Top Challenges of Automating Accounts Payable Departments

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Meagan McDowell
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1 Top Challenges of Automating Accounts Payable Departments Recall s Guide for Leaders Considering Improvements to their Current Manual Process This guide is designed to help you consider everything needed to improve today!

2 Businesses continually task accounts payable departments to maximize efficiencies and reduce costs. Data-capture technology, which extracts and leverages data from scanned documents; and electronic content management systems, particularly their workflow capabilities are effective tools for streamlining processes. ONE OF THE BEST WAYS TO BEGIN USING THESE TOOLS IS TO COMPLETE THE FOLLOWING FOUR STEPS: Examine all current processes and stakeholders Eliminate paper when possible Examine the number of parties involved Forecast the savings of imaging and electronic content management workflows on improved processes

3 Contents Business Challenges of Manual Invoice Processing AP Automation Landscape MYTHS of Automating AP Goals of a Conversion Project Streamline Steps and Insert Audit Controls More Best Practice Tips ROI of AP Automation

4 Business Challenges of Manual Invoice Processing 1 Missed discounts and more late fees 4 Support docu me visibility vs. nt document loss/damage 2 Managing accurate accruals 5 Multiple receiving points 3 Cost of storage and manual document routing 6 Dissatisﬁed vendors and staff Top AP departments pursue best practices to eliminate late payments, manage huge volumes of paper invoices, and reduce processing costs. AP is usually the leader in driving best practices in procurement-to-payment; however, ironically, it is the ﬁnal step in the process. Streamlining AP through imaging and electronic content management systems allows AP to gain visibility and control of the process.

5 AP Automation Landscape PRIMARY CAUSES OF LATE PAYMENTS AND MISSED DISCOUNTS* 29% Decentralized invoice receipt 24% 58% Lost invoices Lengthy approval cycles 18% 18% 68% Large number of exceptions Missing information on invoices Manual routing of invoices COMMON PROCESSING ISSUES THAT DRAIN PROFITABILITY MANUAL ROUTING Considered the top reason for late payments THE UNKNOWN Differing internal procedures across departments for processing invoices causes blurred view of actual steps taken to complete task INCONSISTENT Local knowledge or the it s how we always did it mentality can get in the way of a structured process, especially when employees opt for shortcuts MISSING AND LOST With unknown and inconsistent procedures, it s likely no auditable controls are in place to prevent missing documents or lost invoices LENGTHY APPROVAL CYCLES Excessive time spent processing invoices increases overall costs. Many companies average $10 or more per invoice to process, with a large number at $20 per invoice. (Industry average is around $6 an invoice) *Source: Paystream Advisors 2014 IWA Benchmark Report Q All rights reserved.

6 MYTHS of AP Automation What s stopping companies from getting over the hurdle and converting to an automated process There are many outsource partners and software integration applications today that provide low-cost, high value service. The key for a vendor is to align solutions to your business goals. IN HOUSE IMAGING While there can be multiple and complex steps to implement across an enterprise, consider breaking the project into smaller phases that are achievable. LENGTHY, COMPLEX IMPLEMENTATION EXPENSIVE ERP (Enterprise Resource Planning) platforms are costly to maintain, so pick a cloud-based SaaS (Software as a Service) solution that will provide all the functions needed in a secure and user-friendly platform. IT SUPPORT COSTS STAFF CHANGE MANAGEMENT Your IT group will have risk and security questions for the vendor, however a SaaS platform greatly reduces the involvement and oversight needs for IT to manage. Position AP automation as a workﬂow efﬁciency tool that frees up your accounting staff to perform core job functions, rather than chasing missing or lost invoices.

7 Goals of Converting to Automated Processes Have Financial controls Avoid penalities, duplicate payments & over payments Accurate record keeping Achieve early pay discounts per payment terms Visibility of payables, prioritize timing of payment Improve vendor relationships and increase favorable terms Chief Financial Ofﬁcers were surveyed about the top key objectives they would like accounting departments to implement for improved performance.* *Source: Paystream Advisors 2014 IWA Benchmark Report

8 Streamline Steps and Insert Audit Controls I have a matching PO A BETTER PROCESS OPTION 1 Documents are received and sorted according to type $ Payment remittance is generated I approve this Invoice PO Invoices processed for matching Non-PO invoices forwarded for approval Data entry of information into Financial System Forrester reports that implementing an automated electronic invoice process provides efﬁciencies including a 90% cost savings for AP and 37% fewer errors on invoices. Bottom line: Automation enables AP departments to save time and money by reducing the number of people who need to review, approve and otherwise handle paperwork. Additionally, full audit visibility and controls can be initiated to ensure alignment to company goals. ESTABLISH AUDIT CONTROLS Necessary supporting items exist: Approved Invoices Expense Reports Purchase Orders Packing Slips

9 Best Practice Tips ENTERING INVOICE HEADER INFORMATION ONLY Being able to match the AP header information against the total value of the purchase order eliminates the need to enter every line and reduces the time for data entry. SCANNING W-9s Scanning W-9s to meet IRS requirements also can streamline your processes. The tax ID included on the W-9 may be used as the index field. OUTSOURCING INVOICE SCANNING By outsourcing the scanning of your invoices to a third party with large volume imaging and optical character recognition (OCR) capabilities, you save time. Data capture technology can be used to extract information from your invoices at a lower price. UTILIZING FIRST IN, FIRST OUT By entering invoices by the order they arrive in the mailroom and enabling invoice processors to sort the invoices by first in, first out (FIFO) instead of due date, you vastly reduce workarounds by requestors, approvers, and buyers. FIFO facilitates AP s paid-on-time goals and more accurate cash forecasting. In addition, AP should sort invoices by dollar amount in order to record high-dollar invoices on a daily basis.

10 More Best Practice Tips LEVERAGING YOUR DATA When you implement an imaging and electronic content management process to streamline your AP department, take advantage of the data analytics you can pull from the information you receive. Your AP data can identify bottleneck patterns and clusters so you can make process improvement. This allows purchasing to conduct a spend analysis to recommend consolidation, provide leverage in negotiation, and save significant money on purchases. CROSS CHECKING Accounts receivable should be tied to accounts payable. Then, prior to paying a supplier, you have assurance that the supplier does not owe any money to the AP department. Electronic content management systems can use workflow capabilities to cross-check databases and provide clearance to release payment. ENABLING SUPPLIER SELF SERVICE Providing viewer access to your largest suppliers so they get invoice status online through your electronic content management system builds constructive collaboration and billing accuracy. Suppliers may call their contacts and request the fixes necessary to release payment. AUTHORITY MATRIX An electronic content management system allows you to reinstate or establish an authority matrix and enforce it by assigning specific system rights to users. It is important that those with the proper level of authority are actually approving invoices. To prevent others, such as unauthorized persons, from approving invoices, link the approver s logon IDs to your authority matrix. This measure helps prevent fraud and improve cash management.

11 ROI of AP Automation 1 Reduce processing cost per invoice 2 Instant access to all invoices and supporting documents 3 Eliminate manual and duplicate data entry 4 Reduce need for physical storage 5 Process transparency/ensure payment control 6 Minimize payment amounts, reduce late fees 7 Improve vendor relations 8 Reduce supplier payment calls The return on investment for implementing imaging and electronic content management systems is usually three to five years. It is possible, however to shorten this time. To achieve this, you may consider involving other departments in the implementation of the system. The efficiencies realized, time saved, errors, and fraud avoided are reasons enough to champion the implementation of imaging and electronic content management systems for your AP department. The new solutions will drive a new culture of efficiency, continuous improvement, and accountability that any company should strive for in today s economy.

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