The SMB of the Future: Start Fast, Then Accelerate
Underwritten by Vishal Patel Research Director Ardent Partners December 2012
With more than 27 million small to mid-sized businesses (“SMBs”) in the U.S. today, the SMB marketplace has become the fastest growing segment in the U.S. economy. The sharp rise in the number of SMBs has been driven by economic opportunities as well as a new cloud-based technology landscape that provides powerful, yet accessible and affordable, solutions.
SMBs now have the opportunity to leverage these cloud-based solutions to manage key business processes, reduce their costs, and improve their productivity while gaining better control and visibility over their cash. The end result is better results and faster growth. The SMBs that miss the cloud opportunity risk being left behind by their faster and more agile competitors.
For an entire generation, technology has had an extraordinary impact on the lives of countless millions in the home and office. At home, technology and access to the internet have completely changed the way that people communicate, learn, and share; while at work, enterprise soft ware has helped drive efficiencies, foster innovation, and enable globalization.
Enterprise software was designed to help businesses streamline operations, gain more control over various business processes, and help focus more resources on the highest value opportunities. The original solutions were also designed to be installed on premise using enterprise- owned hardware. The result was that these heavy, more lumbering solutions required a large upfront investment ( often ranging from $500,000 to $5 million), a lengthy implementation period, and significant IT and financial resources to support and maintain the solutions. Needless to say, the total cost of these solutions placed them well beyond the reach of the typical small to mid-sized businesses (SMBs) giving larger companies a competitive advantage.
It was not until the introduction of cloud-based solutions that the playing field between large and small competitors would be come more leveled . A cloud-based solution is one that is delivered by a software provider over the internet to its customers; the solutions are typically hosted, maintained, enhanced, managed, and upgraded by the provider. Most cloud solutions have four underlying principles that align with the needs and resources of an SMB.
- Accessibility – Accessible through a web-browser, require no installation , offer quick and easy deployment, and in some cases may be accessed via mobile devices.
- Usability – Designed to be easy -to -use and require little or no training , like the many of the web -based “consumer” applications that people use in their daily lives . May include wizards and training videos to help new users learn the system.
- Affordability – No large up -front fees and pricing structures that generally follow some form of usage or time -based model (e.g., per transaction, per user, or per period fees ), putting less strain on SMB finances . Require limited IT resources and offer faster deployments than the typical installed solution which can result in a quicker time to value .
- Scalability – Built to be scalable and flexible with few limits on the number of concurrent users allowing a business to scale up or down (usually up) as required without degradation of performance and at an incremental cost.
The SMB of Future: Start Fast, Then Accelerate
The way that these solutions are deployed, packaged , and priced makes them more accessible to companies of all sizes and can help an SMB to be come as efficient, as innovative, and as effective in its daily operations as its much larger competitors. The availability of cloud solutions has allowed businesses of all sizes to scale processes by leveraging technology in to almost every aspect of business (e.g., Sales/CRM, HR , Travel , etc) enabling SMBs with the capabilities that were once only available to larger enterprises.
As more SMBs adopt robust cloud solutions, company size is no longer an acceptable excuse for below -average performance in any area of operation . The SMBs who fail to leverage these new solutions are at risk of being left behind by the next start - up that does.
For SMBs experiencing rapid growth, two key differences between long-term success and failure are (1) how well they manage cash flow and (2) the infrastructure they have in place to support their growth. SMBs that are fast growing need a robust operational infrastructure to help support and control that growth and ensure that their key business functions and processes are working and performing well. The automation of key operational processes such as the sales, accounts receivable, and accounts payable (“AP”) is now an achievable goal for SMBs and one that has become a critical part of doing business.
Gone are the days when being small mean t having to deal with disjointed and generally inefficient, paper-based processes. For today’s SMBs, there is tremendous value in using cloud-based solutions to move key resources away from the more tedious and tactical tasks to the higher value activities that have a much greater business impact.
One area that presents a significant opportunity for SMBs is the accounts payable process which manages how an invoice is received, processed, and paid. The AP function is also a key component of cash flow management which is a crucial part of running any business. An AP process that is efficient and can provide visibility into current and future liabilities can be a great asset to a cash - conscious SMB. Unfortunately, the AP process within most SMBs is largely manual and paper- based resulting in a general lack of visibility, gross inefficiency , and costly invoice/payment processing putting them at a disadvantage to those that have automated AP.
According to Ardent Partners’ research, the average cost of processing a manual invoice is approximately $19, more than five times the average cost of processing an invoice in an automated environment. Introducing a cloud-based ePayables (or AP automation) solution will help SMBs automate the manually-intensive AP tasks such as entering invoice data into a system and enable the finance or AP staff to focus on more strategic areas like cash management and other key issues like when to hold a payment ...there is tremendous value in having resources spend more time on higher value activities that have a much greater business impact ...any business that automates the AP process can reduce invoice processing costs by 40 - 70%.
Ardent Partners’ research has shown that the typical business that automates the AP process es can reduce its invoice processing cost by 40– 70% . This savings benefit has a bottom line impact, but , it can also help an SMB shift resources to more strategic activities like developing the next product or launching a new marketing campaign.
Cash, a Key Ingredient for Growth
No matter the industry, managing cash flow effectively and more strategically in an SMB is a fundamental part of ensuring survival. Cash is the life- blood of any business; this is particularly true for SMBs. Over the short and mid -term, how a company manages its cash inflow and outflow can be vital to its ability to grow and/or make payroll. In the long-run , a more strategic approach to cash management can help to better identify cash flow trends, understand areas of the business that generate or drain cash, negotiate better payment terms, and ultimately develop a more financially attractive business.
That said, the economic conditions over the past few years have made access to cash and credit more difficult for SMBs, making the management of cash an even more important aspect of operating an SMB. For these reasons, access to accurate data around payables and receivables and establishing key cash flow metrics (such as “days sales outstanding” and “days payable outstanding”) are crucial steps to gaining more control and transparency into cash flow and enabling the SMB to better track and analyze cash positions. For example, if an SMB is paying its invoices faster than it is collecting receivables, there is potential a cash flow issue. Without the right level of visibility and control , the discovery of cash flow issue s may occur too late, placing undue risk on the business.
Most SMBs today are not positioned to strategically manage cash flow mainly because their key processes, like AP , are manually driven, making it extremely difficult to collect, analyze , and access timely and accurate data . Paper -based AP processes are also the cause of a higher level of overpayments, duplicate payments, penalties, and various other errors that many SMBs simply cannot afford if they want to operate a financially agile business. AP automation (“ePayables”) solutions provide the ability to transform a manual environment into an automated, more efficient one by removing paper from the process and automating many of the basic AP functions (e.g., data entry, validation and approval/review). Through the deployment of a cloud-based ePayables solution that can automate the entire AP process (from invoice receipt to processing and payment) SMBs can better evaluate current cash positions and forecast how much will be required on-hand to meet current expenses. The understanding of current and future cash flow can also help SMB executives make key financing decisions and better plan and fund investments that will help support and grow the business. Furthermore, automation in AP can result in direct bottom line improvements due to the increased opportunity to capture early [Improved cash management] allows an SMB to better plan and fund investments that are focused on products and/or services or on growing the business. However, these more strategic activities can only be carried out if there is efficiency and visibility across the entire AP process.
How it Works and Getting Started
As mentioned previously, cloud -based solutions are generally more accessible, usable, scalable, and affordable making them ideal for SMBs . By automating the entire AP process, an SMB will be able to receive invoices, then process and pay them , all by accessing the solution via the internet .
Below is a more detailed description of how each AP phase is automated:
- Receive – No matter the method in which an invoice is received (paper, PDF, eInvoice, etc) the data is extracted and displayed within the solution for approval and payment, reducing the need for AP staff to perform time- consuming tasks like data entry and check requests. Certain solutions offer an optional outsourced scan and capture service, which uses optical character recognition (OCR) to extract the data from paper or PDF invoices .
- Process – A solution that is targeted to the SMB market will, in most cases, offer a simplified do -it-your self method (often referred to as a set -up wizard ) of setting up users on the system and establishing the proper approval authority and workflows. The processing of invoices is then based on the system design and the configured business rules , reducing the need to manually view and/or approve invoices
- Pay – Solutions that offer payment capabilities allow for more efficient management and improved control over vendor payments. Solutions typically allow approved invoices to be scheduled for payment using either paper checks or electronic payments such as ACH which can enable a precision in cash settlement that is difficult with paper checks.
A key feature of any ePayables solution is its reporting and analytics capabilities . Solutions often include standard, pre-defined reports and the ability to keep track of key performance and operation metrics . Reporting capabilities can give SMBs a real-time, accurate view into payables and provide key details into overall spend , allowing them to establish and track key metrics, negotiate volume discounts, continuously improve AP performance, and make more informed decisions around vendor payments.
When an SMB is ready to get started, it is important to remember that cloud -based solutions bypass t he need to invest in an IT infrastructure and the set -up costs are generally minimal or non- existent . SMBs should be aware that many providers offer free trial s (e.g., 30 days free) and can offer short and more flexible contract terms that offer an easy ex it for SMBs, removing much of the risk involved in an IT project . Additionally, SMBs should look for solutions that allow for quick and easy integration to back-end systems, like an ERP or financial accounting system (if they exist ); many providers will ha ve pre- built integrations to certain back -end systems.
Lastly, some cloud - based ePayables solutions offer mobile access, an increasingly important consideration for SMBs with employees that are remote and/or frequent travelers.
The recent emergence of cloud-based ePayables solutions has given SMBs the opportunity to leverage innovative, reliable, and scalable technology to dramatically improve AP operations ; and , as a result, make smarter cash management decisions . Gone are the days when a growing company must spend years developing back -office resources, processes , and customized systems before it could reach a scale where automation was justified . Today, the picture is very different : an SMB can establish a hyper-efficient AP department from the start and then scale it with modest incremental investments as the company continues to grow at a fast pace . SMBs using cloud - based ePayables solutions are able to establish a robust operational infrastructure, reduce processing costs, and gain visibility into cash positions and liabilities – the res ult is a more focused and efficient operation that can operate more competitively and accelerate into the future.
About Ardent Partners
Ardent Partners is a Boston -based research and advisory firm focused on defining and advancing, the accounts payable, procurement, and supply management strategies, processes, and technologies that drive business value and accelerate organizational transformation within the enterprise. Founded by Andrew Bartolini , Ardent also publishes the CPO Rising and Payables Place websites. Register for access to Ardent Partners research at ardentpartners.com/newsletter-registration/
About the Author: Vishal Patel, Research Director and VP of Client Services at Ardent Partners
Vishal Patel is a recognized expert in the world of accounts payable and supply management. He has worked closely with accounts payable and procurement groups for most of his career, researching best practices and advising clients on how to utilize technology to improve organizational performance. Vishal is the lead analyst for Ardent’s ePayables (Accounts Payable automation) coverage and is also responsible for the oversight of certain AP solution selection and benchmarking projects.
Vishal joined Ardent from a technology provider, where, as Director of Business Development, he helped establish and grow the company’s US business by helping corporations de-couple their marketing supply chains and drive significant savings. Earlier in his career, Vishal was a Research Director in the Global Supply Management research practice at Aberdeen Group where he led and supported the coverage of many key areas including contract management, commercial cards, ePayables, and complex category management. Vishal has been named a “Pro to Know” by Supply and Demand Chain Executive and holds a B.S. in Finance and International Business from The Pennsylvania State University and an M.B.A from Babson College. He welcomes your comments at email@example.com or +1. 917.470.9522.
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