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One of the major barriers hindering electronic invoicing initiatives is gaining supplier adoption. Persuading suppliers to change their processes to align with buyer’s needs is a costly and time-consuming process, and success depends largely on the buyers’ ability to present a compelling value proposition to suppliers.
One option that organizations are pursuing to overcome this challenge is utilizing outsourcing services in conjunction with electronic invoicing initiatives. Under this scenario, suppliers that are reluctant to join an e-invoicing network, continue to send paper invoices. But instead of mailing them to the buyer’s AP department, suppliers send these invoices to a processing center managed by the e-invoice solution provider. At these processing centers, the documents are scanned and data is extracted from the paper invoices and converted into an electronic format. Data from both the paper and electronic invoices is then available for processing through a single unified platform.
Electronic invoicing solutions were explicitly designed to facilitate external buyer-supplier interactions, while front-end imaging applications evolved to meet organizations’ internal needs around invoice receipt and management. However, over the last few years, we have seen a convergence in invoice management landscape with both types of providers partnering or developing functionality to offer comprehensive solutions covering paper and electronic invoices and incorporating better options for invoice receipt, approval processing, and discrepancy resolution.
Benefits of Outsourcing Imaging and Data Capture
Buyer Side Benefits:
Organizations receive all their invoices in an electronic format, from day one, without having to wait to onboard a critical mass of suppliers on the e-invoicing network.
The AP department receives all invoices in a common format, irrespective of the channel of entry. The same robust validation rules that are applied to electronic invoices can be used to validate paper invoices as well.
Buyer organizations can see a reduction in FTE and processing costs that were originally associated with imaging and data entry from paper invoices.
Most third party outsourcing providers guarantee a 24 hour turnaround for invoice entry, which significantly compresses the invoice receipt-to-pay cycle, thereby allowing organizations to capture more early payment discounts.
Fewer supplier inquiries into invoice and payment status as suppliers have visibility into the entire process.
Supplier Side Benefits:
Requires minimal changes to the supplier-side process; Suppliers only have to change the address to which they mail in the paper invoices.
Suppliers have real-time visibility into invoice status - whether the invoice is being reviewed, is approved or is under dispute. Further, suppliers can speed up the process by submitting comments or supporting documents, if needed.
Electronic invoicing, combined with outsourced data capture, compresses the approval cycle, ensuring that suppliers are paid on time, or even early in some cases.
So you want to move to invoice automation – imaging, workflow, or even electronic invoicing. Problem is, your CFO, Controller, AP Manager, or IT staff hasn’t bought in. You’ve got a plan, but don’t have the buy-in to start.So what is the surefire way get your project approved?
PayStream has developed simple metric – PIQ (paper invoice quotient) – to analyze operations and simplify the way management thinks about AP. PIQ is a simple way to better communicate the opportunity to management. It is a score derived from a standardized survey to measure your organization’s level of dependency on paper in AP.
PIQ includes two different concepts: efficiency and effectiveness.For example, an efficiency metric would be determining that your cost is $6 per invoice to process. The effectiveness metric is how long it takes to process that invoice. Typically, AP will say that it takes 24 or 48 hours to process, or during rush times maybe a week. However, that’s only part of the story. You need to know how long the invoice takes from the viewpoint of the supplier or CFO.
PIQ tracking starts at the invoice date and ends on the day the corresponding voucher is approved in your accounting system. The PIQ is then calculated by taking the approval time divided into the percentage of electronic invoices. By weaving in these two concepts, PIQ makes it simple for you to demonstrate opportunity to your senior managers.
Metrics and Your PIQ
PayStream conducted an AP Benchmarking Survey in the Fall of 2009 and asked survey respondents questions that would serve as guideposts to help other AP departments benchmark their business. The number one response (65 percent) to the biggest opportunity inside of AP was process inefficiency. Everyone wants to provide AP services cheaper, better, and faster.
The second ranked opportunity (53 percent) was improved visibility, which is driven around discount management. In other words, there’s a frustration, especially among senior managers, about invoices floating around the organization and not being in the company’s ERP system.
We call this “invoice float” because the invoice is moving around the organization and may be sitting on someone’s desk, perhaps because the person is on vacation, investigating a discrepancy, or wants to post the invoice in Q4 rather than Q3.
Envisioning Your ROI
The first source of ROI is AP efficiency. Reducing processing costs 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. The next piece is working capital authorization. Having better visibility to the spend can allow you to take advantage of paying some suppliers early in exchange for a discount.
Having a broad foundation to your business case means bringing in other business units and working with your counterparts—including Treasury, Procurement, and Finance.It’s vitally important to consider all of these elements together.One of our clients received approval for an AP project in the past, only to have the assistant controller reallocate the funds to another project. When we did an analysis, we found that the AP manager had only included about 24 percent of his business case. He missed a huge chunk of opportunity.
The one tip that we always like to suggest is that you should visualize your ROI model.The first thing you will notice is that there is some red, which means that it’s going to cost money before you start saving money. The first thing that the people reviewing your business case want to know is how much the project is going to cost. It’s important to show that you have a realistic plan and understand that it will go negative before positive.
The Four Truths
When it comes to AP automation, there are four truths you need to face and overcome to achieve success:
1. Phantom Pain. The people who make the decisions about AP automation don’t really understand the pain of suboptimal processes, because they aren’tinvolved in AP. That’s why you need to make it simple for the CFO, controller, or IT manager to understand your pain and business case.
2. The End of Meaningless Metrics. To convince the right people, you have to communicate in their language, not the language of AP. Present your facts, compare yourselves with others, and show the the dollar value of your proposal. Make them feel the pain of a competitor or other recognizable innovator that is meaningful to them. Everyone wants to be least as good as or better than the Joneses, including your managers.
3. Making the Case. When building a broad foundation, remember that it’s not just about AP efficiency. It’s also about servicing your suppliers and making it easier for them to do business with you.
4. Destination Blues. You need to paint a picture of your vision; where you’re trying to go with automation. The vision is not that you’re going to use OCR 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 costs and increased visibility into the number of invoices and accruals. The destination blues involves convincing the people who need to approve your efforts.They won’t necessarily understand the technology, so you need to simplify it for them.
One topic that is sure to spark a lively debate in most circles is “outsourcing.”Accounts payable is no exception. Outsourcing, the practice of leveraging the experience and expertise of a third party firm to perform tasks that would normally be handled in-house, is still taboo in many areas. For a lot of people, outsourcing conjures up images of large-scale lay-offs and employees lining up in droves at the unemployment office.
However, our research shows that outsourcing could, in fact, be the result of a company’s growth, rather than a downsizing effort, even though that sounds like a contradiction in itself. To validate this point, here are some instances where outsourcing is an appealing option:
A company that is growing rapidly might investigate outsourcing to keep up with its growing transaction volume, instead of adding additional full-time employees to its in-house staff.
An organization might want to leverage the expertise of a third-party service provider to increase process efficiencies, while allocating its internal resources to more critical tasks or redeploying them to other functions.
Finally, another scenario where outsourcing makes perfect sense is when it is considered in lieu of large investments in the latest technology, if the company in question does not have the required technical and financial resources.
Whatever the reasons, an entire industry has evolved to meet the outsourcing needs of companies. Outsourcing has been gaining popularity over the last few years, especially in the finance and accounting space. Research from PayStream Advisors estimates that the Accounts Payable Outsourcing (APO) market generates in excess of $5 billion in revenues annually and is growing at over 25 percent each year.
Given this interest in outsourcing accounts payable tasks, PayStream has developed the Technical Insight Series report titled “Accounts Payable Outsourcing (APO): Breaking Accounts Payable Taboos” to provide an overview of APO options available in the market today and insights into the various players in the marketplace. This report gives an overview of the APO market, the benefits it delivers and profiles four leading providers of APO solutions and services – Archive Systems, BancTech, HOV Services and SourceNet Solutions.
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 >>
After years of lackluster performance, optical character recognition (OCR) for accounting has finally come of age. And it’s happened none too soon for accounts payable professionals, who have long been eager to automate the many time-consuming, labor-intensive tasks associated with their occupation.Original A/P OCR and scanning applications were used primarily for back-end imaging and archiving.. This made retrieval easier and eliminated the cost, space, and effort associated with physical storage. Unfortunately, it didn’t offer much in the way of true productivity improvement, and the invoice receipt-to-pay cycle continued on its meandering (and manual) path.In the next evolution, imaging and data extraction moved to the front of the payment cycle, occurring when invoices were received. While this did offer real time and productivity gains, it also highlighted the need for improved scanning speed, image quality, and recognition capability.Today’s stellar crop of OCR A/P solutions are not only fast and reliable, they also automate functions that were little more than wishful thinking a few years ago. For instance, they can validate data; automate workflow by sorting and routing invoices to specific locations; and highlight exceptions that need review. Most OCR solutions come with standard reporting packages, and nearly all integrate with third-party applications like Business Objects and Crystal Reports for more robust reporting and analytics.Even better, there are definite financial rewards after implementation. Users say they capture more early payment discounts; reduce or eliminate processing backlogs and duplicate payments; and are able to reduce staff or reassign them to more strategic duties.If you haven’t checked out the latest A/P OCR applications, you’ll likely be surprised. They offer true savings in time, cost, and effort – not to mention spectacular gains in productivity.Read more in PayStream’s research on OCR and Imaging HERE >>>
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.
The introduction of Mastercard’s Payment Gateway, coupled with JPMorgan/Xign’s AP Trac into the Accounts Payable and B2b world carries with it a striking promise, the promise of Buyer Initiated Payments (BIP).
In the traditional card transaction, the seller/vendor/supplier end is the initiating event that starts the payment process. In BIP, the transaction is initiated by the Buyer. Some in the industry call this Accounts Payable Purchasing Card or AP P-Card or Buyer Push Card. Let me give an extremely contrived example to illustrate the difference in a buyer initiated payment:
When you’re buying your triple Venti nonfat half-caff soy latte with 1 pump mocha, 1 pump caramel and 1 pump peppermint (if it’s the holiday season), low foam, non-fat whip, steamed milk at 185 degrees, 2 packets of Splenda (shaken, not stirred), 3 drops of half & half and an extra protective sleeve, coffee drink from Starbucks, the moment the gears of payment begin is when you swipe your card. The card company pays Starbucks, and you pay the card company, plus interest, when Starbucks alerts the card company that you have made the purchase.
Buyer Initiated Payments turns the traditional seller initiated transaction workflow on its head - The example being, in a BIP transaction, you could, from home, enter your card info, tell it to send $4.36 to Starbucks, head to your favorite Seattle-inspired bistro, and have your coffee waiting. In the BIP world, once the invoice is approved on the buyers system (after Starbucks Shipped your coffee) the AP accounting system sends the payment directly to the sellers merchant processor.
BIP promises to lower “transit†time of payment. Now, this is obviously contrived - But imagine if you weren’t ordering just one drink, but 10,000, and Starbucks wasn’t going to ship your 10,000 drinks (quick math - 10,000 x $4.36 = $43,600, a considerable chunk of change). Well, if that normal check payment process used to take 6 days, you, the buyer, could either initiate the purchase and payment ahead or pay for the drinks upon reciept to ensure that this check payment delay time is all but eliminated.
Equally (if not more) important, the BIP system should provide a far more automated transaction, visibility towards the remittance details and increased rebates. That is to say, a BIP-based system is the first step towards allowing the buyer to achieve a discount in the form of a rebate from the card issuer.
Challenges
Of course, there are several major issues here. First, this discount came out of the pocket of the seller in the form of a merchant discount fee or “interchangeâ€. Further, unlike a typical card Seller Initiated Transaction, the buyer could in theory pay the invoice 30 days after it was due and still get a “discountâ€. The seller would be very happy about that, eh?
Further both you the buyer and the supplier (e.g. Starbucks) have to be in a system that automatically initiates delivery of goods or services. So both the supplier and the buyer have to be on the system. In the past, these partnerships have been difficult to achieve on a large scale.
Simultaneously, supply chain financing is a major part of this whole operation. What good is the regular usage of BIP if the buyer doesn’t have the funds? Generally, the advantage of vendor/supplier-initiated-payments is that it allows the use of traditional systems of purchasing card including credit-based cards. Payment, in this system, can happen later because billing takes place after financing has taken place. E.g., Starbucks is paid by the card company, and the buyer pays off the card. In the BIP scheme, the financier must be in a position to provide financing at the point of invoice approval.
The technology required to make these payment systems work together is both sophisticated and until now unproven. However, the intersection of tools like AP Trac, Mastercard, and JPMorgan are promising the possibility of increased use of cards, more while the seller gets reduced DSO, level-three data capture, and 6 Sigma analytic tools. Not bad for a day at the coffee shop.