Automating financial processes—from invoice capture to payment disbursement—has been discussed for decades, yet end-to-end accounts payable automation remains elusive for many organizations.
Less than one-quarter of accounts payable departments describe their invoice processes as being "highly automated," according to IOFM.
63% of organizations still make more than half of their payments by paper check, according to PayStream Advisors.
The root of the problem is siloed departments and multiple, legacy systems that don't work together and manual and semi-automated invoice-to-payment processes that create headaches for payers and suppliers alike.
As a result, controllers surveyed by IOFM rank accounts payable as the most time-consuming, laborious, and paper-intensive finance and administration function, ahead of notoriously burdensome activities such as accounts receivable, payroll, tax, and audit and reporting.
Compared to an automated environment, manual invoice processing costs payers more, takes longer, creates more exceptions, and provides accounts payable managers and other stakeholders within a buying organization with less visibility. Suppliers often must call or e-mail payers to inquire about the status of invoices. And the frequency of lost invoices in a paper-based environment has a negative effect on a supplier's Days Sales Outstanding (DSO).
The problems caused by paper-based invoice processing are compounded when businesses pay their suppliers with a paper check. Compared to electronic payments such as Automated Clearing House (ACH) transactions, paper checks are more costly and time-consuming to disperse, more vulnerable to fraud, and more likely to result in phone calls and e-mails from suppliers regarding payment status. Moreover, suppliers can never be sure when a paper check will arrive through the mail, making cash forecasting difficult. Paper checks are also more difficult for suppliers to reconcile and post. And, unlike electronic payments, paper checks can become lost or misplaced.
But, automating the invoice-to-payment cycle is within your organization's reach.
In the roadmap that follows, we'll show you how end-to-end accounts payable solutions can transform burdensome, disparate processes into a holistic, synchronized workflow that provides maximum efficiencies and an accelerated payment lifecycle.
Improving and automating manual processes rank among the top accounts payable concerns for 41 percent and 33 percent, respectively, of businesses, IOFM finds.
The Problem
Taking a piecemeal approach to automating the invoice-to-payment cycle negatively impacts the metrics that accounts payable professionals say matter most to their departments: cost, visibility, accuracy, and timeliness.
Cost
Businesses only receive about one-third of their invoices electronically in a format that can be processed straight-through, according to IOFM. Manual invoice processes raise costs through:
- Keying of invoice automation
- Lost of misplaced invoices
- Long approval and exception resolution cycles
- Compliance and security risks
- Paper storage and retrieval costs
- Delays uploading data on approved invoices to downstream systems
- Supplier inquiries regarding invoice and payment status
- Difficulty implementing operational best practices
Manual or semi-automated approaches to paying suppliers also are costly for payers.
Check payments can be more than 30 times as expensive to issue compared with ACH payments, according to the National Automated Clearing House Association. The sky-high cost of paper checks is due to the significant overhead for paper, printers, and postage, and the huge amount of labor required for check printing, manual signatures, envelope stuffing, and supplier inquiries.
Paper checks also result in costly fraud. There are a staggering 10 times as many fraudulent incidents involving paper checks than ACH and wire transactions combined, according to AFP research. Paper checks also are responsible for more than twice as many fraudulent incidents as purchasing cards.
84% of organizations identify high overall payment costs as a driver for automation, according to the Association for Financial Professionals (AFP).
77% of organizations subject to payment fraud were victims of check fraud, according to AFP.
Visibility
Fragmented and/or siloed payables processes limit visibility into invoice and payment data:
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Critical discrete information is not captured
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Data is poorly organized and difficult to access
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Information is not timely
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Systems are not well-integrated
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Spending is difficult to track across the enterprise
In a fragmented and/or siloed payables environment, payers and suppliers frequently must access multiple systems to retrieve information.
With check payments, buyers may not know when suppliers receive or cash their checks. This lack of visibility limits a buyer's ability to fully control their cash position.
Accuracy
Manual processes increase the chance of errors. Invoice data can be incorrectly keyed at multiple points. Invoices can become lost or misfiled. Paper checks can be stuffed in the wrong envelope.
Manual processes also make it difficult to prevent duplicate payments. A rule of thumb is that a duplicate payment rate over 0.5 percent indicated weak controls, or that the master vendor file needs a good weeding out, IOFM noted in its AP Department Benchmark and Analysis. However, 39 percent of businesses report that duplicate payments and over-payments represent more than 1 percent of their payments. Worse, duplicate payments and over-payments account for 2 percent or more of all payments at 14 percent of the businesses surveyed for IOFM's 2016 AP Key Performance Indicators Study.
Timelines
Eliminating late-payment penalties and capturing more early-payment discounts are among the top concerns of businesses surveyed for IOFM's 2016 AP Key Performance Indicators Study.
With 40 percent of businesses processing less than half of their total invoice volume straight-through (according to IOFM) it is easy to see how supplier payments can be paid late.
There are wide range of reasons that invoices are not processed straight-through, including: wrong price, wrong quantity, missing tax amount, missing tax identification number, no requester name, no contact data, no contract and/or purchase order, missing purchase order number, no order confirmation, no shipping notice, net amount exceeds sub-total, invoice total exceeds contracted amount, missing ZIP code in address, incorrect spelling of a company name, and no matching invoice and purchase order data (a top challenge for 43 percent of accounts payable departments).
Resolving invoice exceptions in a manual environment typically involves multiple handoffs and manual processes to identify and resolve the cause of the exception, which significantly delays approval cycles. Making matters worse, exceptions can languish on desks or in e-mail inboxes awaiting approval/resolution. Manual processes also make it difficult for businesses to identify and address "problem" suppliers.
Paying suppliers with a paper check exacerbates the situation. Disbursing electronic payments takes a fraction of the time of printing and mailing paper checks. And, unlike paper checks, suppliers can be sure when an electronic payment will arrive.
The 4-Step Roadmap
1. Identity Automation Gaps
Identify where you already have automation and where there are gaps:
Perhaps you have scanning in place to digitize paper invoices, but from there the rest of your process is manual. How might automating matching and approval and exceptions workflows improve the timeliness of invoice approval? Maybe your organization has begun paying some suppliers by ACH or card, but still has many checks and struggles to bring suppliers on board given the manual effort for accounts payable. End-to-end accounts payables solutions digitize paper-based invoice processes and extract header and line-item information. PO-based invoices are matched against purchase orders and delivery of goods receipts. Any exceptions and/or non-PO business rules. Managers and other stakeholders can approve invoices on-the-go via a mobile device. Invoices and related content is digitally stored for instant access by authorized users. And suppliers are paid in the method they require.
2. Encourage Supplier Migration to Electronic Payments
Most businesses surveyed by IOFM want to migrate most of their supplier payments to cards or ACH within the next three years. But many accounts payable organizations are unsure of how to accomplish this goal. End-to-end accounts payable solutions automate supplier payments through an electronic payment network. The cloud-based networks facilitate the online exchange of financial data between trading partners, settle payments, and provide data related to transactions, in a secure environment that does not require changes to existing business processes or systems, capital investment, or big IT resource commitment. It is for these reasons that payment networks have grown dramatically over the past few years with hundreds of thousands of companies processing over hundreds of billions of dollars annually.
3. Integrate with ERP and Bank Systems
Understand what solution types integrate best with your existing systems (ERP, bank):
The ERP is the financial nerve center of a business. Yet many businesses never achieve full payback on their ERP investments because the systems and processes that feed the ERP are manual, semi-automated and/or fragmented. Integrating an end-to-end accounts payable solution with an ERP and other back-end systems extends the investments in these technologies by facilitating complete online review of all invoices as well as the ability to access data on invoice status, invoice volumes, and metrics such as operator productivity. Integration also provides online general ledger coding with integrated validation, and allows for a direct link between the accounts payable system and the address book and vendor master file in the ERP. And most end-to-end solutions do not require changes to your existing bank relationships.
75% of businesses agree payment networks benefit buyers and suppliers (Ardent Partners).
4. Meet Stakeholder Reporting Needs
Uncover the reporting needs of your stakeholders (procurement, treasury, etc.):
The beauty of automating everything and having integration with your ERP would be that, in theory, all data is accessible to anyone in a single source of truth. This solves that big visibility challenge mentioned earlier in the paper. End-to-end payables solutions include management dashboards and standard reports for real-time visibility into key operations and financial data. Invoices can be electronically linked to related documents such as purchase orders, proof-of-delivery documents, remittance advices and e-mails to provide an instant, comprehensive view of each transaction for research as well as audit and compliance reporting. And the technology enables payers and suppliers to instantly access payment history.
The Benefits
Cost
Ardent Partners finds that the best-in-class organizations can reduce their invoice processing costs by 82 percent compared to peers, in large part, by eliminating manual tasks such as keying, paper handling and filing. Moreover, best-in-class organizations process invoices for one-fifth of what it costs their peers to process an invoice from receipt to approval ($3.34 versus $16.67), Aberdeen Group reports.
And leveraging a payments network enables buyers to avoid the most costly requirements of migrating to electronic payments, including: gathering supplier bank information, storing supplier bank information in an ERP platform, keeping supplier bank information up-to-date, chasing down returned ACH payments, paying ACH transaction fees, and tailoring supplier remittance data.
What’s more, payment networks supplement and extend a buyer’s card automation and rebates. ACH payments are widely accepted by suppliers and provide opportunities for buyers to earn rebates. And payments networks also are extremely secure. A three-step process authenticates the name and address, bank account information, and Office of Foreign Assets Control (OFAC) status of suppliers in the system. The process is automatically repeated as updates are made to supplier information.
Best-in-class organizations can reduce invoice processing costs by 82 percent compared to peers by eliminating manual tasks such as keying, paper handling and filing.
Visibility
End-to-end accounts payable solutions provide 360-degree visibility that enables decision-makers to:
- Forecast cash flows and better ensure budget compliance
- Streamline the month-end accounting close and financial reporting process
- Accelerate dispute resolution with instant access to data and online collaboration
- Speed resolution of supplier inquiries with ready access to invoice and payment status
- Make better informed decisions about early-payment discount opportunities
- Identify opportunities for electronic payments
- More easily analyze spend patterns
- Gain leverage in negotiations with suppliers
Automation provides payers and suppliers with a single source of truth across the invoice-to-payment lifecycle. This visibility enables trading partners to collaborate on the resolution of disputes and the exchange of information, without having to access multiple systems or become mired in back-and-forth phone calls and e-mails.
Accuracy
Automating the invoice-to-payment cycle improves accuracy in paying suppliers.
Automating invoice processing tasks such as keying and validation reduces the chances of errors. Additionally, digitizing approval and exceptions workflows eliminates the opportunities for lost or misplaced invoices. And seamlessly exporting invoices information downstream, eliminates the duplicate entry of invoice data and enables instant updates of invoice and payment information to the ERP or GL system. This process helps reduce mistakes and instances of conflicting information.
Paying suppliers electronically eliminates lost or misplaced payments, provides controls for stopping duplicate or potentially fraudulent payments, and facilitates fast reconciliation.
Timeliness
Automation eliminates the time-consuming tasks of data entry, paper handling and routing, supplier inquiries, document filing and retrieval, and searching for lost or misplaced invoices.
Companies with automated solutions can process invoices in less than half the time of average companies (3.7 days versus 8.8 days) and in less than one-third the time of laggards (3.7 days versus 14.3 days), according to PayStream Advisors' Invoice Workflow Automation report.
End-to-end solutions also enable faster and more efficient invoice payment by eliminating the manual steps of writing, approving, and mailing paper checks. One file can be used to initiate payments via multiple channels, and suppliers can be automatically notified of pending payments.
41% of senior finance executives cite improved visibility into invoices and payables information as the biggest benefit of accounts payable automation, according to IOFM.
Accounts payable departments can process invoices 74 percent faster with automation compared to manual processing, according to the Aberdeen group.
Conclusion
Organizations cannot optimize their accounts payable processes with multiple systems and processes that do not work together. To improve the cost, visibility, timeliness and accuracy of accounts payable, organizations need a holistic, synchronized workflow that provides maximum efficiencies and a faster payment lifecycle. End-to-end payables solutions accomplish this with streamlined workflows, an electronic payments network, tight integration between accounts payable and back-end systems, and reporting tailored to the needs of stakeholders. These capabilities enable buyers to eliminate unnecessary time and cost from the payment lifecycle, manage supplier payments more precisely and securely, earn more rebates on payables spend, and improve reporting. Importantly, an end-to-end payables solution can help your accounts payable department become paperless by 2019.
