5 Steps to the Paperless Office in Accounts Payable

Transcription

1 5 Steps to the Paperless Office in Accounts Payable

2 About The Institute of Financial Operations 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 has a community of nearly 70,000, which includes 9,000 members and customers, and an additional 61,000 financial operations professionals. About Perceptive Software Lexmark s Perceptive Software (NYSE: LXK) builds intelligent capture, content management, process management, enterprise search and integration products that bridge the gap between enterprise software applications and the unstructured information and processes they don t manage. Perceptive accounting solutions increase visibility and control, allowing organizations to improve financial performance, reduce risk, and ensure future flexibility. The Institute of Financial Operations and Perceptive Software 5 Steps to the Paperless Office in Accounts Payable 2

3 Achieving the paperless office has long been a goal for businesses. Yet most organizations are still overrun by costly, inefficient, and error-prone paper processes. This is especially true in accounts payable departments, where 60 percent of invoices still arrive as paper and most business-to-business payments are made by paper check. AP professionals increasingly recognize the need to eliminate paper processes to reduce transaction costs, accelerate turnaround times, improve financial visibility, and more. But the long tail of trading partners and document types that must be addressed by AP automation initiatives is daunting. Unclear about where to begin their journey toward the paperless office, or which automation initiative to tackle next, many AP organizations do nothing, perpetuating the paper-intensive environment. A new diagnostic tool aims to change this scenario by helping AP organizations measure their progress toward the paperless office and delivering guidance on steps to take next. Using the tool to reduce paper-driven processes will enable AP organizations to finally shift their daily focus from tactical transaction processing and toward high-value strategic activities. Paper is dead! Long live paper! Paper remains a fact of business for most companies. The volume of documents and unstructured data is growing at more than 30 percent per year, according to a 2012 study by Aberdeen Group. Put in more tangible terms, the average American worker uses a whopping 10,000 sheets of paper each year. Overall, the United States consumes 800 pounds of paper per person annually. According to the companies surveyed by the Aberdeen Group, the problem with all of this paper is that it costs too much (29 percent), takes too long to process (39 percent), and is growing too fast (29 percent). The costs and inefficiencies don t stop after a paper document has been created. Harvey Spencer Associates reports that businesses worldwide spend as much as $30 billion annually capturing information. What s more, documents are copied an average of nine to 11 times. And the average cost to file a document is $20. To put this in perspective, consider that a four-drawer file cabinet holds about 12,000 documents. For this reason, it takes one employee to maintain every 12 file cabinets. The costs of paper documents soar when documents are misfiled or lost. Including time spent searching, recreating, and redistributing documents, misfiled documents cost businesses an average of $125 per document. Lost documents cost $350 to $700. These costs are even more staggering when you consider that large organizations lose a document every 12 seconds. Worse, business management analysts estimate that 70 percent of businesses would fail in just three weeks if they were to experience a catastrophic loss of their paper-based records. It s for all of these reasons that businesses want to move to a paperless environment. The Institute of Financial Operations and Perceptive Software 5 Steps to the Paperless Office in Accounts Payable 3

4 The payables paper problem Nowhere are the problems associated with paper-based business processes more apparent than in AP. One-quarter of AP organizations say that more than 90 percent of their invoices arrive as paper, according to the 2013 AP Automation Study conducted by The Institute of Financial Operations (IFO). Half of all AP organizations said that at least 75 percent of their invoices arrive as paper, and 71 percent said at least half of their invoices arrive as paper. All of these paper invoices have a major impact on AP costs. About 28.6 percent of respondents to the IFO study, said it costs their AP organization less than $2 to process an electronic invoice. About 19 percent cited their cost as $2 to $5, and 15.9 percent said they spend $6 to $10 per invoice. According to research and advisory firm APQC, labor represents a median of 60 percent of AP costs. Hence, it s no surprise that AP professionals who responded to a 2010 study by IFO and U.S. Bank would cite manual data entry as their top operational challenge. Paper invoices also impact AP organizations in other ways. The top challenge cited by finance professionals surveyed by Aberdeen Group was a lack of visibility into invoices and other AP documents, followed closely by difficulty finding or managing paper-based documents. AP organizations increasingly recognize that to gain operational flexibility, boost financial performance, and enhance risk management, they must automate paper-driven invoice processes. To be sure, the paradigm in invoice processing is changing from traditional workflow-assisted human processes to exception-based workflows that result from touchless or straight-through processing (STP). Businesses are adopting a wide range of technologies and processes to wring paper from their operations: Imaging Optical character recognition (OCR) Intelligent character recognition (ICR) Automated/intelligent data capture Approval and exceptions workflow Electronic invoice presentment and payment (EIPP) Web portal Purchase order flip Electronic data interchange (EDI) Payment exchange Purchasing cards Outsourcing Offshoring As this list suggests, there is no one single way for organizations to achieve a paperless office. For most organizations, the move toward the paperless office occurs over time, through a series of initiatives, with significant benefits accruing at every step along the way. And this is what confuses many AP professionals. The Institute of Financial Operations and Perceptive Software 5 Steps to the Paperless Office in Accounts Payable 4

5 Paperless Office Maturity Model A new tool is aimed at helping AP organizations move toward the paperless office and its many benefits. The Paperless Office Maturity Model (POMM) for accounts payable is a diagnostic tool that helps AP organizations measure their progress toward accounting process automation. It was developed by the IFO and Perceptive Software, a Lexmark company (NYSE: LXK), to serve as a benchmark and a guide for AP organizations in their efforts to improve document-intensive processes. The model uses responses to a series of 17 questions about how an organization handles invoices and accompanying documents to rank an organization s AP processes at one of five levels: Level 1: Paper-Based Level 2: Image-Enabled Level 3: Workflow-Driven Level 4: E-Enabled Level 5: Paper-Free To determine the level in which a process is placed, the model factors an organization s maturity in seven subcategories of AP automation: invoice receipt, indexing and storage, data capture, approval workflow, inquiries, reporting, and operating environment (e.g. centralized or decentralized). This approach is designed to help AP organizations not only identify where they are today, but also think about best practices and next steps for continuing their migration toward a paperless office. Demonstrating the significant work still to do in migrating to a paperless office, the assessment placed half of the AP organizations that used the tool in the summer of 2013 in Level 1, while 24 percent were placed in Level 2. About 19 percent were right in the middle at Level 3. Only 4 percent of the AP organizations that used the tool in the summer of 2013 were placed in Level 4, while 3 percent were placed in Level 5. Below is an overview of the five levels of automation on the path toward the paperless office. Level 1: Paper-Based Paper-Based is a high-cost, transaction-driven environment. The key attributes of this level include: Entirely paper-based invoice receipt Manual indexing and storage in file cabinets Manual data capture Manual approval workflow Inquiries handled by telephone and Ad hoc manual reporting Decentralized, disconnected environment The paper-based AP operation relies on its heroes to get the job done. The work is typically decentralized, taking place in branch operations or the separate business units. At this stage most, if not all, invoices are received on paper, routed via sneaker net for approval, and then keyed manually into the accounting system. To this point, the majority of users of the POMM in summer 2013 said they receive most of their invoices on paper. Once processed, the invoices are indexed and stored in folders and boxes, either on-site or in off-site facilities. When invoice volumes spike, or end-of-period reconciliations are due, the AP department is there to work the overtime necessary to track down missing invoices buried in paper piles or hidden in desk drawers. The risks are that these ad hoc processes are fully dependent on people keying data quickly, accurately, and completely. The Institute of Financial Operations and Perceptive Software 5 Steps to the Paperless Office in Accounts Payable 5

6 Level 2: Image-Enabled Image-Enabled is the first step toward the paperless office. This level is characterized by: Paper-based invoice receipt with front- or back-end imaging Manual or partial auto-indexing Physical and electronic storage of documents Manual data capture from paper or image Manual approval workflows Inquiries handled by telephone and Manual reporting Partially centralized environment A plurality of users of the POMM in summer 2013 (37 percent) said they don t scan any of their paper invoices after they are processed (on the back end). Similarly, a significant number of POMM users (26 percent) said they don t scan any paper invoices on the front end, as they enter the organization. The image-enabled AP operation introduces scanning technology to reduce or even eliminate paper invoices. Many organizations start by imaging invoices after processing (back-end imaging), thus reducing the cost of storage and archives. But with front-end imaging, paper piles are noticeably absent from the department. This requires greater centralization of receipt and provides improved tracking of the scanned documents throughout the process. Organizational change is required to support keying from image rather than paper, but the conversion to front-end imaging speeds response to audits and reduces the overall cost and time to index, store, and retrieve paper files. Additionally, imaging is a key step toward further process automation and paperless office maturity. Level 3: Workflow-Driven Workflow-Driven is the bridge to electronic invoicing. The key attributes of this level include: Invoice receipt via front-end imaging and some EDI Auto-indexing Use of enterprise content management (ECM) Minimal physical storage of documents Use of OCR/ICR Automated approval workflow Image portal available for inquiries Automated reporting Centralized, connected environment The workflow-driven AP operation is fully or partially centralized and has often invested in consolidation into AP or financial shared services. Paper invoices are scanned on the front end. Invoice data is captured using a combination of OCR/ICR and manual data entry. Two-thirds (67 percent) of organizations that used the POMM in summer 2013 said they do not use OCR for invoice processing. This is an area where organizations can achieve immediate benefit. The addition of automated workflow technology defines levels of authority and allows consistent approval routing and exception handling routines. Indexing and storage of documents are completely electronic, providing immediate access to historical information by authorized users from virtually anywhere. A limited number of high-volume suppliers have migrated to EDI. This transformation results in the efficient exchange of purchasing and payment documents, lower costs, and cycle times that are reduced from weeks to The Institute of Financial Operations and Perceptive Software 5 Steps to the Paperless Office in Accounts Payable 6

7 days. Receipt, approval, and data entry processes are more standardized, allowing work assignment based on skill set. EDI allows greater integration of AP automation technology with the enterprise resource planning (ERP) system, so productivity can be formally tracked and measured, and economies of scale in AP operations show a return on process and technology investments. Workflow technology can drive significant benefits in AP. For instance, a real estate services and advisory firm with more than 50 offices across Canada and the U.S. used workflow technology to: Improve accuracy and compliance Achieve more than $1 million in annual savings Provide instant, anytime, anywhere access to documents and a detailed audit trail Accelerate payment cycle and help capture of early payment discounts Level 4: E-Enabled E-Enabled is where AP organizations have made significant steps toward STP. The chief characteristics of this level illustrate how it supports touchless processing: Invoice receipt via imaging, EDI, e-invoicing and , with minimal paper Auto-indexing Use of ECM Use of intelligent data capture and purchase order (PO) line-pairing Automated approval workflows, routing, and dispute management Self-service portal for inquiries Automated, integrated reporting Shared services environment The e-enabled accounts payable operation has adopted a nearly optimal combination of technologies to reduce paper receipt and processing. For the AP practitioner, technology has changed nearly every facet of his or her role. Processes are predictable and measurable, allowing Level 4 organizations to constantly monitor and improve their critical key performance indicators (KPIs). Selective use of EDI, e-invoicing, PO flip, and supplier portals combines with imaging and intelligent data capture to minimize data entry of paper, or any other electronic invoice. Integration with core ERP and content solutions provides matching and validation all the way to the line item level. The e-enabled AP organization is no longer bound to a specific location or set of individuals who maintain the knowledge about why one vendor gets preference over another. The transactional data entry tasks required to key information from paper or electronic invoices have been reduced significantly. There is far more focus on strategic activities, such as improving PO compliance, cleaning vendor master files, and handling exceptions and disputes. Seventy-five percent of users of the POMM in the summer of 2013 indicated that their AP organization does not use automated reporting tools or automated tools for discount management. A large manufacturer of cable, security solutions, electronic wire, and fasteners provides a good example of an e-enabled company. By using the technologies and processes of this level, the company is able to post 92 percent of its PO-based invoices without operator intervention. The company also posts 74 percent of its freight invoices and 98 percent of its expense utilities straight-through. The Institute of Financial Operations and Perceptive Software 5 Steps to the Paperless Office in Accounts Payable 7

8 Level 5: Paper-Free Paper-Free is an analytics-driven, value-focused environment. The key attributes of this level include: Fully electronic invoice receipt Auto-indexing Use of ECM Touch-free, exception-based data capture Exception-based approval workflows Self-service portal for inquiries Online dispute resolution Real-time, predictive, integrated reporting Harmonized shared services environment The paper-free accounts payable operation has all but eliminated paper. All invoices are received, processed, and paid electronically in all locations. Tight integration with core ERP and ECM systems enable the receipt, entry, validation, approval, and posting of invoices with virtually no touch. Supplier onboarding is automated and efficient, and self-service portals enable vendors to check the status of outstanding payments and even facilitate bids for early payment discounts. Whereas AP operations at lower maturity levels are all or partially consumed with transactional keying and manually approving invoices, paper-free AP operations are focused on perpetual innovation. They use data about their processes and suppliers to create and optimize value along the entire supply chain for their organizations. The heroic efforts by those who work overtime to close the books at the end of the period in a traditional organization are all but gone. Most AP organizations have a long way to go to achieve Level 5: Paper-Free. Sixty-one percent of users of the POMM in the summer of 2013 said they don t post any of their invoices straight-through, without operator intervention. Conversely, Gartner reports that best-in-class organizations post more than 70 percent of their invoices straight-through. But achieving Level 5: Paper-Free is not the end of the automation journey for an AP organization. Although organizations in this level process the majority of their invoices touch-free, there always are ways to improve efficiency and better align AP with other departments in the enterprise. The Institute of Financial Operations and Perceptive Software 5 Steps to the Paperless Office in Accounts Payable 8

9 The payoff Regardless of where an organization stands with its AP automation, there is motivation to take steps to reach the next level. AP organizations can achieve significant benefits at every step. For instance, 39 percent of companies that responded to the 2010 AIIM Capture and BPM Study said they received payback on their scanning and capture investments in 12 months or less. That s far better than the payback for most technologies. Moreover, more than 60 percent of organizations met or exceeded return on investment on their scanning and capture investments, AIIM reported in Similarly, more than half of the respondents to IFO s 2013 AP Automation Study said they were satisfied with their supplier portal, with 17 percent stating that they were extremely satisfied. The bottom line AP optimization is a process, not an end state. Knowing where your organization falls in terms of automation maturity helps you plot next steps. That s where the POMM comes in. The insights provided by the model can help AP organizations implement the technologies and processes to drive world-class service, efficiency, and value. Most important, the POMM helps organizations move toward the paperless office, in turn, migrating from a tactical, transaction-based environment and toward a strategic, value-added function. Want to learn the level of your AP process? The AP Paperless Office Maturity Model is available at The Institute of Financial Operations and Perceptive Software 5 Steps to the Paperless Office in Accounts Payable 9

10 FinancialOps.org