You would expect that those finance teams managing by exception would spend a significant proportion of their time actually managing exceptions.
However, this seems not to be the case in many UK businesses.
Our recent report “Changing trends in the purchasing processes of UK business” noted that:
- the average finance department only spends between 31 and 45 minutes a day on exceptions;
- 73% of UK businesses’ finance teams spend less than one hour a day dealing with exceptions in accounts payable and purchase processing.
This suggests that there is plenty of room for productivity improvement in accounts payables in the UK.
Why Manage by Exception?
An accounts payable departments productivity is usually measured by the number of invoices processed per head, per hour – the processing rate.
The processing rate will be impacted by the complexity of the transactions, in particular the time it takes to approve and code supplier invoices.
It will often be more significantly impacted by transactions that do not meet expected norms, matching against, for example, orders and proof of receipt.
These exceptions are not usually anything to do with complexity but are the result of operational inefficiencies either within or outside of a business. Their resolution can often take a disproportionate amount of time.
Reducing exceptions will significantly improve productivity. However, this is a chicken and egg problem.
How do you Find the Time to Manage by Exception?
In manual accounts payable processes the exceptions are often perceived to take all the time. The process is often serial, so when an exception is found, the time worked on it holds up all other processing.
In an automated process supplier, invoices are carried out in parallel as there are fewer human touchpoints. This is because:
- The time people spend entering data is significantly reduced as the data is “captured” from invoices and the integrity of the data is checked by exception.
- Supplier invoices are automatically forwarded to those responsible for approval and coding, so there is no need to manually log transactions in and out of a department or just send and hope.
- There is an audit trail. This means it is easier to answer supplier queries without saying ‘I’ll get back to you later’ after searching for the related invoice or asking for a copy that may then cause additional work.
Learning from Exceptions
The insight from the Pareto principle is that 20% of the transactions take 80% of the available time to process. It remains silent about the consequences where the available time is insufficient to clear a supplier invoice backlog. These consequences tend to be late payments with an impact on the supply chain, leading to the “noise” caused by suppliers chasing late invoices that, in turn, cause further delays while they are investigated.
In an automated system the exceptions become the focus.
Understanding why they have occurred and fixing them becomes the centre of attention for the accounts payable staff. The causes, both internal and external, can be addressed in a systematic way and over time the number of exceptions reduced.
The Tools Required
Investment in accounts payable software, which runs alongside your accounting software, can help your accounts payable department deal effectively with complex approval and coding requirements, while freeing up their time to deal with exceptions that obstruct their ability to improve productivity.
You can download the complete “Changing trends in the purchasing processes of UK business” report here