Invoice Data Capture: Key to AP Automation

Transcription

1 A Special Report from The Accounts Payable Network Invoice Data Capture: Key to AP Automation Sponsored By: $95 USD

2 Invoice Data Capture: Key to AP Automation A Special Report from The Accounts Payable Network Sponsored By: 2100 RiverEdge Parkway, Suite 1010 Atlanta, GA FAX:

3 2013 Financial Operations Networks LLC Published by Financial Operations Networks LLC, Atlanta, Georgia. All rights reserved. No part of this publication may be used or reproduced in any manner or stored in any form whatsoever without written permission of the publisher. For information, contact Financial Operations Networks, 2100 RiverEdge Parkway, Suite 1010, Atlanta, GA 30328, ,

4 Table of Contents The Accounts Payable Network Advisory Board... 4 Introduction... 5 The Key to AP Automation... 7 The Key to Getting to Electronic: Data Extraction What To Look for in Data Extraction The Benefits of Sophisticated Invoice Data Capture Conclusion About The Accounts Payable Network About Kofax Financial Operations Networks LLC 3

5 The Accounts Payable Network Advisory Board Steve Adams, CPA Director of Global Shared Services Implementations, McKinsey & Co. Vivian Baker, APM Accounts Payable Director, Financial Shared Services, The Coca-Cola Company Judy Bicking, APM Former Global Director, Accounts Payable European Project, Johnson & Johnson AP Best Practice Consultant and Managing Owner of Island Decor & More / Ship to Shore Home Decor Debbie Vander Bogart Senior Director, Finance General Manager, Shared Service Center, Levi Strauss & Company Larry Brang, CPA, APM Director, Commercial Services - Americas, Merck & Company, Inc. Tom Brewer, CPA Vice President, Shared Services, Michaels Stores, Inc. Dennis R. Cooper, MBA, APM Vice President, Operations Director, Accounts Payable, PNC Bank Lynda Foertschbeck Executive V.P., IRSCompliance, Inc. David W. Hay Consultant, Former Director, Shared Services, Hewlett-Packard Company Frederick C. Litow, CTP, APM Head of Financial Administration, ING Thomas F. Nichols President, Process Management Improvement, Inc. and former Director of Financial Operations for AT&T s Corporate Accounts Payable and Payroll Management Judi Thallas, APM SAP Finance Change Management Leader, Finance Manager, ConAgra Foods Susan Tinkler-Muller Vice President, Accounting Services, Viacom Media Networks 2013 Financial Operations Networks LLC 4

6 Invoice Data Capture: Key to AP Automation Introduction The competitive marketplace drives businesses to strive for ever-greater productivity and efficiency, finding better ways to do what they do and eliminating unnecessary work and cost. This applies not only to a business s production of goods or delivery of services, but also to its supporting operations, including accounts payable. Given a flat economy that has stymied growth, organizations have looked more closely at operational process savings to improve the bottom line. Add regulatory scrutiny of financial operations, combined with advances in information technology, and the stage is set for the evolution of accounts payable (AP). Automation is the key enabler. AP is in transition from a worker-intensive manual, clerical cost center to a leaner, automated and analytical operation that can contribute greater value to the organization. AP process improvements might initially target such tactical goals as reducing errors and bettering paid-on-time rates, but these are steps toward more strategic goals that move AP beyond mere efficiency to becoming a contributor to the organization s bottom line. Cost savings are a key driver, but real-time information in support of better cash management, discount capture, and reduction in COGS through provision of spend data for analysis are becoming the new product of AP (not to mention the possibility of rebates for payments through bank card accounts). That s the vision. What s the reality? A survey by The Accounts Payable Network on the state of accounts payable defined three levels of AP operations: 1 primarily a clerical activity with manual data entry of paper invoices, manual workflow process, etc.; 2 primarily problem solving, with a 2013 Financial Operations Networks LLC 5

7 shift in focus from invoice processing to exception processing, credits management, etc., brought about by implementation of process improvement and automation; 3 focused on analytic and strategic activities that add value to the bottom line, such as improved cash management, spend analysis, and discount capture, made possible by a high level of process automation. A mere 2 percent of 669 organizations identified with Level 3, and 12 percent with Level 2; but 31 percent identified with Level 1, and 41 percent indicated being in transition between Level 1 and Level 2 (see figure 1, below). However, 26 percent indicated they had reached or surpassed level 2. There is much to be done by the majority of companies, but the direction is clear. The largest organizations lead the way by necessity their high volumes demand efficient methods of invoice processing and they have the resources to put toward solving the problem. But with the ongoing improvements not only in IT solutions themselves but in the solution-delivery capabilities, which now include not only licensed on-premise implementation, but hosted licensed solutions as well as software as a service (SaaS) via the cloud, automation cost can be distributed rather than front-end loaded. This shift pushes AP automation closer to the tipping point. Over half of companies in TAPN s 2012 survey indicated Figure 1 The State of Accounts Payable that obtaining capital expense dollars for accounts payable was very difficult, but new delivery options lower the up-front investment, spreading the cost over time. This potentially puts automation of AP in reach of more companies Financial Operations Networks LLC 6

8 The Key to AP Automation The heart of accounts payable automation is the workflow engine, but of course it requires that invoices be in electronic format. So the critical first step in automating AP is to get the invoice data in system-compatible electronic format. The best approach would be to avoid paper in the first place most (though not all) invoices start out as digital information in a supplier s system. Ideally companies would simply send invoice information electronically. It sounds simple enough, but the devil is in the details and exchanging electronic files is more difficult than it might appear. The problem is that each supplier has many customers, each customer has many vendors, and all of them have their own particular accounting or ERP system and data formats. A buyer and supplier by coincidence might have the same version of the same system, but both also interact Figure 2 The Many-to-Many Dilemma with many, many others that do not. So the problem with electronic invoicing has been how to get a vendor file from its company s format converted to the customer s format, multiplied many times for each customer. Persuading all of one s vendors to convert to electronic invoices at all, let alone accommodate one s own particular format, has been an obstacle to electronic invoicing. Very large companies have used electronic data interchange or EDI effectively for decades, but only the largest companies can afford it. EDI uses standard data formats for a host of business transactions, transmitted to transaction partners through a third party value-added network or VAN. But even EDI s ASC X12 or UN/EDIFACT standards are not as precisely standard as the definitions suggest ask any IT person responsible for implementing it between two companies Financial Operations Networks LLC 7

9 Even the largest organizations only receive a portion of their invoices via EDI. Nearly every organization receives some of their invoices on paper, and of course, many companies still receive a majority of invoices via paper. A TAPN survey in October 2012 found that small and mid-size organizations still receive a median 80 Figure 3 Paper Invoices Volume percent or more of their invoices on paper; the median drops to 65 percent for companies with more than 5,000 employees, and to 44 percent for organizations with 10,000 or more employees. (See figures 3 & 4.) Clearly there are still a lot of paper invoices out there. So despite real progress on the electronic-invoice front with XML and other methods of transfer and data translation or conversion, the fact is that companies wishing to automate AP have to deal with paper and its equivalents fax, and PDF. Figure 4 Median Percent of Invoices Received on Paper by Company Size As companies grow, the increasing volumes of paper invoices become unmanageable. And while many suppliers decided to start invoicing electronically by faxing invoices directly from their systems or ing PDF invoices, this does not help AP much since a fax or PDF invoice does not integrate with an ERP or accounting system. Faxes are paper by the time AP receives them, or they re electronic image files. Along with PDFs, many AP departments print them out and add them to the paper queue; at best they key them from the images they are Financial Operations Networks LLC 8

10 Since it has not been easy for AP to persuade suppliers to change their process, the first thing an AP department needs to do, in the words of one Fortune 50 shared services director, is Stop the paper at the door! 2013 Financial Operations Networks LLC 9

11 The Key to Getting to Electronic: Data Extraction AP must start by scanning paper invoices on arrival to capture images of them, enabling AP to stop the paper. Imaging actually got started on the back end of the process, as a way to store invoices electronically, eliminating the physical storage requirements and making retrieval fast and easy. By moving imaging to the front end of the process, manual paper routing can be eliminated; invoices can be routed electronically for review, approval and coding. Imaged invoices still require indexing and manual data entry into an ERP or accounting system, but front-end imaging at least allows simple automated electronic workflow. It reduces or eliminates lost and delayed invoices and provides better awareness and tracking of invoices. The introduction of optical character recognition (OCR) software that could recognize characters on an image and convert the pictures of individual characters into electronic data came with hopes of eliminating manual keying of data from the image into a system. Initially OCR software (along with ICR software for hand-written characters) worked fairly well for fixed format data or structured documents, where a particular data item would be found in the same place on every document. Invoices, however, did not fit this model. Every company has its own invoice format, and data such as invoice number, date, PO number, remit-to address, etc. might be found anywhere on the form. As a result, early attempts to exploit OCR for AP were disappointing, and the reputation of the technology suffered with regard to application in AP. Now, however, leading capture solutions have overcome the initial limitations. Intelligent software applied to captured data can identify what the data is, and with the ability to learn over time, the speed and accuracy increase. Leading solutions today have an accuracy rate above 90 percent, as reported by users in TAPN surveys Financial Operations Networks LLC 10

12 The ability to extract the data, not just capture the image, is the real key to automating AP. It eliminates manual keying, saving time and improving accuracy. The return on investment for the leading capture and extraction solutions is within a year Financial Operations Networks LLC 11

13 What to Look for in Data Extraction The leading intelligent capture and extraction solutions can capture invoices in any format paper, fax, PDF, TIFF, JPEG, and correctly interpret and convert the data into structured electronic invoice information. This requires intelligent recognition technology that can interpret what OCR and ICR can deliver from invoice images. Intelligent recognition software can classify, separate and extract data accurately, readying it for validation and process automation. Unlike medical forms, no two invoices are structured the same. While all invoices have header, line-item and footer data, the layout of the data on the page is as individual as the company generating it. For accurate, labor saving capture and extraction, a solution must be able to correctly recognize, extract and record header and footer data (and special instructions) including: PO number and date Invoice number and date Subtotal Taxes Shipping Discount Grand total Supplier details Name ID number Remit to Currency 2013 Financial Operations Networks LLC 12

14 Further, the software should be able to extract the line item data, including: Quantity Description Unit measure Unit price Total price Discounts Article code Order number Delivery notes Tax rate The logarithms in intelligent software enable identification and correct association of invoice data, wherever it is found on a given invoice. A learning capability gives the software a short learning curve to climb above a 90 percent accuracy rate (meaning 90 percent of the data fields on an invoice do not need review or alteration). This is very different from the template approach in which users have to create a template for each supplier to indicate where particular information will be found in order to correctly identify data, a process that is costly and time consuming. The new intelligent recognition software can detect and identify suppliers and data types, making the automated extraction solutions practical and cost effective. Key elements of the technology are, for high volume suppliers, detection of the supplier and capture of the requisite data, due to the ability to learn positional cues through providing a few examples of a supplier s invoices, which the software learns to recognize and can then go on to identify in new invoices at a high rate of recognition. For invoices from less regular suppliers, rather than a positional approach, the software works by pattern recognition to identify and correctly associate types of information based on a generic invoice structure. It looks for relative positions based on surrounding keywords and features. For these invoices, it takes many more samples for the software 2013 Financial Operations Networks LLC 13

15 to learn, but makers claim a recognition rate of 70 percent once the learning curve has been climbed. One solution provider likens this combined approach to the way human beings recognize family and friends immediately in a crowd, while also recognizing key characteristic such as sex or ethnicity of strangers from certain basic common features. Multi-Channel, Single Capture Infrastructure Of course, as figures 3 and 4 above also indicate, not all invoices are paper or even paper-equivalent. A percentage of invoices are delivered electronically via various channels including XML, web portals, and EDI print streams. Look for a solution that accepts any format, including various electronic formats, to integrate into your workflow solution. As described above, electronic invoice data may come from myriad systems, so there are similar issues of interpretation and extraction with electronic files as well. The leading solutions and service providers now claim a single invoice capture and conversion infrastructure that handles all incoming invoices regardless of format, able to extract, convert, validate and feed the information into the automated invoice workflow process for matching, exceptions and approval. A company s interaction with its Figure 5 Multichannel, Single Capture Infrastructure suppliers varies according to the size and capability of the supplier, along with the nature of the relationship the company has with the supplier (strategic, top 20 percent, periodic or occasional). These typically determine the type of invoice and degree of cooperation of the supplier with regard to invoicing. A capture system that can handle all forms of incoming invoices enables more fully automated AP processing Financial Operations Networks LLC 14

16 Mobile Capture Use of mobile devices for invoice capture, though still in the early-adoption stage, is another capability to look for. The ubiquity of mobile devices is driving adoption for all kinds of applications at a very fast pace. As people become familiar and comfortable, they are looking beyond personal apps to business applications, and finding that the capability is already there. Mobile invoice capture is suited to distributed organizations, offering the immediate potential to speed capture of invoices wherever they arrive and submit them into the AP process for data extraction. A good workflow system is also mobile-friendly, enabling remote invoice approvals Financial Operations Networks LLC 15

17 The Benefits of Sophisticated Invoice Data Capture Today s advanced capture technologies provide the critical first step in automating AP to provide a multitude of benefits. Elimination of paper. Paper is stopped at the door; the conversion to an electronic format provides visibility the invoice can be tracked. Lost invoices are no longer a problem. Workflow is faster, with rules, reminders and escalations built in. And because AP knows where the invoice is if and when a supplier calls, there is no need to fax over a copy, reducing the incidence of duplicate invoices. Paper storage costs are eliminated. Significant reduction of manual data entry. The chief benefit of today s advanced capture technologies is that they finally deliver on the promise of automated capture, eliminating most manual data entry. This saves time and eliminates the introduction of error into the data, freeing up AP staff to focus on more value-adding activities, or allowing reassignment, which lowers cost. Productivity increase. Automated capture and extraction is faster than keying the data manually, without error introduction. Decrease in invoice processing time. Imaging with intelligent data recognition and extraction sets up electronic workflow processing, which provides much faster invoice processing. Automated workflow has built-in rules for validation and control, so approvals are faster and exception processing is more efficient. Decreased processing time leads to improved paid-on-time rate. It also enables discount capture for early payment. Strengthened internal controls. Automation of AP processing incorporates internal controls in the program logic, not only enforcing segregation of duties, but also introducing data auditing earlier in the process to identify and eliminate duplicate invoices, saving time and effort by catching them earlier in the process Financial Operations Networks LLC 16

18 Invoice validation. Intelligent capture software converts invoice data into the required format for the accounting or ERP system, which is key to automated processing. Integration with ERP allows data to pass to and from the ERP, enabling invoice validation and passing validated invoice information into the ERP system automatically without manual keying. Visibility. An electronic automated process provides visibility that facilitates not only AP process management but also better cash management, along with timely and accurate liability accounting Financial Operations Networks LLC 17

19 Conclusion Paperless AP processing has been an ideal for decades, but progress toward the goal has been slow. Though there have been advances in true electronic invoicing, TAPN studies show that paper invoices remain prevalent, and that many vendors idea of electronic invoicing is to send PDF invoices. Consequently the advance toward paperless processing must necessarily address information capture from paper and paper-equivalent formats. Technology with intelligent recognition capability offers the way to capture and convert invoice data from paper as well as from faxes and PDFs at a high rate of success. And as intelligent recognition delivers on the promise of accurate data capture from invoices in these formats, as part of a multi-channel/single capture infrastructure it can also capture and convert electronic formats. This capture and conversion is the critical first step to automated invoice processing, enabling sophisticated automated workflow. Automated invoice workflow handles matching, manages approvals, ensures procedural and regulatory compliance, and greatly streamlines and simplifies exception resolution through highly effective electronic human collaboration. Integration with ERP or accounting systems allows two-way information flows for data validation, contract and PO match, and duplicate auditing. The automated systems provide unprecedented visibility into the process, enabling better cash management. The majority of invoices flow through automatically with minimal intervention, freeing AP to shift from Level 1 activities described above to Level 2, concentrating on those invoices that cause expensive exception processing. Significantly, leading invoice capture solutions are no longer only for the Fortune 500. Delivery options range from on-premises implementation to SaaS to outsource services, which spread the cost rather that requiring the heavy up-front investment, and offer scalability that provides opportunity to mid-size organizations. The technology advances in data-capture platforms combined with options for solution delivery make AP automation not only attractive but also more feasible for more organizations. The tipping point is nearing in which the state of accounts payable for 2013 Financial Operations Networks LLC 18

20 a majority of companies moves from level one to level two, on a continuous evolution toward level three Financial Operations Networks LLC 19

21 About The Accounts Payable Network The Accounts Payable Network (TAPN) is the complete resource for accounts payable, helping more than 50,000 accounting and finance executives at organizations worldwide meet their commitments to accounts payable business-process performance. TAPN provides in one easy-to-access, cost-effective, online location insights, analysis, guidance, advice and best practices for AP strategies, technologies, controls, compliance, people and processes. Members have unrestricted access to critical information guaranteed to help them make smart accounts payable business decisions. Focus areas include all AP functions, AP metrics and benchmarking; tax and regulatory compliance; proven solutions to real-world problems; AP automation; case studies; member Q&A networking forums and more than 250 downloadable, customizable AP policies, flowcharts, templates and internal-control checklists. TAPN s highly popular AP tools help compare technologies and AP solution providers, find new ways to streamline operations and enhance controls, and take advantage of extensive educational opportunities. Additional networking opportunities allow members to share problems and solutions with peers in the trenches through the public and private forums and discussion groups. The Accounts Payable Network is completely independent and is not owned by or affiliated with any industry supplier, nor does it endorse any suppliers. For further information, please contact The Accounts Payable Network, 2100 RiverEdge Parkway, Suite 1010, Atlanta, GA 30328, , Financial Operations Networks LLC 20

22 About Kofax Kofax plc is the leading provider of capturedriven process automation solutions. Kofax solutions provide a rapid return on investment by automating information intensive processes and by managing the capture of information in a more accurate, timely and cost effective manner. Our integrated AP automation solutions streamline invoice capture to increase processing speed and dramatically reduce data entry costs, and leverage best practice workflows to expedite the invoice review, coding and approval process. For more information, please visit or contact your local Kofax representative at Financial Operations Networks LLC 21