In recent decades, companies of all shapes and sizes have focused significant effort on improving the efficiency and effectiveness of their accounts payable (A/P) processes. The recent turmoil in the global economy has made this an even more imperative. In today’s business environment, cash is king, and companies are looking for ways to free up and maximise their cash.
With the large-scale implementation of enterprise resource planning (ERP) and electronic data interchange (EDI) systems, A/P has certainly become more efficient over the years. Yet most finance executives remain unsatisfied with where things stand. There’s still too much correction work, manual processing, filing and matching required to achieve the kinds of efficiencies and savings that organisations need to weather these volatile times. As a result, A/P is poised for a significant transformation.
The High Cost of Inefficiency
Businesses have spent billions on technology to streamline and automate their finance operations. Yet the invoice and payment process remains largely inefficient. According to industry analysts, companies still send 80% of invoices and payments on paper. The cost of this inefficiency? $US650bn a year by some estimates.
To stem these losses and drive the next level of improvements across their business, many companies are looking to a new breed of solutions. And they’re finding them in the ‘cloud’.
The first wave of technology-enabled productivity focused on making employees more effective in their daily jobs by simplifying key tasks such as developing documents, presentations and spreadsheets and communicating with other team members. And it led to the dawn of the desktop operating system.
The second wave leveraged web-based technologies to drive greater productivity within particular functional areas like procurement and human resources. And with it came the advent of the enterprise operating system.
The next wave of productivity is all about collaboration and aims to attack the inefficiencies that remain between companies – such as sending and receiving invoices and payments – to enable more effective collaboration among trading partners. And industry watchers say it will be fuelled by cloud-based platforms that allow businesses to share common business processes in areas like billing, treasury and A/P.
According to global market intelligence firm IDC, “Cloud infrastructure computing will move squarely into the mainstream as a significant number of Fortune 1000 companies adopt the utility computing model demonstrated by moving a portion of their “sandbox” apps into production on public clouds.1
So just what is cloud computing? And can it really transform A/P? The answer, in short, is yes.
A New Approach
Research suggests that the average organisation is losing $US15m per year for every $US1bn in spend from inefficient A/P processes. Transaction costs, lost early payment discounts and billing errors are all sources of possible savings.
But it doesn’t have to be this way. With help from cloud-based applications designed to automate invoice and payment processing, finance organisations can achieve new levels of A/P efficiencies and cost savings. Unlike traditional enterprise applications, cloud offerings can help companies improve performance by reducing paper handling, eliminating errors at the source and enabling low-cost, external connectivity with all suppliers.
With the right offerings, companies can transform their A/P operations through a fully automated, paperless process. Through a set of integrated capabilities, suppliers can quickly connect with buyers and consistently receive timely payments as source documents are electronically matched. Suppliers like electronic invoicing because it isn’t a burden for them to use, facilitates rapid payment and generates fewer errors, which are expensive to research and resolve. E-invoicing also can significantly improve compliance in many areas – with contracts, preferred suppliers and regulatory issues such as digital signature authentication and VAT compliance
To understand the kinds of results that can be achieved with e-invoicing, consider the case of a global telecommunications provider that was able to capture 95% of invoices electronically after a 10-week deployment. The implementation reduced paper invoice volume by 60% and cut error rates by over 50%, enabling the finance organisation to redeploy A/P personnel (while also improving supplier satisfaction).
So how does e-invoicing work? Distilled to its core, the most effective e-invoicing solutions comprise four specific solution elements:
The Capture element of e-invoicing is focused on connecting with suppliers and transforming the paper invoice receiving process. Not all suppliers will want to handle the invoice creation and management process electronically, which makes maximising supplier participation in e-invoicing so important. To succeed, companies must offer suppliers flexible invoice submission options, direct e-file transmission, or CSV file upload. Continuing to accept paper and incorporating a service that converts paper invoices to electronic can also fuel higher adoption rates.
The Match aspect of e-invoicing dramatically improves exception management and compliance processes. Matching can involve two-way (PO and invoice), three-way (invoice, PO and goods receipt) and four-way (invoice, PO, goods receipts and contract) matches. The best solutions accommodate all of these options. In addition, essential to effective automation and matching are general ledger integration and auto-reconciliation to reduce staff involvement, freeing up resources for more value-added task than managing paper. One global manufacturer that is processing 90% of its invoice volume electronically is achieving more than 98% invoice match rates, a dramatic improvement over manual processing.
The Manage feature of e-invoicing focuses on automated routing to accelerate the approval process within an organisation. E-invoicing can dramatically reduce the time spent in A/P responding to supplier inquiries by providing suppliers with the ability to track invoice and payment status themselves. These self-service capabilities can improve the sales and account management process with suppliers, inviting favourable treatment for buyers when negotiating future contracts.
The Pay capabilities available with many e-invoicing solutions help create a predictable outflow of capital, giving financial executives precise control over when they pay suppliers. By tightly coupling e-payment functionality such as ACH and p-card with an ERP system, companies can fine tune payments according to business needs to optimise working capital. For example, a global pharmaceutical company that had been paying invoices upon receipt streamlined its process with e-invoicing, stretching payment terms to fund early payment discount programs that improved management of working capital.
The ability to expand early payment discount opportunities is another valuable aspect of e-invoicing. A 1% 10 net 30 discount translates to an 18% annual return – the kind of high-yield, risk-free return that treasurers are looking for. In addition, e-invoicing unleashes new ways to manage cash such as dynamic discounting, where early payment discounts can be taken on a sliding scale up to the due date of the invoice.
Finding the Right Solution
Without question, e-invoicing can help A/P organisations take their performance and efficiency to the next level. But identifying the right solution is absolutely essential to success.
When evaluating an e-invoicing solution, companies should ensure that it:
- Eliminates (not automates) errors at the source.
- Permits suppliers of all sizes to easily and inexpensively connect.
- Dramatically reduces the quantity of paper handled, stored and matched.
- Improves supplier collaboration.
- Matches purchase orders, receipts and contracts to invoices.
- Accommodates varying degrees of supplier sophistication.
- Allows 100% capture of invoice volume.
- Improves compliance across many dimensions, including contracts, preferred suppliers and global e-invoice tax regulations.
- Provides earlier visibility into cash requirements.
- Removes latency in invoice and payment processing.
- Reduces the volume of supplier inquiries.
- Offers multi-lingual, multi-currency capabilities.
- Provides global, localised support for the company and its suppliers.
In addition, companies must look for a partner with a track record of effectively targeting, segmenting and onboarding suppliers. This often overlooked aspect of e-invoicing can limit the success of an e-invoicing initiative.
Without question, an e-invoicing suite should go beyond simple invoice automation. The best solutions extend process automation to closely related functions such as sourcing, contract management, catalog management and procurement, ensuring a level of compliance and control that is as important to process automation as eliminating paper in the A/P process.
The best e-invoicing solutions also are flexible enough to serve individual needs and circumstances. This is why cloud offerings are so ideal. Delivered completely as a service, they require no infrastructure to run or resources to manage. And they can be dialled up – or down – to accommodate evolving business needs. Best of all, they integrate seamlessly with ERP, EDI and other back-end systems. So you can gain a clear and consolidated view into your A/P activities and maximise the value of your existing systems.
It should also should deliver measurable and sustainable results that positively impact your operations and ultimately, your bottom line, including:
- Compliance with negotiated vendor contracts to drive savings and eliminate fraud related to disbursements.
- Opportunities for dynamic discounting, which helps buying companies reduce spend by maximising discount savings and earning high-yield (e.g. 18%+) risk-free returns.
- Detailed remittance statements to help suppliers reconcile payments, eliminate inbound inquiry calls and drive down cost per transaction.
With the right e-invoicing solution and partner, companies can become leaders in the function by addressing core areas for improvement and delivering returns that can become the foundation of future A/P initiatives.
Making the Choice to Invest in E-Invoicing
Regardless of organisational maturity, existing A/P performance levels, or level of technology sophistication or commitment, e-invoicing is a solution that can fundamentally improve an ancient business role. With legacy back office/ERP systems, organisations automated internal business processes. With the arrival of the cloud, we’re seeing a new wave of business applications such as e-invoicing that enable new business potential from inter-enterprise collaboration between trading partners.
Many top performing companies have already realised this, making the decision to prioritise e-invoicing as a top finance and procurement initiative. What are you waiting for?
1IDC, ‘Worldwide Software Business Solutions 2010 Top 10 Predictions: The “New Normal” for Enterprise Software,’ February 2010.
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