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ADP速 Procure-to-Pay Solutions

Electronic Invoicing

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Improving Your Competitive Edge Through Real-Time Spend Visibility


Electronic Invoicing: Improving Your Competitive Edge Through Real-Time Spend Visibility

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Tracking and Managing Spend All companies have to deal with the challenges of tracking and managing spend. For some companies, especially those that execute large capital projects, whose operations are largely project-based, or that have the added challenge of managing many geographically dispersed projects, the scope and complexity of managing costs against budget or plan is certainly daunting. Nonetheless, it’s an extremely important activity, since the estimation of actuals versus plan or budget is used by a broad range of stakeholders: project managers, operations staff, treasury personnel and executives reporting to shareholders and analysts.

The Situation Today Tracking and Managing Spend How is this challenge being managed in most companies today? The “source of truth” for actual costs is the financial or ERP system. The problem is that there is usually a significant delay from the time the costs are actually incurred (the work is performed or the goods are delivered) to the time that the invoices get processed and posted for payment – the point at which these costs become “actuals”. The lag time at best is somewhere around 45 days, but 60 to 90 days is probably more likely for many companies. Unwieldy Spreadsheets Despite this, business and managing projects and operations must go on, even in the absence of actual costs. So, operations and finance staff use a variety of mechanisms and systems (often unwieldy spreadsheets) to try and estimate costs against plan for this interim period, until the actuals become available. This process is time consuming, costly, and what’s worse, inaccurate. Our customers tell us that it is not uncommon for field estimates to vary anywhere from 10% to 20% from actuals. Of course, that becomes a huge problem for operations personnel and project managers who are trying to complete projects on time and on budget, and also for financial managers and executives who have to report results to stakeholders before the actuals are available.

Lost Opportunity Losing Opportunities Because You Didn’t Know Perhaps the most negative outcome of lack of availability of actual cost information is lost opportunity. Not knowing that costs are rising at a higher rate than anticipated (labor or material costs in a tight market, for example), can lead to overruns, which in turn can lead to cancelled projects as budget money and even cash runs out. On the flip side, if costs come in lower than expected, there may be missed opportunities to increase production or revenue by investing the surplus funds, since the window of opportunity for making those investments may not be as long as 60 or 90 days. So, by simply not knowing that the funds are available, the opportunity passes. These examples don’t even take into account the opportunities that treasury departments have to manage their cash better if they knew with more certainty their cash position at an earlier date.

Electronic Invoices – Get “Actuals” Faster Paper Invoices Are Slow and Unreliable The main source of cost information flowing between suppliers and buyers is the invoice. The problem is that, for the vast majority of companies, the invoice is still a paper document, and paper documents can be slow. They get lost in the mail, sit on approvers’ desks for days or even weeks at a time. Even when they’re properly handled, they aren’t easily integrated with operational, project, budgetary or other systems that are used to run the business on a day to day basis. Since the financial or ERP system is the repository for actuals, and there is such a lag in the availability of these actuals, most companies are still relying on paper documents and field estimation of costs. However, by making the invoice a fully electronic document (one that contains all line item information and can be routed directly into other systems as required), we can overcome these time and visibility issues.


Electronic Invoicing: Improving Your Competitive Edge Through Real-Time Spend Visibility

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Cost Information with Electronic Invoices How does this work? Through Internet-based electronic invoicing systems, the supplier submits the invoice electronically to the buyer, then the buyer has the ability to route, code and dispute or approve the invoice – all online. This drastically shortens the time that it takes to receive actual cost information. With electronic uploads of the invoice information directly to the financial system, committed spend against budget can be available and analyzed within days of the work being performed or the goods having been delivered, rather than weeks. Accruals can be accurately made, and plans updated accordingly should life be going better or worse than was initially thought.

Electronic Receipts – Real-time Visibility Electronic Invoices Are Good, But... Although better than paper, the invoice still does not provide real-time visibility, since it depends on the supplier actually invoicing in a timely manner. Even with electronic invoicing, many suppliers still wait until close to month-end to do their invoicing. So if the work was performed or the goods delivered early in the month, the receipt of an invoice could once again still lag the delivery by as much as 30 days. So how can we get to real-time visibility, and truly provide operations and finance staff with the information they need to be more agile and to respond to changing conditions in a timely manner? Electronic Receipts Are Immediate All suppliers provide some kind of paper receipt or delivery document at the time of performance of the service or delivery of the goods. This paper document has many different names – delivery ticket, goods receipt, time sheet, and so on. But the content of the receipt is fundamentally the same: the scope of the work or description of the goods, the quantity and the price. Once approved or signed by the buyer, the receipt becomes the foundation for the supplier’s invoice, so capturing this information electronically as early as possible would provide the closest we can get to realtime cost visibility.

Making Electronic Receipts Practical Many providers of various systems (electronic invoicing or electronic receipt systems) have attempted to have suppliers enter these receipts electronically. But in reality, if the process is difficult, the supplier will resist adoption of these tools. What is needed to make an electronic receipt system practical? Mechanism to Capture Necessary Information upon Delivery This is important because it means that the delivery charges can be “signed off” or approved by the buyer the same day, while the work or delivery is well understood by the deliverer and the receiver, reducing any opportunity for lengthy disputes. Once again, if it’s hard to use, it won’t be adopted. Integration with Your Electronic Invoicing System Ideally this means providing reconciliation to invoice line items, purchase orders, and even contracts for non-purchase order invoices. Integration with Your Project and Budget Tracking Systems So that at the earliest point possible, those who need the information can easily track committed costs against budget or plan. (Note: we do not call these cost “actuals” at this point because they still are in reality “estimates” until the supplier invoices these charges and the buyer approves and posts them for payment. Nonetheless, our studies show that field estimates captured and reconciled electronically as described above are within 1%–3% of actual costs – far better than the 10%–20% variance seen with traditional cost estimating systems.)


Electronic Invoicing: Improving Your Competitive Edge Through Real-Time Spend Visibility

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Speed and More The graphic below shows the relative speeds of making documents electronic. Because both speed and accuracy are important, ideally we want to integrate the available tools: in this way, the approved electronic receipt becomes the electronic invoice, and consistency as well as accuracy of information is maintained. Accruals and budget updates can then become a real-time process, and reaction times become a function of decision-making rather than availability of information. The business can become more agile and able to react to unplanned events and opportunities far more quickly.

Cost Visibility Timeline Costs are visible on day �

eInvoicing with eReceipts

Costs are visible at ��–�� days

eInvoicing

Costs are visible at ��–�� days

15–30 days

Paper Invoicing

60–90 days

Day � Day �� Goods/Services Delivered

Day ��

Day ��

eInvoicing is up to 65 days faster than paper invoicing. eInvoicing with electronic receipts is almost instantaneous.

Conclusion Tracking costs for operational and financial performance is an important but time-consuming activity. By converting from a paper process to electronic capture and management of invoices and receipts, organizations can not only save manpower by reducing manual capture and management of data, but can also significantly improve their ability to respond to changing conditions and opportunities.

The ADP logo is a registered trademark of ADP, Inc. ADP® Invoice is a trademark of ADP, Inc. and/or ADP P2P Canada, Inc. All other trademarks and service marks are the property of their respective owners. All rights reserved. ©2010 ADP, Inc. 04-3428

eInvoicing Improving Your Competitive Edge through Real-time Spend Visibility  

Electronic Invoicing ADP ® Procure-to-Pay Solutions Improving Your Competitive Edge Through Real-Time Spend Visibility Electronic Invoicing:...

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