PROACTIS Blog

How do you automate invoice matching, validation and payment authorisation?

Charlotte Sutton
Charlotte Sutton,
PROACTIS
Take just a few minutes to think about the scope and objectives of the business process:
Explore the process…
 
The process you want to explore here consists of the following activities: Receiving, coding, validating, approving, authorising for payment, and analysing invoices.
 
Specifically:
  • Invoice capture and coding
  • Invoice validation and matching
  • Discrepancy resolution
  • Payment authorisation
  • Supplier communication
  • Reporting and analysis
This includes all types of supplier invoices, such as:
  • Invoices that reference a PO
  • Invoices with no referenced PO where there should be
  • Non-PO invoices such as utility bills, recurring payments, scheduled contract payments, PCard bills, etc.
  • Invoices received either electronically or on paper
Keep in mind your goals for the Accounts Payable function:
  • Ensure proper payment by validating charges, avoiding duplicate payments, and preventing fraud
  • Minimise the cost of invoice processing by reducing human handling wherever possible
  • Ensure proper cost allocation by correctly applying GL codes and spend classifications
  • Avoid late charges and take advantage of early payment discount opportunities to reduce overall purchase costs
  • Enable good cash management with full visibility of payment liabilities and invoice status
  • Enable good budget management with full visibility of commitments
  • Improve procurement effectiveness with better information for spend analysis
  • Strengthen supplier relationships with consistent on-time payment and clear communication

How are you performing today?

Ask yourself and your team how you are doing today. Consider the simple ‘rough cut’ approach to estimating bottom-line impact that could be achieved with improvement:

  • How many staff (FTEs) do you have in Accounts Payable?
  • How much does it cost you to process invoices? Number of FTEs in Accounts Payable (a) x Average annual cost (i.e. labour overhead) per FTE.
  • How many invoices do you process per year? You could take the monthly average and multiply by twelve.
  • Therefore, what is the average cost per invoice? Invoice processing cost (b) % Number of invoices (c)
  • How many invoices does an FTE process per day? The number of invoices processed per year (c) % Number of FTEs (a) % Total annual work days (e.g. 220 days)
  • How many duplicate or invalid invoices do you pay per year due to human error or lack of validation? Is it 1% of total invoice payments? 2%? 3%?
  • How long does it take you to process invoices on average? Average elapsed days from arrival to payment authorisation
Therefore, what percentage could you potentially reduce your AP costs by? According to analysts, high performing AP departments outperform all others and process 27,097 invoices per FTE, per annum (APQC). More optimistic surveys even suggest 42,000 invoices per FTE, per annum (Hackett Group). That’s quite a difference and statistics should be taken with a ‘pinch of salt’. But they do act as a good basis for discussion.

Understanding your existing Accounts Payable performance levels and comparatively benchmarking these against industry leaders can give you an initial understanding of cost savings and process improvements that your organisation could achieve.
 
Note: Even though we are limiting the scope of "Invoice Processing" to the activities outlined above, keep in mind that there are closely linked activities before and after invoices are processed that are very important to overall AP effectiveness. These include PO placement and settlement in particular.
 
Click here to read part 2: “Invoice Processing: What is holding you back…”
 
 
 
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