Accounts Payable Automation Benefits

W H I T E P A P E R Accounts Payable Automation Benefits Facts and best practices by leading analysts Purchase to Pay by ReadSoft. Automated accounts payable processing Author:Paul Steele, Wille Dahl, November 2010; Updated: May 2011 Copyright 2011 ReadSoft - www.readsoft.com

Accounts Payable Automation Benefits Page 2 (11) Evidence for Accounts Payable Automation Benefits Research-based evidence shows that automation is yet again the way forward for cost savings and improved efficiency Enterprises are increasingly aware that paper and people-based processes lead to high AP transaction costs and missed business opportunities. In a recent survey 1, approximately half the organizations interviewed stated that they had problems with manual data entry, inefficient processes and manual routing of invoices for review and approval. Other issues were lost or missing invoices, a high number of discrepancies and exceptions, an inability to see outstanding liabilities and no way to capture all discounts offered by suppliers. This White Paper examines the recent research findings carried out by several independent business analysis companies, namely: Aberdeen Group Gartner Inc The Hackett Group PayStream Advisors Inc It breaks down the AP automation issues faced by organizations and highlights the numbers behind the proof that there are major benefits to be gained in implementing an AP automation system. It also shows the criteria for selecting a solution provider and how organizations need to make sure they choose an experienced provider such as ReadSoft to guide them through a proven process. The sources of the facts and figures that support this evidence are provided in the conclusion of this document. These consulting companies conclude that there is tremendous potential for improvement by automating the AP process - namely invoice receipt, invoice matching and approval workflow. Best-in-Class performance advantage Source: The Aberdeen Group: Imaging and Workflow April 2011.

Accounts Payable Automation Benefits Page 3 (11) Key Factors Driving Change Time and Money Time and money are the key drivers for AP automation 1 along with high paper usage, most AP departments still suffer with high AP transaction costs and cycle times. The top two pressures driving organizations to reassess their AP function are lowering invoice processing costs and improving and/or standardizing the AP process. Research has shown that best-in-class enterprises report 2 : Invoice processing costs that are, on average, 84% below their peers; Invoice processing time cycle times that are, on average, 59% faster than their peers. Other Drivers Other reasons why organizations 3 focus on electronic enablement of AP transactions are: Buyers and sellers gain savings opportunities by partnering and improving the process between each other; Technology has become flexible to integrate with existing business systems, and more affordable; Process, data and system standardization simplify implementing the technology; Improved performance in areas such as complying with contracts and optimizing working capital; Sarbanes-Oxley (SOX) drives organizations to adopt technology with the necessary controls as part of the application. Top Automation Priorities Based on survey results 4, the following emerged as top automation priorities: Implementing or increasing electronic invoicing was the most popular option with a majority (40%) of organizations stating that this was the top priority on their automation plan. Enterprises are no longer interested in merely finding a better way to handle paper; they are looking to eliminate paper altogether. Automated approval workflow for invoices was another popular option with 21% of organizations stating that they would focus their attention on this technology within the next 12 months. Automated workflow tools go hand-inhand with electronic invoicing. Unless there is a mechanism to process invoices after they are received, e-invoicing delivers minimal benefits. Automating payment processing was also an important goal for 16% of organizations. A large number of organizations - especially medium and large ones - have already automated the payments process.

Accounts Payable Automation Benefits Page 4 (11) AP Automation Elements for Success In the current AP world there are four elements necessary for AP success: Visibility, Collaboration, Control, and Automation: Visibility Visibility into liabilities and operating expenses is the basic requirement for most major functions within an Enterprise. It is used to give an overall view of operations and establish standards on which to base strategies for performance improvement. Research has shown 1 that Best-in-Class Organizations are 43% more likely to have enterprise-level visibility for AP transactions. The rest suffer from higher transaction costs and longer cycle times. Not seeing material liabilities that are not yet entered impact the timing and accuracy when closing accounting periods. For a typical AP department, enterprise visibility remains out of reach. the exception. A high degree of visibility brings substantial advantages 2, 3, including: Low transaction costs; Shorter processing cycle times; Decreased financial risk; Shorter response times - improved productivity by reducing time wasted in low-value activities; Improved forecasting and management of near-term cash management requirements; Greater ability to monitor billing discrepancies and overpayments, recognize unclaimed negotiated discounts, contracted payment terms, early payment discounts, and late penalty fees. Collaboration Cross-functional coordination among key stakeholders such as accounts payable, procurement, finance, treasury and suppliers creates an environment where key information flows easily between these stakeholders 5. Without this, treasury can t make optimal capital decisions; procurement can t identify negotiation opportunities with key suppliers, and suppliers and internal stakeholders can t track invoice processing status. It will also be difficult to set up different approval and routing rules based on different types of invoices or supplier arrangements, such as PO-based, non-po-based, preapproved and supplier maintenance. Research shows 1 that Best-in-Class Organizations are 56% more likely to have established a platform for collaboration between enterprise groups and functions that are impacted by AP operations. Also 1, Organizations that have developed a collaborative framework provided by an automated integrated AP system process more than twice the number of payments electronically than all others, bringing significant savings in payment/settlement costs. Control Good audit controls help Organizations enforce corporate policies and achieve contract compliance. Audit controls ensure that AP transactions are processed in a way that complies with policies, procedures and regulations. They help

Accounts Payable Automation Benefits Page 5 (11) reduce late payment fees, capture negotiated discounts and early payment discounts, eliminate duplicate invoice payments, and prevent fraudulent payments. Research 2 has found the exception rates in top performing firms are 85% lower than other enterprises. Automation Automation is a critical foundation to lowering costs and streamlining each of the four AP sub-processes: invoice receipt, approval and inquiry, validation and reconciliation, and settlements. Technology solutions to manage invoices and workflow, and electronic payment methods reduce the inefficiency of manual and paper-based processes. 1, 6 : While 44% of Best-in-Class enterprises utilize a single e-payables solution to fully automate their entire AP process, the majority of AP departments utilize a patchwork of solutions to automate certain processes. Electronic payments have the highest penetration among all AP automation solutions (80% for Best-in-Class ; 60% for all other enterprises). Organizations with on average 60% payments made annually via paper-based checks have an opportunity to greatly improve. Benefits An automated AP solution 5 streamlines and drastically improves performance by utilizing e-invoicing, scanning and workflow, online tracking and reporting capabilities, electronic invoice dashboards and supplier portals, supplier networks, payment services and spend analytics for all invoices. Using an automated AP solution, organizations will successfully drive transformation of their accounts payable departments to overcome the challenges of manual and paper-based processes. Benchmarking research on AP strategies across nearly 400 organizations 6 revealed the benefits that Best-in-Class organizations achieve by developing efficient processes and mapping them to automated AP solutions: Performance Area Invoice processing costs Processing cycle time Late payments Staff time responding to inquiries Best-in-Class Advantage 91% lower 46% shorter 12% fewer 30% less

Accounts Payable Automation Benefits Page 6 (11) What are the Must-haves? Key areas required by organizations to ensure that a solution covers current and future needs as the process matures 2, 7 include: Automate your process: From arrival to post and archive, with efficient workflow to streamline verification and exception handling; Any format, any source: Physical documents, electronic documents, and document images, via mailbox, email, fax and file transfer; Improve what you have: Integrate with the major ERP/financial system of your choice; Increase visibility: Improve your cash flow and invoice management; Better control of received and invoiced goods, automatic purchase order matching, optional automatic posting of invoices, enhanced security, less manual work, shorter total processing time, decreased total cost for supplier handling and early notification of errors; Improved day-to-day information on financial status (regarding current projects, for example) and basis for business decisions. This saves a substantial amount of valuable time at the end of every month, quarter and year. Shared service centers: A centralized or shared services approach will help ensure that AP tasks are streamlined and standardized; best practices are documented and shared, and AP technology budgets are consolidated. And not just for Large Organizations AP automation technologies have been limited to larger companies until recently. Now there is evidence that small and medium sized businesses are adopting the technologies for the following reasons 4 : A competitive business environment means even small and medium-sized businesses need to focus on reducing processing costs and increasing efficiencies for invoices and employee expenses. Streamlining the AP process has become extremely important in a tough economy where cash flow and greater control over payables is critical. An increased interest in early payment discounts is driving smaller organizations to investigate tools and technologies that enable them to shorten their invoice receipt-to-approval cycles. On-demand and Software-as-a-Service (SaaS) delivery models have lowered the initial cost of implementing AP solutions and make them easier to maintain. The convergence of electronic invoicing and front-end invoice imaging gives organizations a single, comprehensive solution that can manage both paper and electronic invoices through a common process. Value added-services delivered by solution providers for supplier recruitment tasks mean that buyer organizations can engage suppliers more quickly.

Accounts Payable Automation Benefits Page 7 (11) An End-to-end Solution Organizations obtain maximum value by selecting the broadest possible solution set that can change user roles from exception and problem handling to oversight and process management. This requires end-to-end solutions for automating AP processes in any major Enterprise Resource Planning (ERP) or financial system; from invoice arrival, though information extraction, validation and verification, to approval workflow - all with Sarbanes-Oxley (SOX) compliance support. Top performers are four times as productive as Non-top performers Number of invoices a full time employee can process per year Source: The Hackett Group, 2009 So which types of solutions make the most sense? Extensive research 6 has found that: Electronic invoicing solutions automate the invoice reconciliation and payment process and address most invoice types. Workflow and imaging solutions manage all aspects of in-house invoice scanning and documentation and provide an effective electronic archival system. They are often part of a cross-functional enterprise solution. Payment automation platforms specialize in accounts payable and accounts receivable processing. They offer relief in disbursements for payroll, benefits, regulatory and tax issues, as well as intra-company transfers. These solutions range from automated clearing house (ACH) and general payment processing to company-wide AP solutions. Enterprise financial solutions, which manage the budget and general ledger of an enterprise, consist mainly of Enterprise Resource Planning (ERP) providers. They typically offer functions such as a general ledger, and sometimes more advanced capabilities like supply chain auto-reconciliation and AP workflow. Purchasing cards (p-cards) are designed to streamline the front (purchasing) and back (payment and reconciliation) ends of the procure-to-pay process. They introduce greater levels of control and visibility for management of low-cost, high-volume categories.

Accounts Payable Automation Benefits Page 8 (11) Supply chain finance solutions provide full AP invoice dashboards, so enterprises can manage payables more easily. With ERP integration and supplier portal capabilities, these solutions can help move to an automated AP platform. Treasury management services offer advanced financial administration by consolidating cash forecasting and handling foreign exchange affairs. These services provide management for deals and trades, and they also provide analytics and risk management. Selecting Suppliers When selecting a supplier, an organization should consider the supplier s strength and stability, its customer base and market share, its strength in the AP environment, and specific expertise in all aspects of the invoice-to-payment function. Does the supplier have experience with multinational installations and understand regulatory, procedural, and cultural differences between one part of the world and another? The accepted criteria framework recommends that enterprises assess automated AP solutions in 6 primary areas 6 : Receipt Approval and Inquiry Validation and Reconciliation Settlement Reporting and Analytics Integration and Services A supplier that fits the selection criteria 6 is ReadSoft - a global provider of supplier invoice solutions. ReadSoft s experience covers many different fields of industry, public service organizations and governmental bodies, in many countries with very specific legislation, rules and business practices. ReadSoft s premise is that accounts payable processes are basically the same regardless of industry type. It aims to standardize wherever possible to ease workflow between departments and organizations.

Accounts Payable Automation Benefits Page 9 (11) ReadSoft s Automated AP Solutions ReadSoft s business strategy of developing and marketing software for AP automation goes hand in hand with its vision of contributing to businesses' success by providing the ideal software solutions for automating document driven processes 4. ReadSoft has an AP automation system that handles paper as well as digital documents, according to the specific needs of AP departments. The ReadSoft product suite offers data extraction, integration in any major Enterprise Resource Planning (ERP) or financial system, from invoice arrival, though information extraction, validation and verification, to approval workflow and final posting. The solution enables Sarbanes-Oxley (SOX) compliance support. ReadSoft Combines Flexibility with Powerful Features The ReadSoft automated AP solution has been deployed for a wide range of organizations, and is proven for all major ERP and financial systems. Tailormade solutions can provide a combination of the following powerful monitoring and control features - flexible reports and graphs allow clear process tracking for document and data processing and provide performance monitoring for a wide range of parameters. The ReadSoft solution is Certified by SAP : All required data can be accessed either through the normal SAP environment or through an easy-to-use web interface. It is also Certified by Oracle, whose functionality can be accessed either through the Oracle E-Business Suite or a simple web browser interface. Results that Speak for Themselves ReadSoft continues to bring success for Clients across diverse sectors. Their invoice processing solutions have recently: Helped to reduce the Danish Broadcasting Corporation s invoice process time from 30 to 7 days; a major contributor to them winning them a prestigious Danish E-business award; Brought RS Components (UK) substantial benefits by automating up to 90 of their SAP system invoicing and reducing their AP employment costs by 36%. Their Head of UK Finance said, Our UK team achieved star awards for ongoing process improvements, and we want to continue to be seen here as innovators within our global organisation. Enabled LexisNexis UK to streamline its invoicing and confidently move toward an outsourced business model. Helped the Midas Group (UK) to reduce their AP headcount by 40%, drastically reduce invoice cycle times and processing costs. Results were so successful, their Finance Controller is considering extending the system to other areas that are currently processed manually and said, We found ReadSoft s track record of experience in the field very reassuring. I was confident they knew what they were doing. Exceeded Graco Inc s expectations by helping them to achieve its AP 2- year goals in six months, promote half their AP staff to more fruitful tasks within four months and reduce invoicing time from an average of 24 days to just nine. Their AP Manager said, 56 to 60 % of the invoices that come in go straight into our Oracle E-Business Suite system and we don t touch them. It s a huge savings.

Accounts Payable Automation Benefits Page 10 (11) TransMontaigne (US) automated its accounts payable and achieved tremendous savings by capturing more discounts. The project manager said, Month over month improvement is roughly 1000% in terms of vendor term discounts and is getting better." "Even with fewer associates, the department s utilization rates increased substantially, and lost invoices were now at a minimum," said the project manager at Starwood Hotels & Resorts Worldwide (US).

Accounts Payable Automation Benefits Page 11 (11) Five Steps to Success While the savings and strategic benefits of AP automation are compelling, only one third of all enterprises currently have any significant level of automation in place. Enabling solutions that handle unstructured content alongside financial/accounting transactions and improve workflow/process management will bring efficiency to financial processes through reductions in administrative support and costs. Visibility into accompanying content of financial transactions will bring business improvements and vastly improve relationships with customers and suppliers. Using ReadSoft solutions, coupled with their vast consulting experience, small to very large enterprises can bring AP automation to the optimum level at a pace that matches their structure and resources and just as importantly, where they are in the maturation process. ReadSoft s experts help plot the course for AP transformation to make sure that enterprises can effectively 23 : 1. Define all the goals and objectives is it global, is it enterprise-wide? What is the time for deployment? 2. Engage with other key stakeholders to define requirements (including treasury and finance, procurement, IT, suppliers); 3. Build the business case and agree on performance metrics and ROI targets; 4. Gauge current invoice receipt and workflow capabilities such as invoice cycle time, data capture (and resulting quality of invoice data) and routing of invoices for approval. This will assist decisions regarding centralized data capture, standardizing processes across the Organization; 5. Match the AP automation solution that provides the best-fit By utilizing ReadSoft s framework for solutions, Organizations of all sizes can effectively implement AP automation and move to seamless AP transformation. 8. References: 1, 5, 9, 10, 13: The Aberdeen Group: The 4 Pillars of A/P Success: Visibility, Collaboration, Control and Automation Nov 2008. 2, 7, 11, 14: The Aberdeen Group: The CFOs View of Accounts Payable: Cash is King Feb 2009. 3, 6, The Hackett Group Automating the AP Process June 2010. 4, 16, 20: PayStream Advisors Inc Invoice Automation Benchmarking Report Q2 2010. 8, 21: Gartner Research publication G00163833 Dec 2008. 12, 17, 18, 19, 22, 23: The Aberdeen Group E-Payables Solution. Your 2007-2008 Guide to A/P Transformation. 15: The Aberdeen Group E-Payables Receipt and Workflow May 2009, Updated April 2011.