PayStream Advisors delivers unbiased, third-party market trend information, assessments of financial automation technology, and innovative ideas to business leaders in healthcare, consumer billing, finance and treasury, accounts receivable and accounts payable. | Read More
Southwest Airlines had a long-running legacy process to handle their invoices. Their mainframe, which inconveniently consisted of several departments, dated back to 1986 and was to blame for their 14-day invoice processing system.
AP supervisors Cicely Lopez and Michelle Price will discuss the overhaul that Southwest has recently undergone at the 2010 PayStream Summit on June 15-17 in Charlotte. The new plan took a three-tier approach that affected invoice, payment, and cash management strategies.
The invoicing strategy created a paperless environment, reduced cycle times, established electronic approvals, increased audit availability, and created a vendor portal. The payment strategy increased P-card usage, increased electronic funds transfers, and decreased wires. The cash management strategy increased payment terms and placed an emphasis on discounts.
The impact on the invoice process is tremendous. Invoices are now received by mail, fax and e-mail. Those invoices are then sorted, scanned, and stored for 90 days before they are destroyed. The old 14-day process was cut by more than half to a 4-7 day operation.
The new design also tightened up several facets of the company. Southwest was able to reduce staff by eight processors. Work queues were reduced from ten to three. The mailroom turned its focus to scan preparation and expense reporting was moved to the SAP Employee portal.
Join us at PayStream Summit on June 15-17 to gain further insight into Southwest’s innovative overhaul from the project managers themselves. Participate in this and a broad range of other sessions geared towards broadening your understanding of automation technology. For a full schedule and more information about the 2010 Summit, please visit http://www.paystreamsummit.com.
With so many sophisticated invoice and payment management solutions and services available in the marketplace today, why aren’t companies making headway in better managing their AP processes? Why aren’t more companies able to remove paper from their organizations, decrease processing costs and increase discount capture? PayStream Advisors conducted its “eInvoicing Adoption Survey” in the last quarter of 2009 and developed a benchmarking report to highlight the overall trends that are shaping the rapidly evolving AP automation space and to answer these questions.
The answer lies in execution. Our latest research indicates that the difference between a winning AP automation initiative and a dud comes down to the ability to execute such programs. Based on survey results, we have identified the secrets of successful invoice and payment management with a look into the best practices of the innovators. What techniques have they employed to streamline their processes? How do they monitor their programs? In short, what are they doing that you could be doing.
Increasing transactions processed on purchasing cards translates to a reduction in invoice volume - paper or otherwise - and the paperwork that is associated with invoices. Increased p-card volume also results in higher rebates for the buying organization.
Centralization of the receipt invoice process ensures that the AP department and senior management have instant visibility into the company’s outstanding liabilities. A formal policy mandating that all invoices should be sent to the AP department is the first step in streamlining invoice management processes.
Front-end imaging ensures that invoices enter the system quickly and are available to all the parties immediately, irrespective of where they are located. Combining imaging with automated data capture adds further benefits in terms of quicker entry of data and fewer errors.
An electronic invoicing solution goes a step further by applying a set of pre-defined validation rules to ensure that all the required information and only accurate information is submitted on the invoices, ensuring that only clean invoices enter the AP processing queues.
Leveraging an automated workflow solution ensures that once invoices enter the solution, they will be routed to the required approver automatically, based on pre-defined business rules. The business logic is typically configured at the time of solution implementation and can be updated as needed.
Organizations that do not have the in-house resources and capital required to bring a critical mass of suppliers onboard an automation solution are leveraging the expertise and value-added services provided by their technology vendors to achieve this.
Further, not all suppliers have the same technical savvy and propensity to adopt an e-invoicing solution. Providing multiple options for electronic invoicing - EDI integration, PO flip, Web templates etc. - goes a long way in ensuring that there is something for every supplier.
Dynamic discounting and supply chain finance have become hot topics in electronic invoicing circles. Organizations that are on the innovative end of the automation cycle are adopting these sophisticated technologies to increase their potential for discount capture.
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.
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.
“Doing more with less” has become the mantra of the day. In the current recessionary economic environment, organizations are constantly being challenged get more done with fewer resources. Accounts Payable (AP) is no exception. AP departments now have to process more invoices and pay them faster, all with a smaller staff. And the biggest stumbling block to accomplishing this has been our continued reliance on paper-based invoices and people-based processes. We have put men on the moon and we might even colonize Mars some day, but removing paper from the finance department appears to be out of reach in the near future. Until corporate America goes completely paperless, we need a better way to manage the tons of paper that we receive every day.
Imaging & Workflow Automation
A significant shift is beginning to shake traditional AP operations, starting with the search for automation options that help them address the hassles inherent to people and paper-based activities. Our research indicates that Imaging & Workflow Automation (IWA) solutions that streamline the invoice receipt-to-pay cycle have matured and become mainstream technology. While the adoption of IWA solutions had been limited to Fortune 1000 companies until recently, we are seeing this trend trickling down to small- and medium-sized businesses owing to the following reasons:
The evolution of hosted and Software-as-a-Service (SaaS) models has significantly lowered the upfront cost of implementing AP automation solutions and reduced the hassle of maintaining them;
The convergence of electronic invoicing and front-end invoice imaging presents organizations with a single, comprehensive solution that can manage both paper and electronic invoices through a common process; and
Value-added services delivered by AP automation solution providers around supplier recruitment have allowed buyer organizations to include suppliers in their automation initiatives and change supplier behavior more efficiently.
Given this interest in IWA solutions, PayStream Advisors is developing a report titled “Imaging & Workflow Automation (IWA): The Emerging Invoice Management Revolution” for accounts payable managers, controllers, treasurers, and finance managers who are interested in exploring IWA solutions. You can download a complimentary white paper at LINK. The full Technology Insight Series report will be released in September 2009.
Full Report Highlights
Why are organizations interested in IWA solutions?
What did PayStream surveys around AP automation reveal?
What functionality is available as part of IWA solutions?
What best practices are companies using to complement technology initiatives?
Who are the key players in this market and what solutions do they offer?
How can your organization go about selecting the solution that best fits your needs?
Vendors Covered in the Report
Ariba
Banctec
Basware
Concur
EMC/170
Esker
Hyland
Imagitek
Kofax
Metafile
OpenText
ReadSoft
While Twitter might be all the rage for personal electronic communications, another phenomenon is hitting a home run in the business world. Whether it’s called Electronic Invoice Presentment and Payment (EIPP), Electronic Invoicing (e-Invoicing), Supplier Electronic Payment (SEP), or yet another name, AP automation is on the rise. And one of the most intriguing features of these newer electronic AP solutions is their ability to link buyers, suppliers, banks, and other business partners in a virtual environment.
Supplier adoption has long been on the biggest barriers to the widespread use of electronic payment solutions. But as buying organizations become more aggressive in communicating the value of these applications, an increasing number of suppliers are signing on. And once they see networking features in action, the suppliers are quickly converted, as electronic advocates eager to spread the word.
By reducing the invoice-to-pay cycle time and facilitating communications among the participants, the networks are actually enhancing corporate relationships. Buyers and suppliers can negotiate early payment discounts, resolve disputed items, and even develop complementary and mutually rewarding goals. Both buyers and suppliers can appreciate an immediate ROI in the form of increased spend management visibility and improved cash flow, including the resulting reduction in costly but often- necessary financing.
Although it may not be setting the world atwitter, the new networking is indeed changing global commerce by eliminating inefficiencies and conquering cultural, geographic and linguistic barriers.
Electronic invoicing solutions are finally delivering – at least partially – on the promise of the long-touted, but rarely experienced, paperless office.
For a number of reasons, including data security fears and a lack of technology investment, the accounts payable function has been dragged into the electronic age kicking and screaming. And that has been unfortunate, since it’s an area that can benefit substantially from automating its many time-consuming manual tasks and processes.
With the budget crunch of recent years and the ever-increasing pressure to do more with less, however, AP managers have begun to see the light and realize electronic invoicing and payments can improve productivity, efficiency, and cash flow.
Newer applications that provide virtual venues for exchanges among buyers, suppliers, banks, and other partners can dramatically shorten the invoice-to-pay cycle. Many of these solutions offer online dispute resolution and automatic invoice routing for initial and backup approvals, thus eliminating delays caused when paper invoices are misplaced or signers are out of the office.
The bottom line is that electronic invoicing and payment applications give users the opportunity to manipulate cash flow in a very positive way, especially when they provide discounting capabilities. Sometimes known as Dynamic Payables Discounting (DPD) or Supply Chain Finance (SCF), this electronic payment trend can be a real boon to day-to-day liquidity. Need your money more quickly? Offer your buyers an incentive discount for earlier payment, with a percentage that decreases as the original due date approaches. (Not to be outdone, savvy buying organizations have also begun to take advantage of this capability and proactively propose their own discounts to suppliers.)
Given the benefits, we think it hardly surprising that 48 percent of the 300+ AP and procurement professionals we surveyed late last year identified increasing electronic invoicing as a top priority for 2009.
The buyer side of electronic invoicing and its associated benefits have been covered in-depth in this and other reports. However, a lot of education is still required in understanding the value proposition to suppliers from adopting electronic invoice management solutions. Given that one of the biggest barriers to e-invoicing and payments is supplier adoption, rather the lack thereof, it is critical to look at e-invoicing from the supplier perspective. Suppliers who have jumped onboard the electronic bandwagon have reaped a number of tangible benefits from automating the invoice presentment and payment process.
While they vary with the type of solution implemented and functionality being used, here are some common benefits of e-invoicing to suppliers:
Increased Efficiencies: Significant time is saved when employees do not have to print paper invoices and mail them to their customers, freeing up accounts receivable staff to focus on more value-added activities like collections and customer relations.
Lower Costs: Reduction in labor, material and postage costs are common with all e-invoicing solutions. Our research reveals that suppliers who adopt electronic invoicing can slash their invoice management costs by more than 50 percent.
Error Reduction: Validation rules configured into e-invoices solutions flag errors at the time of submission itself and prompt suppliers to correct them, reducing the number of exception invoices downstream.
Faster Settlement: Electronic invoicing compresses the invoice processing and approval cycle on the buyer side. This, combined with electronic payments, will ensure that suppliers are paid on time, or even early in some cases.
Improved Visibility: Suppliers have real-time access to invoices and payment status from a standard Web browser, reducing the number of calls and emails to AP Help Desks.
Better Cashflow Forecasting: Automating invoice processing and payments reduces the uncertainties around payments. Consistency around payment timing means that suppliers have enhanced ability to perform cashflow forecasting.
No More Reprint Requests: Electronic invoicing solutions drastically reduce the number of lost and missing invoices, which means that reprint requests from buyers will virtually be zero.
Quicker Dispute Resolution: Suppliers now have the ability to view disputed invoices at any given time and provide supporting/backup documentation, as needed, making dispute resolution a collaborative process as well as accelerating resolution.
Decrease Days Sales Outstanding: Dynamic discounting and supply chain finance capabilities available as part of e-invoicing solutions allow suppliers to decrease days sales outstanding (DSO) without adversely affecting customer relations.
Access to Cheaper Capital: Dynamic discounting delivers financing at more attractive rates to suppliers than factoring or asset based lending.
When it was originally invented in 105 AD, paper was a precious product. Today, we just cannot imagine a world without paper. From the contents of our mailboxes to the currency in our wallets, from the rolls we use to clean our kitchen counters to the card boxes in which we get our cereal, paper is never far from the picture. And neither are our efforts to protect the environment.
While we are consciously seeking ways to reduce the impact on the environment – recycling, using renewable sources of energy and reducing waste, we cannot ignore the number of paper invoices corporate America generates each year. Here is some food for thought:
The United States alone consumes more than 82 million tons of paper each year. Though the U.S. has only 5 percent of the world’s population, it consumes 33 percent of the global paper production.
Businesses within the U.S trade in excess of 13 billion invoices annually, which accounts for more than 25 billion pieces of paper that are floating around offices each year.
Invoices are responsible for 10 percent of all trees cut down worldwide and creating paper invoices uses as much electricity each year as the consumption of 20 million households.
A year’s worth of invoices take up as much landfill space as 10 football fields each stacked more than 100 feet deep with paper.
The case for electronic invoicing has already been made in terms of time and cost savings. But the environmental impact of e-invoicing is not insignificant either. Migrating even 50 percent of our current paper invoice volume over to electronic documents can deliver the following benefits:
Getting rid of 12 billion pieces of paper means saving almost one million trees and 240,000 tons of paper every year.
Slashing paper invoicing by half also translates to reducing our carbon dioxide (CO2) footprint by almost 250,000 tons.
It is clear that, in addition to the monetary savings that e-invoicing brings, there are a number of environmental benefits as well. So make your corporate mantra “Go Green, Save Green.”
Assumptions:
• 1 million invoices = 133 trees
• 1 million invoices = 36 tons of carbdon dioxide (CO2) footprint
• 1 tree = 9,000 pieces of paper
• 1 million invoices = 20 tons of paper
AP departments have finally jumped on the automation bandwagon and are using technologies like document imaging, data extraction, electronic invoicing and automated workflow to achieve both tactical benefits – cost containment and productivity enhancements – and strategic objectives – improved spend visibility, better vendor relations and enhanced discount capture.
But our research reveals that merely having the right technology in place is not enough to optimize the AP department performance. Learn from the innovators about best practices that go hand in hand with technological tools.
Centralize Invoice Receipt: If all invoices are sent to the AP department directly as a central location for receipt, organizations can drastically reduce problems such as lost/missing invoices and lack of visibility into invoice liabilities. In the 2008 IAPP Member Benchmarking Survey, members were asked to rank the importance of centralization, on a scale of 1 to 5, where 1 is low and 5 is high. More than two-thirds of the companies (67.4 percent) stated that centralization was of utmost importance to their AP operations, giving it a 5 on the scale.
Move Imaging to the Front-End: Used for front-end document and data capture, imaging solutions provide greater benefits imaging on the back-end for storage and retrieval. Scanning invoices at their point of receipt – either in the field or at a central location – removes paper from the process and ensures that critical transaction-related documents are committed to secure storage immediately. Performing document and data capture at the beginning of the invoice receipt-to-pay cycle also minimizes the time required to enter invoices into queues for processing and payment.
Use Advance Data Extraction Tools: Once invoices have been scanned and their images enhanced to optimize character recognition, AP automation solutions use technologies like optical character recognition (OCR) to locate, extract, and validate the desired information from the invoice image. Front-end OCR represents a leap from front-end imaging alone, because it sets up genuine improvements to the invoice receipt-to-pay cycle. OCR solutions perform the task of translating data from imaged invoices, reducing labor costs and cutting down on data entry errors. OCR solutions analyze the data extracted and convert it into useful information.
Key Performance Indicators: AP automation solutions offer a number of reporting capabilities that put information at the finger tips of savvy managers. Using the reporting engines’ capabilities, managers can analyze numerous key performance indicators, including the average time taken to approve an invoice, number of invoices processed per day, dollar value of discounts captured or missed and number of invoices processed per AP operator per day, to further improve their department performance.
Download PayStream Advisors‘ recent research paper on invoice automation titled Imaging and Workflow Benchmarking Survey ReportHERE >>
As the dust begins to settle from PayStream’s first annual electronic invoicing summit, The Next Generation of E-Payables: Electronic Invoicing and Supply Chain Finance, and before I go back to work on our Spring Summit 2009, I thought I’d take a few minutes to reflect on the week’s events.
The inspiration for the Summit was PayStream’s consulting, research reports, and one specific study our research division has been conducting for the last several months regarding the state of AP automation in U. S. companies. The findings were unveiled at the Summit and the eInvoicing Adoption Survey Report released this week. LINK
Common themes emerged from the conference delegates. Many admitted that imaging and OCR were great first steps, but they found it was time to take their AP departments to the next level in automation and to begin exploring advanced options like electronic invoicing.
Organizations just getting started on the path to automation expressed relief when they discovered many of the options that technology providers offered could be tailored and implemented a la carte.You don’t have to automate the entire process all at once.
Of course, everyone wants to know how to make the implementation process a success, but making that happen depends on variables, often times out of your control. This was addressed in the morning panel discussions when panelists offered anecdotes for how to be successful.
The moral of the stories was: 1. Executive sponsorship and cross departmental collaboration is key. You need all departments on board and you need your executive leadership to fully understand and support the project to have any chance of automating your accounts payable, and 2. Take time prior to implementation to get an accurate estimate of the current state of your payables, even if this means stretching your timeline an additional 3-6 months.
And the question addressed most often; how do we get our suppliers on board? The answer was a unanimous recommendation to approach your vendor pool with an air of collaboration and be willing to work with individual vendors who may be on separate platforms.Often times, a solution provider will handle supplier on-boarding for you.
Now, getting back to the survey results from the PayStream eInvoicing Adoption Survey Report. Amid all the findings, we see most clearly that paper is on the way out and it’s on the way out fast. By 2010 we anticipate electronic invoices exceeding the number of paper invoices processed by Fortune 500 companies in the U. S.