Automating Paper-based Processes to Achieve Effective Cash Forecasting

Most businesses acknowledge that improving cash collection while keeping costs low is fundamental to ensuring their survival and long-term prosperity, but not all recognise that investing in the latest automation technologies can be the most effective means of achieving this. Two of the most important processes – particularly during periods of financial austerity – are the accounts payable (A/P) and accounts receivable (A/R) functions. If these areas are inefficient and badly managed, the ability to control and accurately forecast cash flow will be negatively impacted.

Factors Affecting A/P and A/R Performance

A/P, commonly referred to as procure-to-pay (P2P), can be a surprisingly expensive process, costing as much as £50 per transaction. Receiving purchase invoices, manually entering the data into the accounting system, photocopying invoices for filing purposes, distributing invoices around the business for authorisation, returning these invoices to A/P for payment, and sending out remittance slips is also an extremely labour-intensive and time-consuming process that is vulnerable to human error.

Using traditional paper-based processes, invoices are often lost or misfiled, which can affect an organisation’s ability to maintain effective control over its cash. In worst case scenarios, approvers could be sitting on an £100,000 invoice that the finance department isn’t aware is overdue until it receives a call from the supplier chasing payment. This lack of visibility can lead to late payment penalties, which affects a company’s bottom line.

An over-reliance on paper can have a similar detrimental effect on an organisation’s A/R, or order-to-cash (O2C) processes. Whether posting out statements, making copies of sales invoices or digging out customers’ original orders and proofs of delivery (PoDs), credit controllers can still spend much of their time dealing with paperwork. A frequent stumbling block to receiving a customer’s payment swiftly and without dispute revolves around the production of signed PoDs. A credit controller can spend an inordinate amount of time chasing paper PoDs, as they can get lost, torn or soiled, and it can sometimes take weeks before a PoD is finally located and a sales invoice can be raised. Any delays in raising sales invoices can often impact an organisation’s cash flow.

Improving A/P and A/R Efficiency

Automating paper-based processes is key to enabling organisations to make the best use of their working capital. By replacing the production, circulation and duplication of paper documents with automated processes, businesses cut costs, facilitate faster cash collection and avoid late payment penalties. In addition, expensive document storage space is freed up and staff are no longer occupied with labour-intensive administration tasks, such as producing and posting copy invoices, often allowing them to carry out more value-adding tasks.

The following trends in automation technology are helping businesses to gain greater control over their suppliers, reduce late payment penalties and take advantage of early payment discounts:

  • Document scanning – capturing an electronic image of all invoices that come into the organisation.
  • Electronic storage – all document images can be kept in a central archive, which is integrated into the central accounting/enterprise resource planning (ERP) system.
  • Optical character recognition (OCR) technology – enables the automated capture and validation of invoice information, dramatically reducing manual data entry.
  • Electronic invoice authorisation – automated circulation of invoices for approval, eliminating the time-consuming photocopying and postage of invoices for physical sign-off.
  • Electronic payment via BACS – payment is paid direct into the supplier’s bank account.
  • Electronic creation and delivery of documents – using an electronic form creator and an automated fax or email delivery solution.

Here we examine these trends in greater detail.

Electronic document imaging

For an organisation to operate at optimum efficiency, it is essential that its documents are securely stored and immediately accessible in an intelligent electronic archive, which is tightly integrated into an existing accounting or ERP system. To achieve A/P and A/R best practice, a centralised, enterprise-wide document imaging, management and archiving system is recommended.

All outgoing documents printed by the accounting or ERP system, as well as documents printed through Window applications on the desktop, will be compressed, indexed and securely archived automatically. Incoming documents, such as purchase invoices, PoD notes, etc can be scanned and tagged to the relevant record in the accounting or ERP system where they can be stored and managed electronically.

Once all of these documents have been captured and stored electronically, authorised users will be able to search and access the documents from their desktop, either by searching details, such as invoice number, customer name or date range, by drilling down via the core accounting or ERP system, or a web browser. With this technology in place, the A/P department will be able to determine at which stage invoices are in the approval chain and have greater visibility to manage cash more effectively without the fear of receiving any unexpected surprises arising from outstanding invoices.

Electronic document imaging also helps to cut through typical late payment excuses that affect the A/R function. By scanning PoDs and attaching the imaged PoD to the appropriate transaction in the finance system, there is a permanent record that cannot be lost or destroyed. With the imaged PoD to hand, this can be electronically delivered to the customer with the corresponding sales invoice, giving them little excuse to delay payment. Sending an invoice electronically, rather than posting it, also ensures the invoice is with the customer a day or two sooner, facilitating swifter payment and improving cash collection.

Automated invoice data capture

Prompt payment of supplier invoices to take advantage of early payment discounts demands efficient invoice processing, which in turn requires a high degree of reliable automation. Since many invoices are still produced on paper, the first task in automating processing is to capture an electronic copy of the document so it can be stored in the document archive.

Invoice scanning software, as part of a wider document management solution, manages this process. As well as capturing a copy of the physical document, it will apply some intelligence to the process, ‘reading’ the content so that it can be indexed/tagged for rapid recall later.

Optical character recognition (OCR) technology reads and verifies the data on the invoice before being uploaded into the core finance system, reducing manual data entry (by up to 80%) and the associated errors, which helps to significantly improve A/P efficiency.

To further maximise A/P efficiency and cut costs, organisations are increasingly asking their suppliers to issue them with invoices as PDF documents via email, ensuring that the production, circulation and duplication of paper are all eliminated, giving a win-win scenario as the end-to-end process becomes much more streamlined.

Electronic invoice authorisation

Capturing and storing electronic invoices alone will not ensure best practice in constantly meeting supplier payment targets. For business processes to be truly streamlined a ‘workflow’ facility is required. Using workflow software and pre-defined authorisation routes, imaged invoices can be automatically emailed to the relevant authorisers for them to approve, reject or query on-screen. The approvers can also view all associated documents from the desktop, such as purchase orders and PoDs, to aid swifter invoice authorisation. Having ready access to imaged documents improves the management of cash flow, including eliminating the risk of paying the same invoice twice.

Once an invoice has been approved or rejected, the system will trigger the next stage of the process. Ideally, the system will be configurable so that managers can set up rules, for example, triggering repeated reminders so that invoices cannot collect in an individual’s in-tray to create a bottleneck that can subsequently obscure cash forecasting. Also, paying invoices in a timely manner helps to enhance an organisation’s relationships with its suppliers.

Automated payment technologies

Once the invoices have been authorised, the finance department can pay the suppliers using electronic payment technology. By transferring supplier payments electronically, routine business administration tasks can be streamlined, and valuable time and money savings can be made. In fact, moving from cheques to BACS-IP payments can reduce an organisation’s cost by approximately 50% per transaction.

Electronic creation and delivery of documents

An effective procure-to-pay (P2P) system will support the creation and delivery of remittance advice notes, confirming when a payment has been made. This is particularly important when seeking to resolve any disputes over payments, and for compliance and reporting purposes. Automated form, fax and email capabilities, integrated into a broader payment automation solution, ensure that the payee is notified when the funds have been transferred by generating a receipt of remittance. This information is then fed back into the accounting system, providing the organisation with a real-time picture of its finances to enable accurate cash forecasting.

Electronically delivering sales invoices and statements, rather than sending them through the postal system, ensures customers are in receipt of invoices sooner, greatly enhancing A/R effectiveness. There is also a record of when the invoice was received (and read) by the customer. This eliminates any problems caused by potential postal strikes, and eliminates disruption caused by adverse weather conditions. It also prevents customers from using the old excuse that they haven’t received the invoice in order to delay payment. Electronic delivery also frees up staff time spent printing, photocopying and enveloping invoices and statements, typically saving £1 per document. By sending out statements electronically at month-end, credit control staff can chase overdue payments far sooner and significantly improve cash flow by reducing debtor days.

Conclusion

Managing cash flow is a delicate balancing act at the best of times for most organisations. This is particularly heightened in a tough economic climate when finances are under greater scrutiny and pressure to forecast how every penny will be spent and what the expected returns will be. At a time when organisations are keen to keep costs low, it is important that investment in automation technologies that enable the efficient running of the A/P and A/R functions, as well as the business’s continued growth, are not ignored.

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