Future of Accounting AR and AP Doug Sleeter Fall 2015
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The future of accounting is here, today, and it's changing rapidly. Cloud and mobile technologies are becoming new drivers of opportunity for accountants and bookkeepers. Paper-based, manual-entry systems that are only accessible from inside the firewall are no longer viable business models for a sustainable future. In this session, Doug Sleeter will show how your organization can embrace the future now and become a more successful, agile organization by implementing new technologies, workflows, and security practices to dramatically improve business results.
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Future of Accounting AR and AP Doug Sleeter Fall 2015
- 1. @dougsleeter The Future of Accounting Focusing on: Accounts Payable & Accounts Receivable
- 2. @dougsleeter Follow on Twitter @ dougsleeter Doug Sleeter 800 Member Accounting Consulting Group Author — Textbooks and Reference Guides Consultant to Software Developers www.sleeter.comCPA Practice Advisor Columnist, Top 25 Thought Leader Accounting Today Top 100 Most Influential People Small Business Influencer Champion The Sleeter Group
- 3. @dougsleeter Problems? What Problems? Nothing is Broken in Corporate AP and AR Processes Today REALLY!?????
- 4. @dougsleeter The Paper Check Prevails – B2B Payments Annual Payments Study 2014 Data 0 50 100 150 200 250 300 350 Paper Checks ACH Payments Online Bill Payments Online Bill Payments via Non-Bank Providers Online Wire Payments Wire Payments in a Branch or Telephone Average # of Monthly Non-Payroll Payments Middle Market $10MM- <$500MM Small Business $100K- $10MM Source: Barlow Research
- 5. @dougsleeter The State of AP/AR Today Other Departments are Getting the Attention Because they Generate Revenue
- 6. @dougsleeter The State of AP Today When AP Departments do Modernize, they focus on payments However! Barely half of companies plan to convert to e-payments soon
- 7. @dougsleeter 28% 32% 33% 34% 39% 41% 45% 45% 48% 48% 19% 21% 22% 22% 23% 25% 29% 28% 29% 33% 37% 39% 40% 36% 39% 39% 41% 40% 40% 44% 15% 20% 25% 30% 35% 40% 45% 50% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 %UseatAnyInstitution Online Bill Payment ACH Wire Transfer Services ePayment Adoption – Small Business – Slight Increase Source: Barlow Research - Small Business Trailing 4 Quarter Data Q: Please indicate which of the following products and services your company currently uses. Small Business $100K-<$10MM
- 8. @dougsleeter 26% 28% 33% 38% 37% 37% 43% 43% 43% 41% 62% 71% 74% 77% 76% 76% 76% 77% 79% 79% 86% 89% 89% 91% 89% 87% 90% 88% 90% 87% 0% 20% 40% 60% 80% 100% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 %UseatAnyInstitution Online Bill Payment ACH Wire Transfer Services ePayment Adoption – Middle Market – FLAT Middle Market $10MM-<$500MM Q: Please indicate which of the following products and services your company currently uses. Source: Barlow Research - Small Business Trailing 4 Quarter Data
- 9. @dougsleeter Payments – Tip of Iceberg EPayments alone doesn’t solve for: 1. Process Automation 2. Workflow and Collaboration 3. Integration with Accounting 4. Cash Flow Monitoring/Mgt 5. Security for the whole process
- 10. @dougsleeter “If you don’t like the answers you’re getting, change the premise of your question.” —Tom Selleck as Jesse Stone, in Lost in Paradise Maybe we’re asking the wrong questions?
- 11. @dougsleeter Top 4 Goals of AP Organizations 1. Automate AP Processes 2. Improve Collaboration and Process Linkage between AP and Procurement 3. Reduce Cost of AP Processes 4. Transform AP into a more strategic, agile business function Source: Barlow Research
- 12. @dougsleeter SMB AP – A Manual, Messy, Expensive Process Slow/Messy Time-Consuming/ExpensivePaper-Heavy Manual Complex ENTER PAY RECONCILEAPPROVE
- 13. @dougsleeter The Old World: Separate Processes – Little Integration Vendors (A/P) Paper Invoices Manual Entry Some Email, most don’t No visibility into payment timing Payroll Mostly Paper Checks Mostly Desktop Solutions Manual Entry Error Prone and Costly Customers (A/R) Most Pay by Paper Check Grouping Deposits Trips to Bank Security Risks General Ledger Manual Entries Paper Based Complex Reconciliation Accounting Software Mostly Desktop Manual Data Entry Reliant on Paper Fraud Risk Banks Online Banking ACH No Document Attachments Little Integration
- 14. @dougsleeter The Old World: Paper Intensive and Manual Vendors (A/P) Paper Invoices Manual Entry Some Email, most don’t No visibility into payment timing Payroll Mostly Paper Checks Mostly Desktop Solutions Manual Entry Error Prone and Costly Customers (A/R) Most Pay by Paper Check Grouping Deposits Trips to Bank Security Risks General Ledger Manual Entries Paper Based Complex Reconciliation Accounting Software Mostly Desktop Manual Data Entry Reliant on Paper Fraud Risk Banks Online Banking ACH No Document Attachments Little Integration
- 15. @dougsleeter The Five Trends • Cloud and Mobile • “Chunkification” of Business Process • Integration of Point Solutions • Zero Data Entry • Collaborative Accounting Driving New World Solutions
- 16. @dougsleeter Mobile Devices are Ubiquitous But… Today’s AR and AP processes do not leverage mobile devices at all This cannot last long
- 17. @dougsleeter Chunkification of Business Processes SOLUTIONS DOCUMENT BANKING & MANAGEMENT DASHBOARD VERTICAL “Chunkify” and Integrate ECOMMERCE PROJECT MANAGEMENT PAYROLL ONLINE INVOICING AND BILL PAYMENTS CREDIT CARD FEES ANALYTICS CRM
- 18. @dougsleeter Buyer Customer’s Cloud Solution Converts “Bill” into a Payable Transaction and starts the payment approval process Human Review of Auto- Entered Data (Account, Dept., and Job Codes) Human Enters Order into Online Shopping Cart, or into POS, or Phones the Seller who Enters the Order Customer Shops and Places Order Seller Accounting Reconciles Transactions (Human Review of Auto-Entered Data) Seller receives funds electronically in bank, and the Cloud Solution records the receipt in the accounting system Customer Initiates Payment via Electronic Bill Payment System Zero Entry Seller Receives Order Electronically Seller’s Cloud Solution Converts Order into Invoice and Sends Electronic “Bill” to Customer. Also sends order to fulfillment
- 19. @dougsleeter Collaborative Accounting Anytime/Anywhere Enhanced Security Less Expensive Data Always in Sync (Live) Simplicity Reduced Client IT Needs
- 20. @dougsleeter Innovators 2.5% Early Adopters 13.5% Early Majority 34% Late Majority 34% Laggards 16% Technology Adoption Curve Crossing the Chasm of Adoption But Adoption Comes Slowly Based on Geoffrey Moore – Crossing the Chasm
- 21. @dougsleeter Only the Paranoid Survive “Only the Paranoid Survive” Strategic Inflection Points 10x Changes Disrupt Yourself – Lest Ye Be Disrupted 21
- 22. @dougsleeter To provide maximum value at minimum cost to the company? To serve internal and external customers better, faster, and with less budget. To embrace modern hardware, software, and cloud solutions. To focus on improving efficiency by 10x. What if you could redesign…. …your finance department?
- 23. @dougsleeter AP: Niche Modern (Customer) Connected via “Trust Network” Redesigning AR and AP Processes in the New World Better Collaboration and Visibility of Status and History Send notes Ask questions eInvoice eInvoice sent becomes eBill (no data entry for AP) eBill 1 Code & Approve (Multiple approvers & Notifications) 2 ePayment is sent (faster payments, lower costs) Pay eBill 3 ePayment auto-applied to eInvoice (no data entry for AR) Receive ePayment 4 AR: Artisan Lamps (Vendor)
- 24. @dougsleeter Sync to Accounting Automating Back End Accounting Sync to Accounting Bi-directional Sync to Accounting 1. Chart of Accounts 2. Customers 3. Vendors 4. Sales Items 5. All Transactions Connected via “Trust Network” AP: Niche Modern (Customer) AR: Artisan Lamps (Vendor)
- 25. @dougsleeter What about the Documents? Paper? Attach Docs to Bills E.G. Invoices, Contracts, etc. Attach Docs to Payments E.G. Check images, notifications, etc. eInvoice eBill Pay eBill Receive ePayment AP: Niche Modern (Customer) AR: Artisan Lamps Vendor) Connected via “Trust Network” Better Collaboration and Visibility of Status and History Send notes Ask questions
- 26. @dougsleeter What About Security? 1. Paper = Fraud Risk 2. Manual routing of paper - no Control/Security 3. Manual data entry – Errors and Password sharing 4. Online banking – Weak role-based security 5. Audits – cannot see who did what when 1. Epayments reduce risk of fraud 2. Role-based security 3. Instantly grant or deny access 4. Document attachments - Instant access 5. No check stock in the office 6. Clear separation of duties 7. Automated business rules strict enforcement 8. Bank-level security for access Old World New World
- 27. @dougsleeter The Complete Redesign Includes Trusted 3rd Party “network” that Solves for All The Pieces Document and Transaction Management Approval Workflow Electronic Money Movement Notifications Accounting Integration Web Access for Complete Visibility to all Parties Security and Audit Trail
- 28. @dougsleeter Disruption and Agility If you Don’t Disrupt Yourself Agility Trumps AbilitySomeone Else Will
- 29. @dougsleeter More from Sleeter Group www.sleeter.com Accounting Software Consultants – Join us! Blog - Sleeter Report On Accounting Tech FREE Certification Programs
- 30. @dougsleeter Thank You Doug Sleeter, Founder – Sleeter Group @dougsleeter doug@sleeter.com
Editor's Notes
- The future of accounting is here, today, and it's changing rapidly. Cloud and mobile technologies are becoming new drivers of opportunity for accountants and bookkeepers. Paper-based, manual-entry systems that are only accessible from inside the firewall are no longer viable business models for a sustainable future. In this session, Doug Sleeter will show how your organization can embrace the future now and become a more successful, agile organization by implementing new technologies, workflows, and security practices to dramatically improve business results.
- If you’re in this room, I’ll assume you disagree with this statement, but the overwhelming evidence from research and from our network of consultants seems to confirm that… In the eyes of most SMBs, AP and AR processes are fine the way they are. Just fine. REALLY?
- When we talk with many AP departments, we often find resistance to new world technologies and workflows. Essentially they’re telling us “nothing is broken.” But there must be a better way. You’re here because you believe there are better ways of doing things. And you’re right. Paper checks dominate B2B Payments by an overwhelming margin This chart shows the average number of non-payroll payments each month Middle Market – 314 paper checks, 30 ACH, fewer than 5 payments of all other types Small Business – 30 paper checks, 3.4 online bill payments, 3 ACH payments, fewer than 3 for all other types
- Most organizations are focusing on other pressing areas such as ecommerce, payroll, CRM, and vertical solutions that drive revenue, so there simply isn’t enough energy directed towards the “AP problem.” And since it’s not screaming at them, nobody really takes notice.
- When AP departments do act, it’s usually about moving to ePayments using ACH and/or Wire transfers. But payments are just the tip of the iceberg. Barlow Research – 2015 study Barely half of companies plan to convert to electronic payments soon 40% of small businesses. 52% of middle market companies
- When asked which of the following products (Online Bill Payment, ACH, and Wire Transfers), the company currently uses Small Business Online Bill Pay 48% Wire Transfer 44% ACH 33%
- The adoption rate for eBills and eInvoicing remains flat. Services used by the Middle Market Wire Transfer 87% ACH 79% Online Bill Pay 41%
- Since ACH only deals with the actual money movement… It doesn’t address the much larger issues of: Process Automation Workflow and Collaboration Integration with accounting Tighter controls on cash management and cash flow Security Huge shortcoming of Online Banking: Most often, there is no connection between online banking and company accounting systems or supporting documentation. 76% of small businesses and 67% of middle market companies do not routinely record transactions from online banking into their bookkeeping system. Of those that do, the majority transfer information manually. ALSO Cash flow monitoring and fraud prevention features are sorely lacking in online banking.
- So maybe we’re asking the wrong questions. In other words, when we set out to “fix” our processes and join the “new world,” maybe we’re focusing on the wrong pieces of the process. The focus has been on payments. But I’d like to get your assistance in increasing the volume and energy around the “AP Problem.” Because I think there are pressing problems, and I’ll show today both why AP is broken, and how to fix it. That is, what the future of AP will look like, if only we can convince organizations that the problems warrant immediate attention. I think we need to ask BETTER questions that focus on the needs of the whole organization.
- The researchers at Barlow Research recently conducted a study on Payments and they identified several goals for AP organizations. Here are the top 4 priorities for businesses within the next 2 years: Automate AP Processes Improve Collaboration and Process Linkage between AP and Procurement Reduce costs for AP-related activities Transform AP into a more strategic, agile business function
- Here is the overview of the whole AP process. In the old world, each of these pieces are separate, messy, paper-intensive, time-consuming and complete. Plus of course, these process have high exposure to errors, fraud and it is very difficult to audit records in the AP department. So how do we attack this overwhelmingly complex system without breaking everything?
- This chart emphasizes the discordance of the various accounting applications and processes in general related to the bill pay process. Most of the processes are separate, and not well integrated.
- More importantly, nearly all of these processes involve paper and/or manual data entry
- The current, state-of-the-art trends in accounting that are driving innovation among the solutions developers and among the inspired practitioners are: Cloud and Mobile Chunkification of the business process Integration of Point Solutions Zero Data Entry And Collaborative Accounting Each of these trends are discussed in the following slides
- Today’s businesses have specific needs that horizontal, one-size-fits-all software does not address. The growing trend is “Chunkification of Business Processes” As businesses embrace their “favorite apps” the new problem is integration between best-of-breed point solutions Many/most “apps” are online and/or mobile Business managers want access to real-time information, which requires always available connections (i.e. cloud) So the future for accounting will heavily rely on cloud-based “chunks” that are connected and integrated Each “point solution” will provide key business functionality and store data that must be integrated into accounting, CRM, and other business systems. Often, the data must be summarized into the GL while detailed transactions remain in the point solution. We used to purchase single-vendor all-in-on accounting systems Single vendor meant we could get all the support from one vendor But it also meant we only got the FEATURES provided by that single vendor. So if the product had it, great, but if not, we were out of luck. Similar to how Photoshop Plug-ins started to appear to allow us to purchase new features, but plug them into Photoshop, the same idea is happening in accounting software, and really across all business. These plugins are sometimes LARGER systems than what they connect to, so as different from what you see with Photoshop plugins, in the accounting/business process space, these CHUNKS can be any size, and they can connect to other chunks of any size.
- The Cloud is an Always-Available Pipeline of Data Connections Chunks Use the Pipeline to Send/Receive Data This Automates Data Entries, Replacing Nearly All Manual Entry Examples in the Zero Entry World Seller Sends Invoice to Buyer Seller Invoice Buyer’s AP E-Approvals Payment Seller’s Deposit Timesheets to Invoicing and Payroll Employee Timesheet Invoice w/ Job Costs Payroll Calculations w/ Job Costs Direct Deposit E-Commerce Sales Customer Enters Order Payments to Bank Sales Orders to Accounting/Fulfillment
- The New World In the new world of near-ubiquitous Internet access, cloud-based solutions are thriving, and customers are adopting these solutions faster than ever. By centralizing data in the cloud, surrounding it with software and security, and providing fast, always-available connections to the data, businesses can realize incredible benefits compared with the Old World of desktops, LANs, and Local servers. This new world gives rise to a changing paradigm for accountants by facilitating “collaborative client accounting services.” Because accountants and clients can both simultaneously access the same, live data, accountants can now provide more client value by sharing some of the accounting processes as they occur, as opposed to waiting for tax season to gather, organize, and finalize financial statements needed for compliance work. In addition, the accountants can take back the “control” of client records that require knowledge and skills to manage. For example, the accountants can now perform outsourced bookkeeping, payroll, CFO, and financial dashboard development services, while clients can focus more on running their business operations. Clients can “read” the dashboards that the accountants can develop and “publish” to the client so they can see real-time information on which to make business decisions. This new architecture provides anytime/anywhere access to data for both client and accountant, better security for private information, lower costs, and a simpler overall system to manage.
- Throughout history, new technology has always been adopted according to a pattern, similar to this one, developed by Geoffrey Moore in his book Crossing the Chasm. When applying this chart to the adoption of cloud technologies in accounting, you can think of us as being either just before, or in the middle of, the “chasm”. This Chasm is where the early adopters have all begun using the technology, and many have found the “issues” with it and are working on rethinking their processes to embrace the technology more fully. At the same time, the early majority, those who represent the real explosion of the market, are listening intently to the early adopters and trying to learn about their experiences before they jump in. So those of us who have embraced these technologies are now experiencing significant competitive advantages such as Anytime, anywhere access to information Collaborative accounting services that allow us to spread tax season out over the whole 12 months of the year Mobile device integration into business processes … And we are providing superior VALUE, where we move from compliance-focused activities to value-added activities such as cash flow management and higher satisfaction levels for our internal and external customers and vendors.
- I highly recommend “Only the Paranoid Survive,” by Andy Grove, the former CEO of Intel, published in 1999. Note: That was before GOOGLE, but the lessons are timeless, and extremely relevant to what’s happening today in the accounting profession. In this book Andy discusses: How business success contains the seeds of its own destruction. How a “Strategic Inflection Point” is a point in the life of a business when its fundamentals are about to change. But… He says that you can be the SUBJECT of a strategic inflection point or the CAUSE of one. How Career Inflection Points caused by a change in the environment do not distinguish between the qualities (or ABILITY) of the people they dislodge. And how “10X changes” cause tremendous force for change in markets. Such as when sound came to movies, or when the semiconductor revolutionized the computer industry. These concepts apply today more than ever. And the key takeaway here is that if you don’t disrupt yourself, someone else will.
- How Corporate Finance Can Break Through What if you could redesign your finance department? To provide maximum value at minimum cost to the company? To serve internal and external customers better, faster, and with less budget. To embrace modern hardware, software, and cloud solutions. To focus on improving efficiency by 10x.
- Here is a picture of our “redesign” of the AR and AP Processes using new world technologies. Two business trading partners Artisan Lamps and Niche Modern. Both of these businesses are connected with each other in the “network.” This network is a secure, website that helps each business track their financial relationship with the other. It keeps a detailed log of all transactions, including a detailed audit trail of all activity. When a business signs up for the network, that business specifies: The company contact information including notification email addresses The bank accounts it wishes to use for paying and/or receiving money The accounting software it uses, giving the website access to the customer, vendor, and chart of accounts lists. AR sends an invoice to AP and it gets automatically created as a bill in Niche Modern’s account. Because both businesses are in the network, The invoice is automatically entered into AP’s payable (inbox), and on the list of bills to approve by the AP staff. AP staff can add “context” to the bill by adjusting the coding, adding customer/job information, or connecting the bill to outstanding purchase orders. When AP approves the bill, it is sent on to the “Payer” who is authorized to release payments. The payment is sent electronically to the vendor: Money is securely “moved” by the network provider from the payer’s bank to the receiver’s specified bank Notifications accompany the payments along with full detail of what is being paid Payments happen with 2-3 days electronically No data entry for AR - The payment is automatically matched up with the invoice The AR staff no longer deals with checks or trips to bank AR only needs to review/reconcile the bank deposits Benefits: Dramatically less cost on both sides Speeds up the entire process with less human work Better visibility of status, history Tight control of cash flow Reduces data entry error rates Streamlines approval workflow Improves security
- But what about the GL? How does this data in the “network” find its way into the General Ledger? Because both businesses are connected via the network, each can “sync” their online network activity with their back-end accounting. Regardless of which software each company uses (desktop, low-end, high-end, cloud, etc.), the bi-directional sync provides each company with: Automatic data entry of all AP and AR transactions directly into the back-end accounting Transactions appear in accounting in near-real-time, and can be scheduled, or manually synced at any point Any changes to Chart of Accounts, Customers, Vendors, or Items is automatically updated on the next sync The “digital plumbing” to make this sync possible is complex, but solutions already exist out of the box to create this reality Benefits: No double-data entry means dramatically less cost and elimination of data entry errors Real-time visibility of complete detail in GL Visibility facilitates cash management Allows Sr. management and Treasury to manage in real time Dramatically improves cash flow
- What about the paper that often accompanies AR and/or AP transactions? The first requirement of redesigning your corporate accounting function for the new world is to dramatically reduce the paper you produce and manage. We’ll never completely eliminate paper, but you should always think “less paper” as you redesign your processes. So how do you go about that? Let’s go back to the network and see how we can incorporate “documents” into the system. On the AP side, the first goal is to digitize all vendor invoices. Ideally, you can get your vendors to begin sending you electronic invoices in PDF, Excel, or Word. If you do receive paper invoices, scan/shred them and add them to your electronic inbox where they can be converted into AP bills. Once documents are attached to transactions, they will be easy to access in the future if there are questions. For audits, this is particularly efficient. On the AR side, the first goal is to get your customers to pay you electronically, via this network. If you do receive paper checks, scan the checks before depositing at the bank. The scanned image should be attached to the payment transaction If you receive email notifications (e.g. for ACH deposits), attach the email notification to the payment. Benefits: Dramatic improvement in the access to docs associated with transactions No more file cabinets for AP Anytime-Anywhere access to the data for all authorized parties Improvement for Audit. No need to gather/copy all documents. Can print on demand right from transactions in question. Streamlines approval workflow – no need for snail-mail of documents that support transactions Improves security – role-based security - can control access by individual, group, or department. Easy to grant/deny access.
- Security is without a doubt one of the most important concerns for corporate finance. Here are several concepts to consider when thinking about security with this new way of working. In order to evaluate security, you must compare what we do today (old world) with this new future way of working. In the “old world” we do the following: Send paper invoices and checks in the mail – High incidence of fraud with paper checks Route paper invoices and checks throughout the organization with no way to provide security Manually enter data into accounting systems (error prone and expensive), with some security, but it’s very breakable Many organizations use online banking, but share passwords for access with multiple people in the org. No role-based security in most online banking. Audits cannot guarantee who did what when, and how transactions may have been modified In the “new world” with this redesigned process, we achieve the following: Epayments virtually eliminate risk of fraud from payments to vendors No paper checks, and even if a check must be sent, the network vendor sends the check on their bank account. Role-based security allows for instant denial of access to any individual to some or all of the online network system. Document attachments allow easy/instant access to invoices/contracts etc. that relate to transactions No need for check stock in the office. No risk of “check washing” and other fraud exposures Allows for clear separation of duties, the first rule of fraud reduction Automated business rules allows strict enforcement and accountability Bank-level security for access to network website
- The future will be dominated by trusted 3rd Party providers that solve for all the pieces inherent in B2B Payments. Document and Transaction Management Approval Workflow Electronic Money Movement Notifications Accounting Integration Web Access for Complete Visibility to all Parties Security and Audit Trail
- No Matter How Skilled Stable Comfortable … New World Solutions are Disrupting Everything And it’s your AGILITY that will trump your ABILITY