Moderated by Emily, Digital Transformation Consultant at Hyperbots
Emily: Hi everyone, good morning, good evening, good afternoon based on where you are. I’m Emily, a digital transformation consultant at Hyperbots, and today I have Mike Vashnum with me. We are going to discuss a practical toolkit to bring efficiency in accruals. But before we get into details, Mike, would you like to introduce yourself?
Mike: Sure. Thank you, Emily. I’ve been working in Silicon Valley for about 30 years and have had the opportunity to work in a diverse range of industries. I’ve been fortunate enough to touch every aspect of finance, including controllership, FP&A, treasury, tax, and investor relations. In my last two roles as CFO, I also managed non-finance and operations departments like legal, HR, IT, facilities, and procurement. So, I bring a very diversified and wide-ranging experience in finance and operations.
Emily: That’s great, Mike. I have divided this session into two parts. In the first part, we will discuss the current accrual landscape, and in the second part, we’ll dive into AI and accruals. So, for the first part of this discussion, Mike, I’d like to ask you to highlight the importance of expense accruals for companies and how they generally impact financial reports.
Mike: Absolutely. Not just expense accruals, but any accruals are essential for a company. If you look at basic accounting principles, you have to match the revenue with your costs. If you’ve booked the revenue and incurred the cost but haven’t received the invoices or bills, your profitability will be inconsistent. One month you might show higher profitability because of lower expenses that weren’t booked, and the next month you might have all those expenses catching up, but no matching revenue. This mismatch doesn’t present an accurate picture of profitability. By accruing expenses for which you haven’t received invoices, you match your revenue with the associated costs, giving a more accurate representation of profitability. This is crucial for investors and analysts to ensure the company’s profitability for a specific period is correct.
Emily: Understood. Based on your experience, Mike, what is the current process used in companies for accruals?
Mike: Different companies use different processes. Most accrual processes are manual because you have to collect information from respective departments. I would categorize accruals into inventory accrual and expense accrual. Inventory accrual can be automated in sophisticated ERP systems, where goods received notes allow for booking received but not invoiced items as accounts payable. Expense accruals, however, are very manual and time-consuming. Accountants typically send emails to department heads to check for pending invoices and services rendered. They also look at open POs to follow up on whether services or expenses have been incurred. Despite some ERP systems offering recurring accruals, accurate accruals still require manual processes and a lot of back-and-forth communication.
Emily: Can you also share the categories of accruals and how does the reversal happen?
Mike: Sure. As I mentioned, there are inventory and expense accruals. Expenses can vary depending on the company’s size and nature. The reversal process is necessary to avoid duplication of expenses. When you book an accrual at the month-end and then receive the invoice in the following month, you don’t want to double-book the expense. So, the best practice is to book the accrual, reverse it, and rebook it at the next month-end.
Emily: Can you highlight the pain points in the accrual process?
Mike: The main pain point is the manual process. Collecting data, ensuring the accuracy of accruals, and coordinating with various departments are time-consuming tasks. Ensuring all necessary accruals are booked correctly is critical because auditors will not accept general accruals they need specific purposes and processes.
Emily: Thank you, Mike, for explaining accruals and the current landscape. In the next section, we will cover AI and its role in accruals.
Mike: Sure, thank you.
Emily: Welcome back, Mike. Thank you for taking us through the current landscape of accruals. Now, let’s discuss the role of AI in accruals. What role does AI play in accruals, and can you provide some examples to help us understand it better?
Mike: Absolutely. AI can tremendously speed up the accrual process. While ERPs can handle many tasks, AI enhances them, especially in communication. For example, AI can look at open POs and automatically send messages to the respective departments asking if services have been rendered. This eliminates the need for human intervention. By setting AI to check for open POs on specific days, it can collect and follow up on all necessary information automatically. Let’s take the legal department as an example. AI can send automated messages to attorneys asking if services have been rendered, which replaces the manual process where accountants send emails and wait for responses. AI can also help with inventory by identifying received items that haven’t been invoiced and processing those accruals. Essentially, AI can handle the communication aspects of accruals, ensuring accurate and timely data collection without human intervention. This streamlines the month-end close process, allowing accountants to focus on analysis rather than data gathering.
Emily: That gives me a clear vision of how AI helps in accruals. Thank you so much, Mike.
Mike: You’re welcome. I’m looking forward to seeing AI develop further to make the accrual process faster and simpler, ultimately allowing more time for analysis and less on data gathering.
Emily: Thank you, Mike, for being a part of this discussion on AI and accruals. It was great having you here.
Mike: Thank you. Glad to be here.
Moderated by Emily ,Digital Transformation Consultant at Hyperbots
Emily: All right. Hi everyone. This is Emily, and I am a digital transformation consultant at Hyperbots. For today’s discussion on the evolution of the Procure-to-Pay process, I’m very glad to have Tony on the call with me. Anthony is the VP of Finance at Delcath. Anthony, would you mind telling us a little more about yourself before we get started?
Anthony Dias: Sure. I’ve over 30 years of experience. I started my career in public accounting many years ago and then moved into the private sector. I’ve worked in small to medium-sized companies, most of my career in companies that are probably in the startup phase that needed more experience to kick into the next level through public stages or acquisition phases of the company or growth phases. I’ve had an opportunity to work for a very large organization that got sold for five billion dollars as well. So, I have a good understanding of good processes, good business practices in both small and medium-sized companies. The industries I’ve been in are mostly manufacturing, high-tech manufacturing, and for the last 10 or so years, the bio-pharma space where we have manufactured both devices and drugs. Most of my experience has been at the senior level of finance, both as CFO and VP of Finance, in both public and private companies, including private equity and VC-backed companies. So that’s a high-level background.
Emily: That’s amazing and really glad to have you here on this forum today. Along with the many organizations that you have worked in, you have also been associated with all the processes of finances as well. Would you like to share what kind of Procure-to-Pay initiatives you’ve been a part of in the various organizations?
Anthony Dias: Yeah, I would say when I first started, the Procure-to-Pay part of the organizations I’ve worked at was really manual. As I mentioned, most of the companies I worked with were startups looking for the next phase. As a startup, your biggest priority is making sure you’re paying your vendors and employees. But as you grow, you need to look at other facets of growth, and bringing on additional accounts payable folks may not be the most ideal use of your resources and cash. So, looking at systems and more efficient processes around procure-to-pay becomes crucial for supporting the growth of the business. This includes having proper controls in place and better processes from the purchasing side, ensuring proper approvals, processing invoices, paying the right vendors, and controlling payments.
Emily: Got it. Tony, for the sake of the audience, would you like to break up the overall Procure-to-Pay process into sub-processes?
Anthony Dias: Yeah, I would say the front end of the process is primarily the procurement process, where you may have a requisition process for purchasing a service or product. This involves ensuring the person is authorized and getting the best price by putting a bid out, working with legitimate vendors, and having the proper approval to spend the money. Then there’s the purchasing process, where a purchasing department might vet the vendor, negotiate the best price, and handle contracts. Once the decision is made, they issue a purchase order committing the organization to the purchase. The next phase is in the finance realm, ensuring receipt of goods or services, verifying the pricing and quantities, and making timely payments based on contractual terms.
Emily: And how do you see the evolution of these processes over the last decade or so?
Anthony Dias: There’s been a lot of evolution in the last 10 years. My career started 30 years ago, and for the first 20 years, a lot of it was very manual. In small finance groups, the focus was on paying vendors and employees. As companies grow, they tend to invest in other areas like sales and marketing, often overlooking the accounts payable and Procure-to-Pay processes. The accounts payable group grows but without additional resources, leading to inefficiencies. OCR technology has been helpful, where invoices are scanned and processed electronically, reducing errors and lost mail. Electronic invoicing and payments through ACHs or wire transfers have also become common, making the process more efficient and reducing the risk of errors and delays.
Emily: So, apart from OCR or digital adoption, what other tools and technologies are used in different aspects of the Procure-to-Pay process?
Anthony Dias: In the requisition process, technologies have been adopted by larger ERP systems, making everything more electronic and web-based, which is crucial as businesses become more global and remote. Mid-sized and smaller ERP systems might not invest as much in these areas. Technologies include electronic requisitions, purchase orders, and vendor price comparisons. In the accounts payable process, the adoption of electronic payments, capturing invoices through OCR, and other technologies have minimized manual errors and improved efficiency.
Emily: After the adoption of such tools and technologies, are there still challenges that exist on the procurement side?
Anthony Dias: The biggest challenge is time. Getting a requisition approved by a manager who gets many emails can be slow. The purchasing department also needs time to find the best price. For someone needing a product or service quickly, this process can be frustrating. Speeding up approvals and negotiations can help. There’s also the issue of adherence to processes and the perception that controls and procedures slow things down. Improving the speed and efficiency of these processes is crucial.
Emily: Why do you see many organizations still having significant elements of purchases without a rigorous PO-driven process?
Anthony Dias: It often comes down to the hesitation of non-finance folks to follow the process, preferring the ease of direct purchases as they do in their personal lives. The mindset in organizations is still not there for some. They might feel that going through the approval process is unnecessary when they can quickly purchase items online. But organizational purchases need to comply with standard practices, regulations, and ensure consistency. The process also ensures the company is not at risk and is getting the best terms.
Emily: Apart from the timing, what other challenges have you seen in the procurement process in general?
Anthony Dias: The three-way match process matching purchase orders, receiving goods, and invoices can be time-consuming. Discrepancies in quantities, prices, or quality of goods received versus what was ordered can cause delays and require back-and-forth communication with vendors. Resolving these issues takes time and can affect payment timeliness, leading to potential leverage issues with vendors.
Emily: What are the best practices in streamlining the procurement process to have better financial control?
Anthony Dias: Best practices include a robust requisition process with manager approvals aligned with budgets, a purchasing group vetting vendors and ensuring the best prices, timely receipt and verification of goods, and accurate and timely payment of invoices. Good communication between procurement and finance is crucial, ensuring everyone is aligned on budgets and vendor payments.
Emily: What kind of collaboration would you suggest between the finance and procurement teams to achieve the company’s common business objectives?
Anthony Dias: Procurement and finance should have a strong partnership. Purchasing should understand budgets and approval limits, consult finance when needed, and ensure proper vendor documentation flows to the accounts payable team. Collaboration in budgeting and forecasting is also important, ensuring purchases align with the company’s financial plans.
Emily: Can you share the inefficiencies that still exist in the procurement process despite best-in-class ERP implementations?
Anthony Dias: Some inefficiencies still exist due to resistance to change, manual data entry, and writing checks. People are often slow to adopt new technologies due to risk aversion and a lack of understanding of how these technologies can minimize risk and improve efficiency. Educating staff on new technologies, demonstrating their benefits, and investing in these areas can help address these inefficiencies.
Emily: Apart from the mindset, what else do you think is needed to improve these processes?
Anthony Dias: Investing in these areas is crucial. As companies grow, they need to re-evaluate and invest in their accounts payable and procurement processes to avoid inefficiencies and risks. Continuous education and training for staff on new technologies and best practices, attending conferences, webinars, and networking with other professionals in the field can also help improve these processes and keep them up-to-date with industry standards.
Emily: One last question: what do you think could be done to address these inefficiencies better?
Anthony Dias: Education is key. Accounts payable clerks, CFOs, and controllers need to stay informed about new technologies and industry best practices. Networking with peers, attending conferences and webinars, and bringing in experienced people can help. Investing in technology and processes will help organizations grow efficiently and keep employees motivated and engaged by reducing manual work and improving job satisfaction.
Moderated by Emily Digital Transformation Consultant at Hyperbots
Emily: All right, welcome back Tony to this segment. Thank you so much for walking us through the Procure2Pay overview and the challenges involved. In this segment, we’ll be talking about the future roadmap of the Procure2Pay process, some examples, and the advantages of AI in the Procure2Pay space. Before we get into the questions, would you mind introducing yourself and telling us a bit more about you?
Anthony Dias: Yes, sure. I’m Anthony Dias. I’m Vice President and CFO for a biotech company in the Boston area. I’ve been a senior finance person in both public and private companies, ranging from smaller organizations to mid-sized ones, and I’ve had the opportunity to work for a large organization that sold for over five and a half billion dollars. Most of the industries I’ve been involved in are the medical space and manufacturing.
Emily: Got it. Thank you so much for that introduction, Tony. In the last segment, you mentioned that embedding AI in different tasks in the Procure2Pay processes could remove some inefficiencies. Could you highlight some examples of this?
Anthony Dias: Yes. Using AI could speed up the matching process, especially the three-way match process in AP. AI can read invoices faster and more accurately than a human AP clerk. It can process invoices quickly, matching the receipt, purchase order, pricing, quantities, and unit price. This process, which can be time-consuming and manual for AP personnel, can be handled swiftly by AI. AI can help identify mismatches quickly, allowing AP personnel to focus on resolving errors rather than processing entire invoices.
Emily: Correct. So apart from reducing redundant tasks, you also touched on how the roles of procurement or accounts officers would evolve with AI adoption. Could you elaborate on that?
Anthony Dias: Yes, it empowers finance teams by eliminating repetitive, clerical work. AP clerks, who usually handle a high volume of invoices, often find their tasks monotonous and unengaging. With AI handling the manual processes, clerks can shift to more analytical roles, examining data trends, looking for savings opportunities, and optimizing payment schedules. Similarly, AI can assist in purchasing by finding the best prices and making procurement decisions more efficient.
Emily: Correct. Can you delve deeper into the learnings and unlearnings necessary to fully leverage AI in Procure2Pay?
Anthony Dias: There’s often hesitation about integrating AI into AP processes due to concerns about security and risk. However, with strong security programs, segregation of duties, and robust controls, AI can significantly lighten the workload. AI can handle heavy lifting, such as checking for duplicate invoices and pricing errors, while humans can focus on approval processes. Learning to trust and adapt to AI’s capabilities while ensuring security measures are in place is key.
Emily: Got it. So, what are the risks you see in adopting AI in Procure2Pay?
Anthony Dias: People risk is significant. AP cler
ks might fear job loss or significant changes to their roles due to AI. This can be mitigated by involving them early in the AI adoption process, providing proper training, and explaining how AI will help them perform better and focus on more analytical tasks rather than clerical ones. Ensuring they feel part of the change and understanding AI’s benefits can ease the transition.
Emily: Got it. And any specific recommendations for the order of tasks for AI adoption in the Procure2Pay space?
Anthony Dias: Start with tasks that offer immediate efficiency gains and minimal risk, such as invoice processing using OCR technology and automating manual data entry. Gradually incorporate more complex AI functions, like payment term optimization and vendor management. Ensuring a phased approach allows for better adjustment and minimizes disruptions.
Emily: Understood. What would be your advice on building versus buying AI and automation solutions?
Anthony Dias: It depends on the company’s resources and focus. Major companies like Oracle, SAP, and NetSuite are developing AI solutions, but their primary focus isn’t AP or purchasing. Smaller companies might offer more specialized and adaptable AI solutions. The decision to build or buy should consider the specific needs of the organization, risk tolerance, and the capability to integrate these solutions with existing ERP systems.
Emily: What AI solutions do you see emerging in the Procure2Pay space currently?
Anthony Dias: AI can optimize cash flows by analyzing payment terms, cash availability, and ensuring timely payments. It can perform trend analysis, identify opportunities for savings, and suggest payment schedules. AI can handle tasks like coding invoices, matching them with purchase orders, and managing vendor relationships more efficiently. These capabilities allow finance teams to focus on strategic decision-making rather than routine tasks.
Emily: Great. So, what adoption rate do you foresee for AI-led Procure2Pay solutions over the next couple of years?
Anthony Dias: Adoption will increase as more companies realize the efficiency and cost savings AI offers. Manual tasks like data entry will become obsolete, replaced by OCR and AI-driven automation. Purchasing processes will become more streamlined, with AI quickly analyzing quotes and selecting the best vendors. Overall, AI will transform Procure2Pay processes, reducing the need for manual intervention and allowing finance teams to focus on strategic tasks.
Emily: Got it. Thank you so much, Tony, for sharing your insights on the evolution of Procure2Pay, the current landscape, challenges, future roadmap, and the infusion of AI. It was great having you here.
Anthony Dias: Thank you.
