Enterprises are looking to reduce costs and optimise working capital by streamlining Accounts Payable and transforming invoice management from a high-touch to a low-touch process.
Even though automation projects have delivered many tangible benefits across the enterprise, the effects have not quite filtered through to Accounts Payable. This is especially true when it comes to invoice processing that has long suffered from the constraints inherent in manual, paper-based activities including lengthy cycle times and a lack of control and visibility of transactions.
Whilst, many enterprises have implemented discrete technology tools to streamline the inbound receipt of invoices, few have addressed ‘total’ invoice optimisation to further drive out costs from the bottom-up. This not only involves centralising and streamlining data entry; but automating validation, coding and matching; minimising exception handling workflow; and eliminating supplier enquiries etc.
Given the historical lack of innovation in Accounts Payable, there are significant opportunities for enterprises to lead their field when it comes to invoice process efficiency. Enterprises should adopt practical and comprehensive solutions that do not require ‘heart-and-lung’ surgery. Forward-thinking executives will look to extend this vision by automating the entire Procure-to-Pay process from bottom-up and top-down.
In Part 1 of this 2-Part series, we look at the pain points in invoice automation and highlight the top 15 questions you should ask to identify the impact of disconnected data and legacy processes in order to set clear policies and guidelines for invoice Automation.
The Pain Points in Invoice Automation
Inbound invoices are entering the organisation in multiple formats e.g. paper, xML, HTML, Fax etc. Some invoices are received directly by Accounts Payable while others are received by Purchasing and
Administration departments. Few are able to co-ordinate the receipt of invoices through to provide support for a single financial management process (especially when there are multiple ERP systems in existence).
Most do not primarily receive invoices via electronic means and are unable to eliminate the number of clean invoices entering approval workflow.
Manual entry of invoice data is time consuming and costly. Organisations must receive, sort, date stamp and enter data from paper-based invoices. This increases the chance of errors being entered into the accounting system. Many organisations have invested in tactical automation solutions and/or outsourcing parts of this process to assist with extracting data from paper invoices. Few are actively collaborating with suppliers to support their invoice submission capabilities and migrate them to electronic methods according to their strategic value to the business.
The first time the company learns about the purchase is often when the invoice arrives in Accounts Payable. Coding information is difficult to comprehend and best left to the authoriser. Accounts Payable spend time chasing-up and answering questions such as; where should the invoice be coded or costs allocated, do they need to apply procurement classifications, are the tax codes correct etc.? In addition, manual coding of consolidated bills is time consuming and fraught with error. There is no automatic learning of previous code allocations.
Matching & Approval
On receipt of the goods and services it is impossible to book them against the original purchase order and/or contract. As such when the invoice arrives there is no three-way match and the payment cannot be scheduled in line with credit terms. Discrepancies need to be resolved (e.g. line items that contain a discrepancy with the order or terms), invoices must be routed to approvers and exceptions handled.
A large degree of invoices contain discrepancies that require special handling. A slow process means late payments and penalties and lost invoice discounts. Any dispute resolution with suppliers is often done by phone, email or fax which can be time consuming and add weeks or months to the process.
Any paper-check processes are expensive and open to fraud. Payment typically involves time consuming and costly circulation of invoices within the company to agree payment release. This results in delayed payments, missed discount opportunities and lengthy call-fielding from suppliers.
Slow processes hinder recognition of expenses. There is limited visibility into invoice receipt and workflow status. Plus little information to decide on which prompt discounts to take and which to ignore. Management reporting packs are time consuming to compile and open to inaccuracies. Auditing is especially time consuming due to lack of traceability and none standardised processes.
Questions You Should Ask:
Check out the second part of this blog
- What types of invoices do you receive?
- What is the number of invoices that are linked to a catalogue order?
- How long does it take to process an invoice per FTE? What is the cost?
- What is the total number of invoices received by supplier?
- What is the total number of transactions received by preferred suppliers?
- What are your rules for routing and approving invoices?
- What is the average length of time to approve an invoice?
- What is the percentage of error free invoices passed to the accounting system?
- How many invoices are held up in error?
- What is the total number of invoices covered by a predefined payment schedule?
- What is the value of available discounts missed due to delayed processing or approvals?
- Which categories of vendors account for the greatest number of exception invoices?
- How much time do you spend answering vendor enquiries?
- What is the status of payments?
- What is the total number of invoices that have been returned or cancelled?
to find out the top invoicing KPIs and recommendations for improving invoice performance.