REDUCING COSTS, IMPROVING EFFICIENCY AND DRIVING DOWN RISK

Transcription

1 The Economics of Invoice Automation REDUCING COSTS, IMPROVING EFFICIENCY AND DRIVING DOWN RISK TABLE OF CONTENTS The Automation Imperative How to Blend People, Process and Technology 2 Primary Invoice Processing Metrics 2 Best Methods to Drive Invoice Processing Cost-Effectiveness 4 How Much ROI Can You Expect Four Scenarios 5 How to Mitigate Financial and Operational Risk 6 Best Practice Springcm Invoice Automation Cloud Solution 7 About SpringCM 7 1

2 THE AUTOMATION IMPERATIVE HOW TO BLEND PEOPLE, PROCESS AND TECHNOLOGY Almost every organization, from large corporation to small business, from public sector to nonprofit, has an imperative to save money on its operational processes, to do things less expensively, to accomplish more without increasing headcount, or to keep up with the workload despite reductions in staff. According to Gartner, a 5 percent reduction in operating costs has the same P&L impact as a 30 percent increase in sales. Keeping with that goal, this white paper will explore best practices that can help you reduce your invoice processing expenses by 50 percent or more. As is true with many other areas of operational excellence, there are three key focus areas to invoice automation: Effectiveness: Processes, Technology and People. By introducing best practices to these areas, you can maximize productivity, reduce costs, and streamline processes. Is it possible to use the right blend of processes, technology and people to cut costs, streamline processes and reduce risks in your invoice operations, all at the same time? The answer is yes, but only if you understand the metrics of invoice automation, create a specific and measureable plan for streamlining your invoice processing, and implement that plan the right way. But for most of us, doing nothing is no longer an option, and the single most important thing you can do to get your program on track is to reduce the number of manual processes through automation. This is the automation Imperative. Automation is an evolutionary path that incorporates both technology and process. It is not an audacious, technological big bang for wholesale staff replacement. Almost every organization has an imperative to save money on its operational processes PRIMARY INVOICE PROCES SING METRIC S CORE METRIC 1: COST PER INVOICE There are two ways to calculate the cost per invoice. First is to take the total departmental spend (including allocated overhead amounts) and divide by the number of invoices processed. For example, if your total departmental spend is $20,000 per month and you are processing 2500 invoices per month, the cost per invoice is $8.00. Function Before Automation After Automation Invoice Tracking 15 per hour 38 per hour Invoice Entry 5 per hour 7 per hour Invoice Review 25 per hour 45 per hour Invoice Entry Accuracy 65% 99% Invoice Volume 16K per month 50K per month While specific savings may vary, organizations can expect to see significant reductions in time and cost after automation. 2

3 Sometimes, the total number is not readily available so you have to calculate the amount from the bottom-up. In this case you must find every expense related to invoice processing (including exception management and vendor inquiries) and divide the total by the number of invoices processed. Here are the costs you should look for: Labor, including managers, supervisors and invoice processors Technology, including amortized costs for the software, hardware, network, maintenance, training, customization, integration services, etc. Telephone, paper, postage, fax, shipping services Paper and computer storage costs (for in-process and completed transactions) Overhead expenses Bank processing charges Analysts tell us that 90 percent of the costs of a manual invoice processing operation is in labor costs. CORE METRIC 2: TIME TO PROCESS INVOICES Analysts tell us that 90 percent of the costs of a manual invoice operation is in labor costs. The time-to-process statistic refers to the average time from when an invoice is received until it is scheduled for payment. There is one exception where the cost per invoice and time to process invoice metrics could send you down the wrong path. Noted invoice processing expert Nat Goodman pointed out in a recent Web event that when he ran a large invoice processing operation he was able to consolidate 1000 invoices from Federal Express into one monthly invoice. In this instance, the cost and time to process that invoice went up but the total spending on invoice processing went down. CORE METRIC 3: PAID WITHIN TERMS The percentage of invoices that are paid within specified terms. Note: this can be supplier-based terms or internal metrics, but either way, the ability to perform within the specified parameters is a hallmark of efficient invoice operations. CORE METRIC 4: EARLY PAY DISCOUNTS The percentage of invoices where you are able to pay less than the total invoice amount. Some organizations are very aggressive about taking these early pay discounts, adding a profit component to the department. These organizations tend to have a short Days Payables Outstanding (DPO) number. Others purposefully neglect to take early pay discounts and instead choose to pay suppliers on-time or even late, in order to preserve precious cash balances. These companies tend to have higher DPO numbers. The important thing to note is that one strategy is not necessarily better than the other, but rather that your invoice processing department is able to produce the desired outcome by executing (and measuring) against that strategy. CORE METRIC 5: PERCENTAGE OF DUPLICATE OR ERRONEOUS PAYMENTS Overpayments and duplicate payments are such a problem in invoice processing than an entire industry invoice audit recovery specialists has been created to deal with this issue. Duplicate vendor records, blanket purchase orders, invoice copies, expired vendors and inconsistent invoice numbering procedures all contribute to the problem, and for some companies, this can be a significant cash drain. Companies can recoup the entire cost of invoice automation through reduction in duplicate and erroneous payments. 3

4 Here are a few best practices concerning invoice automation metrics: 1. Measure. Establish a few basic measurements that are easy to capture and monitor. 2. Make sure measurements are actionable. In other words, don t measure things that you cannot take action upon. Let your staff know what you are measuring. The numbers should be seen as motivational and not designed for retribution. 3. Don t expect to hit your final targets right away, even with automation. Rather, strive to achieve constant incremental improvement. Similarly, a case study published by a business process outsource provider (BPO) shows a productivity increase of 70 percent for their audit recovery client after automating their invoice processes. BEST METHODS TO DRIVE INVOICE PROCESSING COST-EFFECTIVENES S What is the specific return on investment that you can get from automating various aspects of my invoice processing? Here are the areas of improvement and associated ROI numbers: 1. Leverage the value of your ERP system Accounting systems are terrific at processing structured data (e.g. numbers and text found in a database), but not very good at managing unstructured data. Integrating an unstructured content management system can increase the efficiency of your ERP/accounting system by 5-20%. A case study published by a business process outsource provider shows a productivity increase of 70 percent for their audit recovery client after automating their invoice processes. 2. Reduce labor resource requirements In most operations, labor costs represents up to 90 percent of total invoice spending. An efficient invoice system can not only vastly reduce the time necessary to process each invoice but can also reduce the time spent on associated tasks such as vendor inquiries and problem resolution. Although problem invoices represent only an average of 11 percent of all invoices (according to IDC), they may take up as much as 40 percent of staff time. Total reduction in labor savings can be 30-85%. 3. Get rid of the paper Automated systems require little if any storage, physical plant, paper, materials, postage and shipping costs. It is quite possible to virtually eliminate these items and achieve savings of 20-90%. 4. Decrease/eliminate overpayments and duplicate payments For some organizations, payments are a serious issue. Solving this problem can get you a return on investment in your invoice automation system of 10-30%. 5. Take advantage of early-pay discounts In tough economic times, many companies are hungry for cash and are willing to give you generous discounts for early payment. Using automation to facilitate early payments can bring you a return of %. 4

5 HOW MUCH ROI CAN YOU EXPECT FOUR SCENARIOS How much can your organization save? How much more efficient can you be? What can you expect as a reasonable return on investment (ROI)? While we realize that every situation is unique, these four general scenarios can help you determine the range of savings and improved efficiencies you can achieve. As you review each of these four scenarios, determine which of these is closest to your current environment. Assuming that you fall into one of the first three scenarios, there are several options for you to embrace the Automation Imperative and turn it into your own success story. SCENARIO 1: MANUAL (NON-AUTOMATED), VERY HIGH COST SCENARIO 2: LOW AUTOMATION, HIGH COST 1. Paper-based invoices 2. Interoffice mail and faxes 3. No front-end scanning of invoices 4. Non-documented and/or chaotic approval 5. No scanning of paid invoices 6. Manual or ad-hoc approval workflow 7. No visibility/follow-up into process 8. No process monitoring metrics 9. Non-existent or questionable vendor relations 10. Increasing storage issues 11. Invoices and other docs are stored in disparate locations 12. Incurring late fees rather than early-pay discounts 13. No exception-handling process Efficiency gain from automation can range from %. Your ROI can range from %. 1. Still mostly paper 2. Some fax or invoices 3. Limited front-end capture/invoice imaging 4. Documented process but lacks automation 5. May scan images after the invoices are paid 6. No workflow tools (relying on ) 7. No visibility Error-prone and discrepancy prone 8. Limited process metrics 9. Vendor relations is time consuming 10. May have storage issues, on or off-site storage 11. Invoices not accessible to everyone or searchable 12. Over payments and late payments issues 13. Clunky exception-handling process 14. No ERP integration Efficiency gain from automation can range from %. Your ROI can range from %. ROI SCENARIOS SCENARIO 3: MODERATE AUTOMATION, MODERATE COST SCENARIO 4: HIGH AUTOMATION, LOW COST 1. Mixture of paper and electronic invoices 2. Greater percentage of faxed and ed invoices 3. Full scanning of invoices up-front 4. Documented and automated approval 5. High percentage of purchase orders with automated handling 6. Automated rules-based/electronic routing and approval 7. Visibility including audit trails and reports 8. Process metrics to enforce performance standards 9. Fewer vendor inquiries and better relationships 10. Paperless processes with no storage issues 11. Ability to easily search for and locate invoices 12. No issues with overpayments or late payments 13. Smooth and automated exception-handling process 14. ERP integration limited to flat file transfers Efficiency gain from increased automation can range from 25-50%. ROI can range from 30-60%. 1. Most or all invoices are electronic 2. Invoice data is intelligently captured and extracted 3. Front-end scanning and capture of images 4. Automated escalations 5. Full/high visibility 6. Precise/finely tuned process metrics 7. Vendors self-service their own questions and payment inquiries 8. Totally paperless environment 9. Global/24x7 access to all docs and data 10. Early-pay discounts and successful vendor negotiations 11. Automated exception-handling process 12. Full ERP integration In this scenario, you have already received the benefits of automation. 5

6 HOW TO MITIGATE FINANCIAL AND OPERATIONAL RISK While there are many ways to reduce risk in automating your invoice payment function, they generally fall into three major categories: 1. Responsibility the idea is to make others responsible for what they are good at, and thereby reduce the anxiety of taking on new projects. One of the best ways is to utilize ondemand technology such as cloud and thus eliminate all the infrastructure requirements such as buying hardware, managing software installations, maintaining hardware and software implementations, etc. In short, you should do what you are good at financial management and leave the technology management to others. 2. Time There is typically a large amount of time necessary for you to research, specify, bid, select, implement, train and manage invoice automation technology. Traditional scenarios that utilize on-premises software can require three to six months (often more) from the start of the technology acquisition process until the technology is working onsite. This is a long time-to-value. By contrast, the cloud is designed to give you a very quick time-to-value, because you can often be receiving strong return on investment in less time than it takes you to write a complex request for proposal (RFP). 3. Finance One of the major reasons that so much time is spent (some would say wasted) in selecting automation technology is the severe financial consequences that ensue if you choose the wrong solution. To alleviate this risk, the cloud offers several advantages: There is no long-term commitment. Cloud is pay-as-you-go and you will not be stuck with what you do not use. You can easily adjust the number of cloud licenses as you go and avoid purchasing costly enterprise content management licenses that may become shelfware. This is a very real issue since industry analysts say that up to 40 percent of enterprise software licenses go unused. The expenditure category of cloud is usually a monthly business expense instead of long-term capital expenditures. Avoid hidden costs. The cost of an on-premises software license is only the starting point and by the time you add all of the infrastructure, services and maintenance costs, the solution costs 2-4 times what you were anticipating. cloud pricing eliminates surprises. Another major risk area is the possibility of unsuccessful project deployment. CFO CIO ERP on-premises software usually requires more participation from your employees both in finance and IT and there are associated direct and opportunity costs. Given the much larger implementation times of on-premises over cloud, there is also a more significant risk of project delays, again delaying your time-to-value. 6

7 Cloud can also be implemented on a trial or prototype basis. Because it is much easier to implement, cloud invoice automation can be tried before you make any financial commitment. You either quickly see the value and ROI or you decide not to implement the invoice automation solution. As mentioned earlier, you can usually accomplish this in less time than it takes you to write the RFP for on-premises software. BEST PRACTICE INVOICE AUTOMATION CLOUD SOLUTION If you are facing common invoice payment challenges like: High cost to process each invoice Lack of visibility into your company s obligations Inability to quickly find specific invoices and related documents Duplicate payments and erroneous payments Frustration with the process, causing staff turnover and repetitive training Too many manual or ad-hoc procedures causing errors and audit nightmares Difficulty collecting distributed receipts or generating approvals from remote participants No visibility into where invoices are in your process or how each staff member staff is performing A cloud invoice automation solution can cost effectively address these challenges and more. And because cloud is delivered as a web-based service, there is no hardware to buy, and no software to install and maintain. The solution is so easy to configure and implement that you can be up and running in a fraction of the time it takes for on-premise software. A best practice cloud solution allows you to: Receive, index and digitally capture invoices Store and retrieve invoices and related documents Automate and speed invoice approval and related Processes Handle exceptions and discrepancies in a timely manner Reduce inaccuracies and provide greater visbility into the Invoice process Monitor activity and report on performance Achieve real-time integration with ERP/acounting system ABOUT SPRINGCM SpringCM is the recognized market leader in enterprise-class cloud platforms for managing content and business processes. SpringCM s affordable, rapidly deployable solutions enable organizations of all kinds to address their most critical Enterprise Content Management (ECM) and Business Process Management (BPM) challenges. SpringCM s solutions are trusted by customers such as the Department of Energy, Comcast, and Siemens. SpringCM partners include salesforce.com, Microsoft, and Ricoh.com. For more information, please sales@springcm.com or call SpringCM is a trademark of SpringCM Corporation. All other marks are the property of their respective owners. 7