The Big Three ePayables Opportunities for 2010
2009 proved that one thing is clear about accounts payable — the future of AP rests with technology. Why?
Companies are looking to their operating departments to cut costs, and they see that with the right automation tools, AP can dramatically lower invoice processing costs, reduce erroneous payments, and capture more discounts. In our conversations with literally hundreds of controllers and AP managers in 2009, one theme rose above the rest: how can technology help us improve our finance operation?
Despite widespread and clear desire for improvement, confusion about automation options continues to plague finance managers. PayStream’s analysts believe the trick is sorting out the AP automation landscape.
- What technology is available and which tools are the most effective?
- How can AP best use these tools?
- How do we get started?
1. Start with the correct data. Keying everything that comes in off of invoices would be a great start, but what if you have the wrong information on the invoice, or if the information was captured incorrectly at the point of entry?
For example, an invoice that comes in from an electronic portal may be incorrect. That’s why it’s important to get the proper information off of the invoices. For OCR, (what we are now correctly calling “intelligent document recognition” or IDR) getting the exact data you need is not that easy. But it is absolutely critical, because the next step—workflow routing and matching—requires the proper information in order to work correctly.
One common trap: the difference between header capture and line-item capture can mean the difference between a high-touch process and a touchless one.
In other words, Nirvana might be: “can’t we get all the lines off those invoices and do a complete match? No one has to touch the invoice.” Yes, but only if you get good data off of your invoices. You can either do that internally through technology or by outsourcing it to an electronic invoice provider such as Direct Insite, JPMorgan Chase or Ariba, or an accounts payable outsourcer such as ScanOne, BancTec or Aspen360. (Click here to download PayStream’s report on paperless invoice management.)
2. All workflow is not the same. Workflow is an amorphous cloud and many project overruns are the result of not properly estimating what it’s going to take to change the business process.
What we found working with Phillip Morris and the Visiting Nurse Services of NY was that you need to go through a design process and figure out what you want the workflow system to do before you make a vendor or solution decision.
You can train the technology to do pretty much anything you want, so how do you want it to work?
Invoice approval routing is not the same as automated processing. For example, if invoices are being received at field offices and locations today, how are you going to manage routing once receipt is centralized at a PO Box controlled by AP?
While your staff knows internally where to route a specific supplier invoice for approval, this is usually based on the wealth of organizational knowledge. We call this collective understanding “tribal knowledge” which encompasses the 7-10 years average years of experience that your team members possess.
Once you centralize receipt, you will have to train your suppliers to put the person’s name or department name on the invoice so it can automatically be routed to the correct person. This is a business change that a lot of people don’t think about when moving to automation.
In order to succeed, AP needs to stop doing manual rework. Your team has become expert at working with imperfect data, and ePayables automation is not as forgiving. Capture, matching, and business logic requires powerful software. In summary, you need to design your business process around using the technology and automation in a way that makes sense for future digital AP, not for the way you are doing it today. (Click here to download PayStream’s report on imaging and workflow automation.)
3. Solid foundations are built on a well-designed business case. According to PayStream’s study of innovation in AP, the most successful business cases that make it over the hurdle when competing with other initiatives are those that are built on a broad business case foundation.
AP efficiency is only a third of the story. This means you need to get other individuals and business units inside of your company to buy into what you want to do.
The problem that many of us face is that AP is just one small (and frequently overlooked) business unit. For instance, other business units, many of whom have customers, might have a little more leverage when it comes to getting IT resources to help with projects or management buy-in when it comes to funding. Admittedly, AP is not the first in line when there’s a fight in the CFO suite about which projects they are going to spend money on.
The Case of the Lost Opportunity:
One of our clients (a large hospital) received approval for an AP ePayables project only to find out a short time later that the assistant controller decided to reallocate the funds to another project. When we did an analysis of the business case model, we found that the AP manager had only included about 24 percent of the actual residual benefit to automation. He missed a huge chunk of opportunity related to cash management and purchasing savings.
The first source of ROI is easy: AP efficiency. For example, reducing staff and speeding up the process will account for anywhere from 25 to 35 percent of the opportunity.
The remaining percentage comes from spend visibility—how money is being spent and the timing of that spend—which will help Procurement rationalize overall spend.
The next piece is working capital authorization. Having better visibility to the spend can allow you, for instance, to take advantage of paying some suppliers early in exchange for a discount. It’s similar to using a p-card to get a rebate from your bank. Paying your suppliers early in exchange for a 1½ or 2 percent discount is a quick way to make fast money for your automation efforts.
Having a broad foundation to your business case means bringing in other business units, and working with your counterparts, including Treasury, Procurement, and Finance. Even better: more stakeholders to push for your project.
Summary
In order to succeed in 2010, you need to paint a picture of your vision for the future of AP. Start with a picture of where you’re trying to go with your automation.
The vision is not that you’re going to use OCR/IDR or set up an electronic invoice portal, but rather that you want to move to a touchless process in AP.
Management can equate a touchless process with reduced labor costs and increased visibility into the number of invoices and accruals. The biggest hurdle involves convincing the people who need to approve your efforts, and they won’t necessarily understand the technology, so you need to simplify the future vision for them with simple goals and a visual map.
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