Will the next generation of purchase invoice workflow systems increase the trend to outsource AP-processes?
Internationally, there is a very clear trend towards outsourcing. Yet Swedish companies have adopted a wait-and-see approach and are therefore at risk of being left behind by their foreign competitors. Outsourcing has quite simply not been a strategic issue for the executive management. But this could be about to change as the introduction of the next generation invoice workflow should lead to more outsourcing among Swedish companies.
“Right now, many businesses have systems that are 10 to 15 years old, and these systems need to be replaced within the coming years. Further, the accounts payable process is generally very well organized with a high degree of centralization and standardization. This situation makes the accounts payable process ideal for outsourcing and there is a wide variety of alternative solutions available for different needs.” says Tobias Wikström, Solutions Director at OpusCapita.
International trend towards outsourcing
There is a clearly and visible trend. Over recent years, a number of studies and reports have indicated that the market for outsourcing is growing. Globalization and more competition are often said to be important drivers for this development. As is often the case, the global companies initiated this trend which has now led to a mature market where profits are easier to repatriate without unnecessary risks.
“Even though the benefits are significant, there is considerable skepticism in Sweden and as such Swedish companies are at risk of being left behind by their foreign competitors,” warns Wikström.
Revolution waiting to happen
Sweden has long been considered a technical leader in many areas. This also includes the processing of purchase invoices, which was revolutionized at the turn of the millennium. At that time, many companies invested in systems which digitized paper invoices and then processed them into a workflow system.
This provided financial departments with more control over invoice processing and the process became more flexible as users no longer needed to handle paper based invoices. The new systems also made it possible to consolidate and automate many tasks related to invoice management and the accounts payable processes.
So, what did this revolution mean for Swedish companies? A study investigated the Swedish companies’ attitudes to outsource their financial processes.
“We carried out the study in 2011 and the results showed that the clear majority had streamlined their administrative processes for finance and payroll. At the same time a minority of companies regularly used benchmarking to further develop their day-to-day operations,” explains Wikström.
Outsourcing is quite often not recognized as a strategic question by the executive management
What is the situation today? Have the use of regularly benchmarking of financial processes become more popular? Wikström does not believe that this is the case.
“Why should companies spend time doing this? The majority of CXO’s that I meet, are focused on more important issues that concern the company’s strategic plans. These often include how to increased growth, change business models, respond to new customer needs or quickly alter a business area with poor profitability,” stresses Wikström.
Therefore, Wikström believes that the issue of outsourcing is paradoxical in Sweden. We are sufficiently advanced in purchase invoice processing and the accounts payable are often well suited for outsourcing. Despite this, many companies have not yet taken the advantage of this possibility.
“The explanation is, no doubt, that companies have not had clear business drivers to make the necessary changes related to their accounts payable processes. Therefore Sweden is lagging behind many other countries in this area”, says Wikström.
Change is coming: three areas which will commoditize outsourcing
However, Wikström believes that things are about to change. There are three drivers which possibly could benefit Swedish companies to quickly catch up with their foreign competitors.
“Firstly, many companies today have purchase invoice workflow systems that are 10 to 15 years old. Quite simply, it is high time to start replacing these platforms. Should the companies then only invest in new technology or should they consider the alternatives and reduce operative costs?” says Wikström
“Secondly, the streamlining of accounts payable and invoice management processes has made it well organized meaning that it is now well prepared for outsourcing. As the phrase goes, you should avoid outsource your problems to others. But in relation to invoice processing, there are relatively few problems and the process is usually well organized. It is easy to outsource these services, decrease costs and free up time to focus on business development and financial control,” stresses Wikström.
“Thirdly, there are many alternative solutions on the market. So every company will be able to find something that suits its unique needs. For some businesses, full outsourcing of finance and accounting will probably be the most interesting option and for others, the outsourcing of certain functions with local solutions (onshoring) or global solutions (offshoring) will be the most suitable option. Nearshoring is a new form of outsourcing that offers the best of both worlds, namely proximity and control combined with a clear reduction in operative costs,” explains Wikström.
Nearshoring is probably the most suitable solution for the majority of companies in the Nordic region
Nearshoring is the outsourcing solution that Wikström believes will suit the majority of companies in the Nordic region. He also believes that it will be easier for companies to choose outsourcing since the second generation systems for invoice processing can be embedded into the service which secure future operation while the retained financial department can benefit from more visibility of the company´s overall financial situation.
Much has changed over the past 15 years. Wikström remembers that previously many managers wanted to implement solutions on their own and thereby having to invest in hardware, software and niche competence. Some managers even challenged if it was safe and operatively possible to let an external company digitize their paper based invoices.
“Today almost no one wants to operate their own hardware and no one questions the issue of having their paper based invoices digitized by an external provider. Instead many companies want to have everything delivered as a packaged cloud solution. The big question now is whether it is the right time to start drawing up a new plan for accounts payable and investigate how to benefit from outsourcing. I will give the same answer as an old colleague once gave me: it is never the right time to take the decision of a real change such as to outsource an operative function, and at the same time, it is always the right time,” concludes Wikström with a smile.