Operational and Strategic Benefits in Automating Accounts Payable REVISED 9/12
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Operational and Strategic Benefits in Automating Accounts Payable About The Institute 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 100,000, which includes 5,000 members, 17,000 customers, and an additional 75,000 financial operations professionals. 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. About Iron Mountain Iron Mountain Incorporated (NYSE: IRM) is a leading provider of storage and information management services. The company s real estate network of 64 million square feet across nearly 1,000 facilities in 32 countries allows it to serve customers around the world with speed and accuracy. And its solutions for records management, data backup and recovery, document management, and secure shredding help organizations to lower storage costs, comply with regulations, recover from disaster, and better use their information for business advantage. Founded in 1951, Iron Mountain stores and protects billions of information assets, including business documents, backup tapes, electronic files and medical data. To learn more about how Iron Mountain can help you improve spend visibility, increase indirect spend control, and realize increased spend opportunities, call 1-800-899-IRON (4766). 3
Table of Contents Executive Summary... 5 The Evolving Role of the AP Function... 6 How Proactive AP Teams are Addressing Challenges... 8 Using Technology and Services to Drive Paper Out of AP Processes... 10 4
Executive Summary Optimizing accounts payable processes and eliminating manual invoice processing tasks empowers finance managers to achieve bottom-line savings and derive strategic benefits vital to remaining competitive. The operational benefits are cost reductions and faster, more transparent, easier-to-audit AP processes. Strategic benefits include better spend control, enhanced early payment flexibility, and overall improved cash management. 5
The Evolving Role of the AP Function Over the past decade, proactive finance managers have extended their AP team s contributions beyond just managing back-office disbursements to providing more timely qualitative data for improved strategic decision-making. While still focused on achieving operational goals such as increased productivity, improved accuracy, and faster turnaround times, AP managers are also trying to deliver greater visibility for better indirect and addressable spend control, cash management, and supplier base risk management. Despite widespread application of technology for core accounting and enterprise resource planning (ERP) functions, a significant number of invoices are still paper-based, which creates barriers to efficiency and success. As shown in Figure 1, Paper and paper equivalents such as email and fax are still the predominant methods for conveying supplier invoices. 1 According to research by The Institute and Glenbrook Partners, 58 percent of organizations are still using manual data capture and approval processes in their AP departments. 2 Figure 1. Breakdown of invoices via receipt method 10.57% 4.08% 7.27% 6.04% Paper Email Fax EDI Electronic invoicing network or portal 69.62% Source: Invoice Automation Adoption Survey Report 2011, PayStream Advisors, 2011. NOTE: 2.42 percent of survey respondents did not answer. A detail-conscious AP staff s best efforts notwithstanding, the manual processing of paper invoices is labor-intensive and error-prone: It includes opening and sorting mail, manual keying and data entry, searching for lost or duplicate invoices, and significant exception processing. Onsite storage results in additional costs to the organization. Manual processes create barriers to achieving many of the common strategic goals of AP managers (real-time visibility to invoices, enhanced early payment discount capability, avoiding late payments, and automated accrual reporting for faster period closes). Manual processes also carry the risks that result from failed audits and potential fraud. 1 Invoice Automation Adoption Survey Report, PayStream Advisors, 2011, Page 5. 2 E-Invoicing: The Buyer AP Perspective, The Institute of Financial Operations and Glenbrook Partners, 2010. 6
The Evolving Role of the AP Function For companies still processing paper invoices in distributed locations, these barriers to performance are multiplied. Additionally, these organizations have to contend with the costs of shipping invoices between locations, and desk float associated with invoices stuck in the process in field locations. Even outside AP, the challenges of managing paper-based invoice processes affect other finance users as well as nonfinance departments involved in the approval process. Without timely visibility into outstanding liabilities and spend details: CFOs find it more difficult to track and reconcile negotiated contract savings against actual spend leading to potential loss of hard-won savings. Controllers cannot adequately measure and be certain that risk is being controlled. Procurement faces a double whammy. Executing sourcing process improvements, such as negotiating better terms, is inhibited when there s a history of late payments and the absence of reliable, up-to-date information. Treasurers may be working from incomplete cash flow and working capital data, hindering their flexibility. Business approvers do not have visibility into whether AP actually received the invoices they approved. Customer service departments struggle with responding to supplier inquiries on invoice receipt/approval status. 7
How Proactive AP Teams are Addressing Challenges AP departments have made significant progress improving invoice processing efficiencies and reducing risks, primarily through centralization and the adoption of varied technology solutions. But there is room for improvement, particularly in the integration of paper invoices. Centralization of Invoice Processing A majority of companies have moved to centralize at least some of their AP operations. A recent survey of more than 200 North American organizations indicated 65 percent have substantially centralized, with 29 percent moving in that direction. 3 But centralization alone does not address some of the challenges of paper invoicing. In fact, processing higher volumes of paper invoices without additional resources can increase performance issues and the risk of errors not to mention the cost of increased storage and file maintenance requirements. Automation of these processes is also critical to improved processing performance and visibility. Adoption of Technology Solutions A wide range of automated solutions are being adopted by AP departments. Technologies like Automated Clearing House (ACH), wire transfer, and scanning have been used for some time in many companies, followed by P-card, electronic data interchange (EDI), and automated workflow solutions. A smaller number of companies have introduced electronic invoicing and optical character recognition (OCR) for automated data extraction. It s important to note that most of these individual technologies address only a portion of the AP process. Organizations are struggling to find a single solution provider to help with all aspects of AP operations. Priorities Driving the Adoption of Electronic Invoicing Solutions Almost 50 percent of companies not yet using electronic invoicing are either moving to deploy one (within six months) or are in the process of evaluating solutions. 4 AP managers expect the electronic invoicing solution they choose to deliver both operational and strategic advantages that justify the cost and effort of transforming their current method of processing invoices. Figure 2 shows how businesses rated their priorities in a recent report by PayStream Advisors: The big news in this year s survey was the dramatic increase in the number of respondents listing improved visibility of transactions as a key benefit of electronic invoicing. That s a 14-percentagepoint gain from a year ago and tangible proof that an investment in einvoicing yields far more than paper and people saving. 5 3 einvoicing Adoption Benchmarking Report, PayStream Advisors, 2011, Figure 1, Page 2. 4 einvoicing Adoption Benchmarking Report, PayStream Advisors, 2011, Figure 3, page 5. 5 einvoicing Adoption Benchmarking Report, PayStream Advisors, 2011, Figure 1, Page 6. 8
How Proactive AP Teams are Addressing Challenges Figure 2. Drivers for adopting electronic invoicing Fewer supplier inquiries 20% Improved vendor satisfaction 27% Fewer duplicate invoices 31% Increased ability to capture discounts Increased on-time payments 37% 39% Reduction in FTE and processing costs Quicker approval cycles Reduction in exceptions and discrepancies Better visibility across the transaction lifecycle 46% 46% 47% 47% Fewer lost or missing invoices 63% Source: einvoicing Adoption Benchmarking Report 2011, PayStream Advisors. There are, however, significant hurdles in implementing an in-house electronic invoicing system, both in terms of the challenges in changing the current business model and in acquiring, configuring, and maintaining the technology required. 9
Using Technology and Services to Drive Paper Out of AP Processes There is a wide range of approaches to meeting the requirements of AP departments: from technology solutions that AP and IT configure and manage themselves to services designed to offload labor related to paper-based processes. First, there are technology solutions: Scan invoices in-house. Staff can be trained to add scanning and light pre-workflow processing to their duties to accomplish paper invoice conversion the handoff to an ERP or enterprise content management (ECM) system would need to be designed by in-house staff. Add AP module onto ERP system. Most companies are already using or are considering using some kind of ERP system that may offer an add-on invoicing module, with user licenses that can be purchased along with ongoing software maintenance. Note: It is important to ensure that when the base application is upgraded, the invoicing module remain compatible with any changes made. These modules do not include paper invoice conversion but must be used with an imaging solution from another solution provider. Add AP module onto ECM system. Companies willing to add in-house scanning tasks to their staff workload can send images to ECM systems which provide generic (not custom AP functionality) workflow capabilities on top of centralized document repository. As with ERP solutions, before upgrading to a new version of an ECM system, evaluate the implications for its impact on invoicing processes. Procure-to-pay (P2P) solutions. These solution providers sell software that offers AP solutions from a procurement automation angle, essentially seeking to leapfrog paper conversion by pushing electronic invoicing. Like ERP and ECM add-ons, they do not address the life cycle issues that are central to paper invoice processes. Software-as-a-service (SaaS). Automating accounts payable through a third-party, softwareas-a-service specialist has tremendous advantages for many organizations both large and small. The services of a specialist offering both proven software and deep expertise built on best practices can be contracted with minimal up-front costs and affordable fees and can offer almost seamless ERP integration. Rapid to deploy, these scalable solutions never become obsolete because they are updated frequently. Their ease of use and adoption will help produce a quick ROI. Then there are services that address specific points along the AP process: Bank services. Banks are typically focused on a bill pay network including a supplier portal and electronic invoicing offering a solution from the angle of payment automation (ACH) but not the issues of today s paper invoicing environment. B2B solution providers extending current software-as-a-service (SaaS) offerings. Some SaaS providers extend their current offerings for core financial services (payroll, travel and expense, etc.) to processing invoices. Like ERP and ECM add-ons, these offerings do not typically include paper invoice conversion, but are used with an imaging solution from another solution provider. 10
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