Digital maturity: How does your finance department stack up?

In an uncertain and evolving world, digitization is necessary. Your A/P and A/R teams can’t be bogged down by outdated routines and mundane work.

These current times, when companies have been forced to think fast and take operations remote, are proof of that.

But before your finance department can improve its processes, you first need to take inventory of where it stands.

When it comes to A/P maturity, a recent report from Levvel Research outlined three main levels: Novice, Mainstream and Innovator. Similarly, research from the APQC measures A/R maturity in terms of high-performers, medians and low-performers.

Take a look at each level to determine where your finance department falls and what you can do to launch forward.

Level 1

The average Level 1 finance department:

• takes 45 days to process an invoice from receipt to approval
• boasts a $15 cost per invoice
• captures 18% of discounts
• has a DSO of 48 days, and
• uses 0.07% of total revenue to process A/R.

Level 1 departments are still mostly manual. Paper invoices and checks dominate. These teams, usually through no fault of their own, may have less visibility and encounter more errors and delays.

With the go-ahead from you, your A/P and A/R leads can get more proactive on digitization. Encourage them to see how much money manual processes are costing your company, do some research and develop ideas for tech investments.

Level 2

The typical Level 2 finance team:

• takes 23 days to process an invoice from receipt to approval
• boasts a $6.70 cost per invoice
• captures 40% of discounts
• has a DSO of 36 days, and
• uses 0.04% of total revenue to process A/R.

Level 2 teams are a mixed bag of paper and electronic. They may have digitized certain process steps (e.g., a data capture tool to replace keying) but lack fully streamlined workflows.

A combination of paper and digital processes can lead to confusion if not managed correctly. For CFOs at Level 2, it’s a good idea to ask A/P and A/R to fully map their processes. (Visuals can be a big help here.) Have them see what’s manual, what’s digital and come up with a long-term plan. For some, that may mean looking into a comprehensive solution. For others, it may be a piece-meal project.

Level 3

The average Level 3 department:

• takes 5 days to process an invoice from receipt to approval
• boasts a $2.36 cost per invoice
• captures 75% of discounts
• has a DSO of 30 days, and
• uses 0.02% of total revenue to process A/R.

Level 3 departments are mostly or fully electronic, allowing them to spend less time on tactical tasks and more time positioning A/P and A/R as strategic functions.

Consider how these teams could bring additional value to the company through strategic work, such as deep data analysis, dynamic discounting, above-and-beyond vendor service or an interdepartmental initiative.