AP Automation & E-Invoicing - The 7 Rules To AP Automation
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Introduction
The way in which we view the efficiency of the accounts payable process has witnessed enormous change in the past two or three years. Historically drowning in paper, by its very nature the AP department is very labour intensive. Various attempts to improve productivity via technologies such as scanning and OCR of incoming documents have failed to make a serious dent in the effort required to process a particular invoice, particularly where queries arise. So roll on the development of web based electronic invoicing solutions and a step towards change in efficiency will become a reality!
To date, much of the conversation with regard to AP automation has rightfully focused on how to improve the efficiency of process components relative to invoice receipt and workflow. Traditionally, these are the flash points for inefficiency where the reliance on paper fuels approval bottlenecks, increases processing costs, creates lost opportunities to capture early settlement discounts and often strains business relationships. But what and where should you focus your effort to make sure you achieve the maximum benefit? Here are our 7 rules;
Rule 1: Drive through efficiency gains to reduce costs
Even with the advent of network computers and email, AP in many companies is still largely a manual and time consuming process, driving down staff productivity and keeping costs higher than they need to be. By automating manual processes you can reduce approval time by days, if not hours, and maximise the time available to negotiate early payment discounts. The Aberdeen group published a report which showed that companies implementing AP automation could achieve savings of 40 -60% on AP costs, many getting an ROI in months. (Aberdeen Group, 2007). All of the following are essential and ALL of them can be automated with e-invoicing.
- Making sure that the price, quantity, and goods match the PO
- Check that all the information on the invoice is correct
- Determine correct approver & send
- Track invoice to ensure its paid on time
- Code correctly for non PO invoices
- Mark as approved to pay &Enter to ERP
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Rule 2: Don’t implement new policies if you have no way to control them
Policies and procedures are not enough. Documentation and methods to enforce internal controls are also needed to make financial commitments and regulate cash flow. If you don’t know what invoices are in the system and for what value you could be in for big trouble during quarterly/annual reporting, particularly if there is a high proportion of non-PO invoices and you cannot accurately report expenses. In the worst case this can lead to companies having to restate their earning and as a result, loss of credibility and/or share value. Despite having internal controls on paper, many companies lack methods to ensure that these controls are being followed. Best practices in terms of policies and technology will work successfully side by side, providing the necessary control to enforce the procedures that have been established. In addition to control, automated e-invoicing solutions provide increased accuracy, visibility, and timely financial reporting capabilities that are required for compliance.
Rule 3: Make the most of technology – subtle enabler to policy enforcement
Let your users blame the system rather than the managers. Technology, such as e-invoicing can enforce compliance with your company policy and prevent unauthorised workarounds. For example if you don’t have authority to use a given cost code you cannot assign a cost to that code, nor can you approve expenditure above your approval limit. Furthermore confidential invoices can be locked down from prying eyes and the comprehensive audit trail offered by digital systems which record every activity on a document, will increase visibility and help keep the auditors happy. As for cash management; imagine being able to predict accurately what your liability is over the next 30 days, by currency if necessary. E-invoicing solutions enable real time visibility into the system regardless of international boundaries giving Treasury functions so much more information thus assisting with decision making around foreign currency exchanges for example. Such solutions also enable companies to improve their working capital management abilities. Cash management can now be done more proactively since all the information is centrally available, whereas manual recordkeeping prohibits such exact analysis as it is impossible to track and factor in all unrecorded liabilities.
Rule 4: Use KPI to constantly measure and improve
Before you can accurately determine and implement improvements you need to be able to measure where you are today and where you want to be. It pays dividends to find out how are you doing in comparison to other companies in your sector, how far have you come since last year and if one supplier constantly creates work for your AP managers. So use Key Performance Indicators (KPI) to define the measures that are appropriate to your organisational objectives and take stock of your current situation. For example, you should aim to find out how much it costs you to process an invoice, what is your DPO (days payables outstanding), which departmental managers regularly cause late payment and which suppliers always get the PO number wrong. When you can analyse key problems in the system, such as bottlenecks, you can address them.
Rule 5: Integration and flexibility is key
Who knows what is around the corner. Who could have predicted Enron and the subsequent introduction Sarbanes-Oxley Compliance for any company trading within the US? In Europe we have Basel II, International Financial Reporting Standards (IFRS) and then there are industry specific requirements such as PCI DSS if you happen to use procurement or credit cards. If you are a government department, who knows what effect the coalition cost reduction policies will bring. Your system needs to change and adapt with the times, change is the only constant. Without doubt your company will have invested large sums into its financial or ERP systems, so it’s imperative that you can integrate seamlessly and easily with their existing systems, avoiding re-inventing the wheel wherever possible to ensure data consistency and one version of the truth.
Rule 6: Address the whole process right through to payment
It’s particularly advantageous for businesses intent on making the most of faster invoice approval cycles to be smarter about controlling when the invoice is paid, perhaps even negotiating more aggressive early settlement discounts in return for faster payment. If your organisation is committed to streamlining the entire accounts payable process, the conversation must also include the payments process. By using web-based payment systems to automate processes, such as Bacsactive-IP (for Bacs transactions), organisations can leverage new-found control and visibility to maintain their desired DPO levels while capturing early settlement discounts that improve working capital and supplier relationships.
Request a call back to discuss automating your AP process
Rule 7: Get those suppliers onboard!
The challenges associated with supplier onboarding are well documented, but by considering a fully integrated electronic payments system, suppliers can be enticed to support an electronic invoicing initiative much more easily. For example via the Supplier Portal you can offer the up-to-the-minute status reports on where an invoice is in the process, such as payment approval, and also provide an e-remittance advice when payment has been made. Bear in mind that for your suppliers, automating the order-to-pay process is largely about facilitating their accounts receivable process, which is exactly what is achieved by providing them with increased visibility into the approval and payment processes.
Summary
Accounts Payable departments are always looking for ways to provide added business value by becoming less transactional and more strategic. E-invoicing solutions with automated AP processing will help you to accomplish this by streamlining processes and providing efficiencies. Since the technology will process the majority of your organisation’s invoices, AP staff will primarily handle exceptions and managers will have time to focus on the more strategic aspects of AP. This includes analysing data and generating dynamic reports from the system to provide line-of-business management with up-to-date key information in such areas as spend analysis and cash flow management. This critical, real-time access to key information will help the business run more profitably.
With the Invoice to Payment Module you can streamline your existing AP processes to save time, increase visibility and reduce risk. Contact us to discuss your requirements.
