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
PayStream’s recent survey of procurement professionals from over 350 U.S.-based businesses reveals a renewed interest in Web-enabled procurement solutions – especially applications that have been enhanced by purchasing cards, approval workflow technologies and integration with online vendor catalogs.
Benefits of Automation Become Clear
Automating the procurement process delivers a number of tangible benefits – depending on the breadth of the solution implemented and the extent of integration with other processes in the finance department. Our survey revealed that, on average, adopter organizations can expect to achieve the following benefits:
Lower transaction processing costs and the ability to significantly compress order cycle times.
Lower transaction processing costs and the ability to significantly compress order cycle times.
Increased compliance with corporate policies and reduction in maverick/ad hoc spending.
Visibility across the entire spend management process in real-time to authorized system users.
Ability to consolidate spend across the entire organization to negotiate bulk discounts/ preferential pricing with suppliers.
Ability to view spend as it happens and compare it against budgets, instead of looking at it after the fact.
Comprehensive audit trails, with date and time stamps, for every action taken by every user within the system.
Higher employee productivity and satisfaction with the availability of an easy-to-use, intuitive system.
Key Procurement Metrics to Track
“What gets measured gets done” is an old adage which is still very applicable to any business, or any task for that matter. The procurement process has a number of moving parts and people and unless certain metrics are identified and performance measured against these indicators, it is quite likely that something will fall through the cracks.
KPIs should be measured at least once every quarter or six months. These metrics or key performance indicators (KPIs) become all the more critical when a company is going through a merger or acquisition, new technology implementation or organization restructuring. Measuring and comparing KPIs before and after any of these are a good indication of the impact it had on the procurement process.Here are some key KPIs procurement departments should track on a periodic basis:
Percent of total spend under management of the procurement group
Cost to process/complete a single requisition-to-order cycle
Number of days to complete a requisition-to-order cycle
Percent of total spend that is maverick/ad hoc/off contract
Percent of suppliers accounting for 80 percent of spending
Cost savings as a percentage of total spend and managed spend
Keep watching this space for more information on electronic procurement based on our survey results – challenges, benefits, best practices and gaining supplier acceptance.
The Accounts Payable (AP) department has long suffered the stigma of being called a “cost center” or “black hole” from which money is constantly flowing out. Especially in recent times, with the spotlight turned on AP, the hole has become more noticeable. But just as every cloud has a silver lining, this added emphasis on the operations of the AP department has brought about a paradigm shift in the traditional invoice and payment management process. Increasingly, financially savvy managers understand that the AP department has tremendous potential to deliver strategic benefits around supplier relations and working capital improvements.
Traditionally, the enemy of radical improvements in the financial supply chain has been an over-reliance on people and paper-based processes, which result in lengthy processing cycles, slow and delayed payments, and unhappy suppliers. However, all of this is changing. On the one side, heightened visibility has led to a growing awareness among financial managers that things are changing, with or without their approval. On the other hand, robust and easy-to-use electronic payment (ePayment) options — such as ACH and purchasing cards — are widely available in the market today, and are opening the doors for innovative AP and finance departments to take control of supplier payments and shine in the limelight.
Payments are the final step in the invoice receipt-to-pay processing cycle. With significant effort spent on the initial stages of accounts payable processing that includes invoice receipt, workflow, and matching, organizations must not experience failure in exchanging payments in a timely and cost-effective manner. Electronic payment methods allow processing of payments in a faster, cheaper, and more convenient manner than paper-based checks. Given the tangible benefits electronic payments deliver over paper-based checks, it is not surprising that adoption of the various formats of electronic payments has significantly increased over the past five years, while check usage is on a decline.
Figure 1: Change in Usage of Payment Methods
PayStream has developed a Technology Insight Series report — Electronic Payments: Streamline Purchase-to-Pay, Reduce Costs — to provide an overview of the electronic payment landscape and address the following questions generally asked by finance managers:
What challenges are organizations facing when it comes to manual settlement processes? What factors are driving the migration from paper checks to electronic payments?
In spite of the widespread availability of ePayments and their tangible benefits, why are more than 75 percent of B2B payments settled via checks? What barriers are hindering further adoption of ePayments and how can they be overcome?
What are the different types of electronic payments? How do ACH payments, wire transfers, and purchasing card transactions differ from one another? What benefits does each ePayment tool deliver?
What related developments in the procure-to-pay space are impacting the growth of electronic payments? Where does ePayments fit in a broader P2P automation roadmap?
What are the functional components of an ePayment solution? Who are the key players in this space? What solution functionality is available from these technology vendors?
What are some of the best practices innovator companies are following in order to streamline their payment processes and increase the usage of electronic payments?
The report also features profiles of five leading providers in the electronic payments space – American Express, Bottomline Technologies, J.P. Morgan, TradeCard and Vendorin.
Payments Convergence Conference
PayStream has created the annual ePayments Convergence event to meet the needs of sophisticated finance professionals who are aggressively seeking to improve their penetration of ePayments, and who desire high-quality information to drive decision making. This two day event is held in June each year to showcase leading practices by corporate innovators.For more information, go to www.paystreamsummit.com.
Hype to hope to disappointment and finally acceptance and adoption – electronic procurement has experienced an extremely interesting lifecycle. During the early 2000s when it was fashionable to add the word “electronic” to every initiative, procurement automation appeared on a number of corporate agendas. A plethora of electronic procurement solutions cropped up in the marketplace and organizations were rushing to implement these in hopes of achieving tremendous cost savings, enhanced spend management capabilities and improved supplier relations.
Unfortunately, not every adopter of e-procurement saw the anticipated benefits materialize. Over the years, organizations have learned a big lesson; technology is not the be-all-and-end-all of an automation initiative; it is just an enabler. The key to a successful e-procurement program lies in the redesign of the procurement process and a strong strategy to leverage the available technology to meet each organization’s specific business requirements.
PayStream’s recent survey of procurement professionals from over 350 U.S.-based businesses reveals a renaissance of interest in Web-enabled procurement solutions – especially applications that have been enhanced by purchasing cards, approval workflow technologies and integration with online vendor catalogs.
Usage of Electronic Procurement Solutions
PayStream’s survey revealed that more than half (61%) of the companies that participated in the survey are currently using an electronic procurement solution. Almost half the adopters have been using their e-procurement solution for over five years.
Figure 1: Where does your organization stand when it comes to the usage of an electronic procurement solution?
Another 13 percent are evaluating e-procurement solutions for implementation over the next six months. What are the driving forces behind organizations’ need to implement or improve an electronic procurement solution? Almost a third (66%) of the companies surveyed stated that the biggest factor driving them down this route was the need to improve compliance – whether it was with contract terms, negotiated prices or regulatory requirements. This was followed by the need to lower costs, accelerate the requisition-to-order cycle and reduce maverick spend. In today’s economic climate, it is not surprising that every organization is looking for ways to drive costs out of the equation.
What is Holding Electronic Procurement Back?
Given that electronic procurement delivers tangible results, what is the reason more companies have not implemented a solution to automate their procurement process? According to our survey, the biggest barrier to the adoption of e-procurement is resistance to chance. Senior management’s belief that “current processes work” even though they may not be the most efficient is hampering e-procurement initiatives that more than a third (35%) of companies surveyed.
This was followed by a lack of understanding of solutions currently available, which was stated as a reason by 28 percent of organizations. In order to educate companies and help them overcome this hurdle, PayStream is developing a Technology Insights Series report titled “CFO’s View of Electronic Procurement” which will be released later this year.
Keep watching this space for more information on electronic procurement based on our survey results – challenges, benefits, best practices and gaining supplier acceptance.
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.
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.
Technological advances have shrunk our world into a single, global marketplace. Tools like the Internet, email, video conferencing etc. have made it easy for organizations to connect with their customers and suppliers, whether they are across the street or across the ocean. However, these same factors that are responsible for expanding a company’s geographic footprint have resulted in an increase in international travel and the costs associated with this. Over the last few years, increase in the amount of business travel combined with escalating travel costs have significantly increased spending on corporate travel and entertainment expenses, making the second largest cost pool for most organizations, just behind salaries and benefits.
However, with the economy in a recession, companies are taking a hard look at these costs and investigating ways to control them. It is no surprise therefore that more than a third of the companies (38 percent) that participated in PayStream’s “T&E Expense Management Adoption” survey stated that they have decreased their T&E spend over the last three years.
Manual T&E Processes are Fraught with Challenges
There are complexities inherent to managing any paper-based process and the survey revealed that travel & expense is no exception. The biggest challenge for almost half the organizations (45 percent) was manual data entry and inefficient processes. More than a third of the respondents (35 percent) mentioned that lack of visibility into spend was a problem they faced. An equal number found inability to enforce corporate travel policies to be a challenge. High cost of processing expense reports was a challenge for a little less than a quarter of the organizations surveyed.
Challenges With Manual T&E Processes
Time is Ripe for Automation
Our research reveals that, owing to the emphasis on decreasing travel-related spend and the existing challenges faced in the travel management process, organizations are actively seeking automation options to help them streamline the expense management process and reduce its associated costs.
Analyzing Processing Costs
Based on survey results, the average cost to process a single expense report, across all companies surveyed, was $14.63. What was interesting to note was the relation between processing costs and the extent of automation an organization had in place. It is obvious from Table 1 that automation drives down processing costs. On average, a company spent approximately $28.21 to process an expense report if the process was entirely manual. This was four times as much as the processing costs accrued by companies that have automation in place. Organizations that have some automation in place have been successful in driving down processing costs per transaction to $7.42, whereas companies that are fully automated and using an integrated system have costs a per transaction cost as low as $6.19.
The direct relation between lower processing costs and automation also bodes well for companies that are shying away from automation because they believe that current processes work or that there is no ROI to be achieved from automation. This should make such companies take a second look at the range of options available in the T&E automation space today.
PayStream T&E Expense Management Adoption Survey Report PayStream Advisors conducted its “T&E Expense Management Adoption Survey” in the third quarter of 2009 and developed a benchmarking report to highlight the overall trends that are shaping this rapidly evolving space. The complimentary report can be downloaded here.
This survey report is designed to:
Help accounting and finance practitioners familiarize themselves with the TEM landscape,
Enable them to better understand the extent of adoption of the various forms of TEM automation, and
Allow companies to benchmark their operations against similar businesses.
Of the two opening sessions on the first day of PayStream ePayables Summit ’09, I chose to attend “Implementing e-Invoicing to Drive Continuous Process Improvement” from Motorola by Michael Riggins. As a consultant, I had strong penchant to comprehend and improve business processes on the front end of P2P operations before I stretched my foot into to e-Payments.
As a perfect start for that morning, I had all the ingredients I wanted for my breakfast on the agenda. I was interested in understanding the compelling company dynamics to move and adapt to new technologies in the Shared Services Division. To my thought, Riggins explained that the historic stats revealed that managing age old processes involving manual interventions had potential drawbacks. May it be inefficiency in processing invoices, time delays in processing invoices, higher number of exceptions, visibility into cash, and delays in reporting structure (to name a few) – it all led to a distorted cash management. Motorola initially tried “centralizing their AP processes” and “outsourcing their manual processes in matching PO-Invoice to low cost countries thus taking advantage of salary arbitrage.” However for a company the size of Motorola, they guesstimated that the cost per transaction was distinctly higher to what it could be by implementing electronic invoicing.
During the course of the session, I learned that this is more than a technical change that any company has to undergo to gain potential long term efficiencies and profits. It involves changes in culture, process, and people and more importantly the long term vision and buy-in from the leadership team of Shared Services Division. I was impressed by how companies are motivated to work together with supplier networks to gain the profits and not just shift the responsibilities to the outsourced vendors. Motorola not only executed their best practices and realized quick benefits but also envisions extending their best practices globally. For companies concentrating on cost cutting measures, I believe re-engineering their business process in the P2P domain accelerates their business processes- especially in clearing payments, gain potential discounts and provides better visibility and control over the cash enabling timely decisions.
In the current recessionary economic environment, organizations have intensified their focus on improving their bottom line by reducing costs and transforming their labor-intensive, paper-based procurement and accounts payable processes into automated ones. P-Cards are perhaps the only solution that effectively streamlines both ends of the procure-to-pay cycle (P2P), while significantly reducing costs and introducing greater levels of control and visibility into spend.
PayStream conducted its annual “Electronic Payments and P-Card Benchmark” research in the first half 2009, to collect data from over 500 enterprises. In current recessionary times, it was no surprise that the enterprises participating in our benchmark survey cited the need to reduce P2P transactions costs (65%) and need to maximize rebates and incentives from card-issuing bank as the main drivers to leverage P-Cards in their organization. Research found that P-Cards Deliver on their P2P Promise!
Figure 1: P-Cards Deliver on their P2P promise!
As displayed in Figure 1, P-Cards have sliced the cost of a single P2P transaction by nearly half. Additionally, P-Cards, on average, lower the P2P cycle times by one-third. In addition to streamlining the P2P cycle, P-Card provides the additional benefit of incentives or rewards (cash backs etc.) from the card-issuing bank. 46% of the organizations participating in PayStream’s research received an incentive varying from 0.5% to 2.0%.
PayStream research also found that even though P-Cards have been in existence for more than a decade, they capture, on average, only 9.3% of the enterprise indirect spend. Significant barriers to adoption of P-Cards exist! PayStream’s benchmark report titled, “Electronic Payments and P-Card Benchmark Survey Report: Bottom Line Savings from Procurement to Finance,” will cover different electronic payment methods, including ACH & P-Cards, focusing on how organizations can overcome their P-Card challenges to realize significant cost saving in their procurement and accounts payable departments. This report shall publish on September 01, 2009.
PayStream will further discuss the findings of the research in its annual summit in Charlotte from September 23rd-25th, 2009. More about PayStream Summit HERE.
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.
