give fraudsters the opportunity.
“ It’s imperative as AP leaders to have your AP department prepared for anything. Whether the economy goes sideways or we keep chugging along, you want to make sure that AP provides a foundation for efficient, scalable growth of your business. ”
Mark Brousseau, President, Brousseau & Associates
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How to Weather the Economic Storm
With staff reductions, costly borrowing, and the scaling back of operations occurring due to the potential recession, it feels like organizations are being forced to take a few steps backwards. Once the economy rebounds, companies will find themselves one step behind as they look to future growth. They will have been placed in a position where they have to entirely rebuild their workforce and processes to encourage growth over stability. However, if an organization builds and nurtures a foundation of efficiency, control, and adaptability- it will find itself ahead of the game when it’s time to turn our eyes to developing further. This foundation will make any business recession-proof.
1. Efficiency
Inefficiencies create a domino effect in any company. And the disaster of these dominos is exacerbated when it comes to the payables team. There are so many moving parts – PO requisitions and presentment, supplier onboarding, invoice processing, supplier payments, and reconciliation and reporting. In each of these steps, a single mistake or typo can have a devastating downstream impact. A poorly designed and chaotic process can result in delinquent payments, negatively affected vendor relationships, and the risk of being defrauded. All in a time where companies simply can’t survive these kinds of catastrophes.
According to IOFM, it costs highly automated AP departments less than ¼ as much to process a single invoice. They are able to process eight times as many invoices. These departments also make less than ¼ of duplicate payments and benefit from seven times as many early-pay discounts compared to their less automated peers. It’s undeniable- automation is the cornerstone of efficiency for any payables team. Streamlined workflows eliminate misrouted invoices. Notifications and alerts for pending invoices and upcoming due dates ensure invoices are never paid late. Automated escalations decrease the number of manual interventions needed (including minimizing the risk of fraud caused by a reliance on email for these workflows). And real-time visibility into invoice status not only reduces the number of check-in requests from vendors but provides the greater organization crucial information to help forecast trends and make more strategic decisions.
93% of finance leaders believe that end-to-end automation can improve their overall AP process [InsightAvenue]. Identifying an automation solution that offers workflow configuration, invoice routing, , audit tracking, exception handling, user-friendly dashboards, an ad-hoc reporting is the first step to achieving peak efficiency.
2. Control
Increase in spend scrutiny
According to IOFM, most organizations report having tight control over only 74% of their corporate spending- leaving them in poor control of 26% of their spending, sometimes resulting in complete waste. Capturing spending from the moment the PO is requisitioned will leave CFOs feeling that they have a tighter grip on control.
To understand what’s happening all the way through the process- AP automation solutions are the key. Automate processes with rule-based approval routing and automatically generating POs. Streamline vendor onboarding and management (50% of AP leaders say that their onboarding process is more complex, takes up more time, and is riskier than in previous years- IOFM).
Automtion will also give you the kind of visibility into the entire spend pipeline your senior management needs to feel that they’re in total control during an unprecedented economic time.
One-third of AP departments report that it is taking longer to get to financial close than before the start of the impact- it’s simply more work to gather information from people who are working remotely.
AP automation is the way to expedite the real-time reconciliation of invoices and payments. Leveraging features such as graphic dashboards, drill-down capabilities, mobile access, exporting functionality, and ad-hoc reporting, companies will be able to understand cash flow and their organization’s current cash needs more accurately.
And with digitized tax form collection, the ability to verify bank account details, and electronic payments, companies are mitigating the risk and compliance issues that might result in impacts to spending.
3. Adaptability
The truth is: this panic could all be for naught. As the economy isn’t entirely predictable, there is a possibility that companies go into the year expecting it to be a struggle, only for things to change just as rapidly. In that case, a company that expected to focus on financial stability has no plan for growth. In a competitive industry, losing an entire year of growth potential could make or break your company. You need to be able to turn on a dime during a time when things are not as clear cut as they may seem.
Using historical data that automatically flows through AP will give you the understanding of how your organization’s cashflow behaves. Using an automation solution, you can forecast industry trends, building a real-time strategy with the CFO to optimize working capital. And the unmatched visibility automation gives you, in the form of user dashboards and ad-hoc reporting, will ensure that your company’s entire operational performance can encounter whatever the economy may throw at it.
Is it Time to Move to the Cloud?
22 Ways to Know
A Checklist
An inefficient manual supplier onboarding and management process
Lack of tax compliance
AP employees that work from home or in a hybrid situation
Lack of control over company spend
Invoice exceptions that create bottlenecks
High payment error rates
Manual payment reconciliation processes
An inability to manage the process after office hours
Difficulty scaling AP operations
Poor visibility into the entire process
High costs associated with AP operations
An increase in past due payments
Overworked staff
A solution that relies on on-site IT infrastructure and hardware
A reliance on IT professionals (internal or 3rd party) each time an issue occurs
Recent staff reductions due to economic uncertainty
Constant calls and emails form vendors requesting invoice statuses
Audit tracking that relies on spreadsheets
Manual tax form collection and validation
Recent staff reductions due to economic uncertainty
Concern about your organization’s fraud risk
If you selected 2 or more of these, it’s time to consider graduating to a cloud-based AP automation solution. With easy accessibility and enhanced security measures, you can feel confident that your invoices are being paid on-time, every time. And your AP team will have the freedom and flexibility to engage with more value-added tasks that keep them fulfilled and loyal to your company.
Everyone wins with cloud-based AP automation solutions like MHC NorthStar!
How MHC NorthStar Positions You Well
for an Economic Downturn
With improved efficiency, strengthened cost control, and enhanced business agility, companies can find a better way to adjust quickly to changing economic conditions, new disruptive competitors, or the entrance into new markets. The only way to accomplish this is through access to real-time data from procurement to payment, offering CFOs the full picture of their current cash flow.
And MHC NorthStar is the tool to get you there. With permission-based cloud-based accessibility, your AP team will be able to automate accounts payable at the touch of a button, from anywhere on the planet. Its intuitive and configurable features will enhance sustainability, adaptability, visibility, and control in a time where those things are paramount to the success of any company. As we step into an uncertain future, rely on the power and ease of automation to feel confident about your company’s overall financial health.
“ If you are interested in this topic and would like to hear more, watch our recent webinar featuring Brousseau & Associates’ Mark Brousseau as he takes you through the three ways AP teams can weather any economic storm. Join us for this webinar as our speaker shows you how AP can help a business thrive and succeed, no matter the economy.
Economic storm clouds are gathering. The combination of rising interest rates, sky-high inflation, a challenging labor market, and clogged global supply chains will test the financial mettle of businesses of all sizes in 2023. Join us for this webinar as our speaker shows you how AP can help a business thrive and succeed, no matter the economy.
MARK BROUSSEAU, President of Brousseau & Associates
Over the past 27 years, Mark Brousseau has established himself as a thought leader on accounts payable, accounts receivable, payments, and document automation. Brousseau has chaired numerous educational conferences and has served on several industry committees and boards.
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