WHITE PAPER. Is your AP Department Truly Automated?

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1 WHITE PAPER Is your AP Department Truly Automated? Published by: Sponsored by:

2 Introduction For several decades accounts payable (AP) departments have been talking about the end of paper processing including the receipt of paper invoices and printing of paper checks to increase efficiencies, reduce processing time and scale their operations. However, this promise has been slow to develop, with few companies able to successfully transform to a paperless environment. Despite more time-consuming checks and balances due to increases in invoice volumes, regulations and control expectations, AP departments are expected to reduce staff due to increased budget pressure. Do more with less is a common theme. Fortunately, modern AP automation solutions not only make removal of paper invoice processes a reality, but are providing real relief to resource and time constrained AP departments. With the proper technologies, an AP operation has the ability to reduce resource requirements to complete the tedious tasks of data entry and mailing checks. Controls normally completed manually can be fully automated. Staff in AP can be reduced or re-focused on more value-added activities and, at the same time, invoice processing times can be reduced while financial benefits realized through discount capture and better management of cash flow. In this report we will explore the components of AP automation and the challenges they help AP departments overcome. We will also discuss how connecting business travel, related expenses and invoice management can transform an AP operation by providing total visibility into employee spend. AP leaders often believe they are leveraging the power of AP automation but are actually only using some components of a truly automated solution. Let s explore what true automation means to accounts payable. Are You Truly Automated? Asking an AP leader if they are automated will result in different answers depending on their perspective of what automation means. True AP automation is purely paperless, with all invoices received electronically and all communication to approve an invoice or resolve invoice matching issues occurring through a software tool. You won t find paper invoices in a truly automated operation. In a truly automated AP environment, invoices are paid 100 percent electronically. Automated AP environments allow vendors to view the status of their invoices online reducing inquiries to the AP department. Invoice processing bottlenecks are quickly identified and visibility into spend is achieved using key spend management metrics. Fully automated environments also allow for seamless integration of all types of payments made by accounts payable, including PO invoices, non-po invoices, and travel and entertainment reimbursements, all using a single platform. However, the reality is most organizations still receive the vast majority of their invoices the traditional way by paper through the mail. While it is increasingly common for invoices to be received from vendors by , these invoices still require manual entry and processing. A recent Institute of Financial Operations (IFO) study revealed on average 50% of invoices are still received by paper, 37% by , and 5% by fax, resulting in 92% of invoices still requiring manual entry. Even more surprising, when respondents were asked how they expect to receive invoices two years from now, they predicted 81% of their invoices would still come in through one of these three methods. AP departments in paper environments often struggle with timely entry of invoices and identifying the current status of invoices. Stacks of invoices not yet entered mean there is no visibility into those liabilities and no quantitative way to measure backlog. Approval of invoices is also a challenge in manual processing environments. Typically one of two methods is used. In the first method, an invoice is received initially in the AP department and then sent to the approver for manual review, signature approval and sometimes invoice coding. Additional levels of approval are also facilitated manually, until the invoice is finally returned to AP. In the second method, invoices are sent by the vendor directly to the approvers, where they are signed, approved and then sent to AP. 2

3 In both models, the AP department has limited visibility into the invoice until it has been fully approved; therefore, if vendors call and inquire on the status of an invoice, AP has little to no information to provide. When the invoice is finally received by AP, it contains a variety of signature approvals, making it difficult to evaluate the accuracy of these signatures. During the approval process, any reminder to approve the invoice is manual and labor intensive, or does not occur at all. The result? Significantly increased risk of late payments, missed discounts and exposure to fraud. The truly automated AP department will not only reduce paper and manual tasks, but by capturing all of this data electronically they ultimately gain visibility into all company spend adding to the bottom line. Too often AP departments are stalled in the process of adopting electronic invoice processing as the tools available to them do not support the objectives. Obtaining the right technologies is essential to achieving the goal of truly automated AP. Technology Approach to AP Automation AP automation technologies have provided a solution to these challenges for many organizations. Document imaging allows AP departments to scan invoices upon receipt, leading to a paperless process outside of the mailroom. Imaging also provides instant access to invoice images for staff outside of the AP department, significantly reducing calls to accounts payable. Data capture technology has taken this a step further and allows for data to be extracted from those scanned images, reducing data entry time and risks of error. Workflow allows for invoices to be routed for approval, providing a method to track and measure the results of approval, as well as improve control around the approval process with electronic, rather than manual, signatures. At the end of the process, this data can be uploaded to the accounting system. Can an ERP or Financial System be used for AP Automation? The promise of a financial system is a single software platform that can provide an integrated environment for numerous business functions. Implementation of such solution is a significant investment of money and resources. Therefore, it is natural when considering additional automation solutions to determine if functionality for AP automation is available in your existing software. Though the specifics vary across software solutions, generally, financial software provides pieces of AP automation, but not all components. And the components that are available generally are not as robust as those available from more specialized AP automation solutions. For example, workflow for invoice approval is available in most ERP solutions. However, ERP-based workflow originates from the entry of the invoice into the financial solution not from the scan of an invoice. This significantly changes the business model and does not take into consideration circumstances when the invoice cannot be entered, such as when the purchase order is closed and a buyer must review the invoice. In these circumstances, the workflow does not provide a solution, and manual routing is necessary. Document imaging and data capture are good examples of solutions ERP and financial software do not provide, but rather typically partner with AP automation solution providers for these technologies. A managed service for invoice capture is an example of a value-added service not available from a financial software provider. An example your organization may have faced in the past is with expense reporting most solutions have basic expense reporting functionality. However, what many companies need is a more robust and feature-rich solution that provides a better user experience, better controls, mobile functionality for end users and many other features. Similarly, with AP automation your ERP solution may provide functionality to allow you to get by, but is likely not an equivalent solution to what is available from AP automation providers. Therefore while an ERP or financial system may have components of the functionality available in an AP automation solution, they often do not provide the full benefits and features necessary to achieve true automation.

4 Managed Invoice Models New options have emerged allowing companies to obtain the full benefits of AP automation without the large investment in software, interfaces and hardware previously required. In a managed invoice model, a vendor sends their invoice to a service provider who then turns the invoice into a fully electronic format regardless of the method the vendor submitted the invoice. Invoices may come electronically, by , or by traditional mail but the end result is the same the invoice data is delivered electronically. The AP department never sees a piece of paper. The best solutions combine the benefits of managed invoices with cloud-based AP automation technology. Rather than simply delivering the invoice information, invoices can also be matched to purchase orders and routed for approval. Using a cloud-based software model, minimal IT involvement is required and the service can be up and operational in as little as 30 days. Workflow rules can be built to send the invoices to the appropriate approver and approvals can be completed via the web-based application or on mobile devices, allowing for a more timely approval process. Additional rules can facilitate secondary approval levels and reminders. Invoices are fully visible to the AP department at every step of the process, and metrics measure timeliness and identify outliers. Invoice matching is also completed from the application, allowing invoices with purchase orders to be validated against both the purchase order and receipt. When discrepancies are found, workflow rules send the invoice to the person who can research the issue and make a decision on AP is to proceed. The end result is invoice data sent to the ERP or financial system, fully matched, approved and ready for payment, all with minimal, or in some cases no, touch-points for the AP staff. Managed invoice models fast-track the invoice receipt side of AP automation, so the numerous benefits associated with automation can be realized immediately. Payment Processing Challenges There has long been the promise of fully electronic payment options, yet the majority of business-tobusiness payments continue to be made by check. The traditional process of the check run including printing checks, manual signatures, stuffing envelopes and using stamps continues to be part of the role of AP departments at companies of all sizes. Efforts to reduce checks have achieved limited success. Exclusively using electronic payment methods remains elusive to many organizations, quite the contrast to personal payments where paying via electronic banking is quickly replacing the mailing of checks. Automated Clearing House (ACH) has become an increasingly common solution for accounts payable operations to achieve electronic payments, but requires manual effort to instruct the bank to issue payment and may require development of an interface to the bank. ACH information also must be obtained and maintained. The best strategy is one that combines multiple methods of payment that allow you to pay on your schedule with a focus on those that provide rebates or are less costly, falling back on checks when other options will not work. However, maintaining all of these payment methods is often cumbersome for AP departments. In addition, vendor inquiries continue to be a significant burden for AP departments. Vendors have questions about their payment status and will call or to get more information. Responding to these inquiries quickly and efficiently is a challenge for AP leaders, particularly those in manual environments where there is limited visibility into the status of invoices. 4

5 There are options to immediately take a department from manual check printing to submitting payments electronically with minimal effort. Managed payment services allow for a single file to be sent to a provider who then submits the payments to individual vendors automatically. The payments may be submitted via ACH or printed check as determined by your business needs. You can even authorize your vendors to charge a payment to a credit card. Regardless, there is no AP or IT involvement necessary for the payment to go out the door. Fees required for these services often are not much different than the cost to print and mail a check. In return, AP eliminates the time-consuming tasks of printing and mailing checks. Plus, the company saves the costs of stamps and envelopes. Does AP Automation Reduce the Risk of Fraud? Generally, the focus on creating the business case for AP automation is about efficiency processing more invoices for less staff, or processing invoices faster. An often overlooked benefit is reducing the exposure of the company to fraud. Over 60% of companies have reported being the victim of fraud. However, fraud often goes unreported or even unidentified. As a result, the number of organizations that have actually been the victim of fraud is significantly higher. Fraud generally occurs due to a lack of control or the breakdown in execution of the control. This is often due to limitations of the technologies used. Breakdowns in execution occur simply because human beings are not infallible, and won t always follow the process no matter how well it is documented. In some cases, controls simply are not practical as they slow down invoice processing. AP automation helps to reduce the risk of fraud in several areas. It allows for key controls such as three way matching and invoice approvals to occur automatically and electronically. When invoice approval occurs manually, steps may be missed or skipped. Metrics provide valuable information that help identify patterns that may indicate fraud, such as invoices approved just below approval thresholds or spend in unusual categories. These are just a few examples of how AP automation reduces exposure to fraud. While this value can be hard to quantify, consider that the Association of Fraud Examiners states the typical organization loses 5% of its revenue to fraud and many studies show the volume of fraud is growing. Don t wait to find an instance of fraud at your organization to take action to prevent it. Creating a Metrics-Based Culture Without AP automation, the information available to AP leaders to identify issues and make decisions is often limited, or subjective, based upon personal observations. That all changes with a modern AP automation solution. These solutions offer business intelligence that provides visibility into considerable information, from processing time to how company funds are being spent. Using this information, AP has the opportunity to change and focus on evaluating metrics that identify bottlenecks in processes. AP can directly target problem areas such as an individual approver not responding timely and find ways to improve productivity and accuracy. The best metrics are those that are actionable, as opposed to being simply identified as good or bad. As metrics are reviewed, they should lead to questions why is the number what it is? How can we make it better? AP automation solutions provide a wealth of information that can be leveraged using pre-built reports or custom reporting tools, depending on the capabilities of the specific solution selected. Controlling spend is vital to the cash flow and profits of any company, but often is elusive as information in the general ledger. There s not enough detail to be actionable. A true AP automation solution provides spend management metrics and tools to allow AP and financial leaders to gain detailed visibility into spending including accruals, cash flow management as well as spend by vendor, department and category. 5

6 Changing Role of AP AP departments are changing. New options have made it possible for companies of all sizes to have a fully automated AP operation. Data entry, once the core function of AP, is becoming obsolete. While some AP staff may be threatened by this change, instead they should see it as an opportunity to focus their time on more value-added functions such as customer service, fraud prevention and timely payment. The strategic importance of AP is increasing as AP leaders combine the additional availability of resource time with the power of metrics to identify opportunities that improve business processes and company spend. AP is increasingly finding a role in establishing proper cash management strategy, negotiating with vendors and identifying root causes of issues such as invoice matching errors. AP automation not only allows organizations to streamline the AP process, but also elevates AP to a more valuable role within the company. While time and money may have been invested in implementing pieces of AP automation, is your AP department truly automated? How would AP impact the success of AP? Key Components of True AP Automation: Electronic receipt of invoices, uploaded into the AP system Visibility of invoices from receipt to payment Invoices automatically matched to purchase orders Non-purchase order invoices routed for invoice approval electronically Electronic payments to vendors Resources focused on value-added activities such as customer service, fraud protection, and timely payment 6

7 The Concur solution is the only way you can manage spending wherever and whenever it happens. Our travel, expense and invoice management services work with enterprise resource planning (ERP), human resources and accounting systems to consolidate data and create a single, connected process for managing your organization s spend. Our open platform supports an ecosystem of partner applications and services that use Concur data to help your organization manage compliance, risk, spend and the traveler experience. The result is a connected approach that creates an effortless user experience and provides complete transparency into spend. For more information, visit The Institute of Financial Operations is a membership-based professional association serving the entire financial operations ecosystem, with a particular focus on the accounts payable and accounts receivable disciplines and the related fields of information management and data capture. The Institute grew out of the merger of four associations: International Accounts Payable Professionals (IAPP), International Accounts Receivable Professionals (IARP), the National Association of Purchasing and Payables (NAPP), and The Association for Work Process Improvement (TAWPI). Based in Orlando, Fla., with affiliates in the U.S., Canada, and the UK, The Institute serves as a global voice, chief advocate, recognized authority, acknowledged leader, and principal educator for people in financial operations. The Institute s members have access to benefits and leading-edge resources such as the award-winning Financial Ops magazine, a dynamic content-rich website, educational and networking events, online educational offerings, certification and certificate programs, career resources, and volunteer opportunities. For more information, visit 7