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ADP速 Procure-to-Pay Solutions

How to Choose an AP Automation Solution

WHITE PAPER

Balancing Risk with Reward


How to Choose an AP Automation Solution

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Executive Summary Businesses must do more with less – and accounts payable (AP), like other departments, is under enormous pressure to run more efficiently. As AP managers search for ways to cut costs while achieving higher efficiency, many are considering AP automation initiatives such as electronic invoicing (eInvoicing). The research is clear: eInvoicing can cut costs dramatically and free up time for higher-value work. Unfortunately that’s where the clarity usually ends. While true eInvoicing solutions do offer dramatic improvements, others – including scanning-based solutions – still require some level of manual, paper-based processes. They are tempting because they offer familiarity, but their apparent advantages have to be balanced carefully against higher costs associated with lingering manual effort. A decision now in favor of full automation can reduce your AP costs by more than 80 percent as compared to paperbased solutions, while increasing the speed of AP processing by a full 80 percent as well1. Scanning-based solutions can deliver less than 50% of these savings2, so determining the right solution and the right balance of automation is critical.

Introduction Automating and improving AP processes is not only important for cost-saving reasons. It’s vital for managing cash flow and optimizing financing programs. Financial decision-makers, while demanding that AP focus on high-value activities such as contract compliance and price verification, also want to understand how much money is being spent and where it’s being allocated. With market and financing dynamics changing, they need this information faster than ever. Now is not the time to waste energy, money and talent on manual processes. Nor is it the time to take on technology projects with a dubious ROI. Now is the time to pursue strategies that reduce costs and improve your ability to drive more money to the bottom line – strategies that will pay out in months, not years. AP automation is just such a strategy.

Scanning Solutions vs. True eInvoicing If you’re looking at implementing some form of eInvoicing or AP automation project, there are many options. The two main categories include scanning-based solutions (scanning + workflow, sometimes with OCR for data capture) and “true” eInvoicing. With scanning + workflow, no suppliers are connected electronically. Paper is still received in the mailroom and must be manually scanned by buyers. Since scanning + workflow does enable routing and approval workflow, it does provide partial automation.

The Word on Scanning

In true eInvoicing, suppliers submit invoices electronically. Larger suppliers may produce electronic invoices directly from their ERP. Smaller suppliers typically submit through web-based portals using online forms. Either way, buyers receive a true electronic invoice. Then they either use a web-based routing and approval system or they process invoices in their ERP system. Invoice receipt, approval and even dispute resolution are all handled online.

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Requires manual intervention for tagging or indexing

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Requires manual matching with PO or catalog

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Still takes up to five days for mail and initial processing

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Can make early payment discounts harder to achieve

The main points to remember are that with eInvoicing, suppliers are connected electronically (no paper) and buyers and suppliers interact electronically. There are no phone calls or emails for status checks or disputes. Everything is handled online, an enormous advantage.

1 Aberdeen Group, “E-Payables: Invoice Receipt and Workflow,” May 2009 2 Presentation by Devon Energy at P2 Energy Conference, October 2009

Scanning can enhance workflow but unfortunately it’s still paper-based, which means it’s slower. Because it’s more manual, it can be prone to errors and time delays. It also:


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Scanning + Workflow Advantages & Limitations Advantages It’s not a big departure from the status quo The approach is familiar because it mimics paper workflow.

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There is no supplier on-boarding No buy-in from suppliers is required since nothing changes for them. They still send paper invoices.

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It enables some process automation Some systems do provide electronic routing and approval workflows along with the scanning system.

Limitations ▸▸ It’s still manual There is no avoiding the biggest issue: Scanning + workflow is still paper-based and manual. When invoices arrive in the mailroom, they still have to be opened, scanned and indexed. If OCR (Optical Character Recognition) is used, manual data entry is reduced but OCR systems are never foolproof and require manual reviews of anywhere from 20% to 50% of invoices to ensure data accuracy. Thus, even the initial invoice receipt and data entry processes are still very manual and more prone to errors.

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It’s difficult to capture early payment discounts Although many scanning solution vendors claim they help their customers capture early payment discounts, most require up to five days for an invoice to go through the initial scanning and indexing process. If you’re trying to capture a 2/10/net 30 early payment discount, these systems make it very difficult to get the invoice to approvers and then into the ERP for payment within the remaining five days.

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No online dispute resolution A key driver in cycle time reduction is the elimination of email, telephone tag and lost or duplicate invoices, common when an invoice is disputed. With scanning + workflow, when an invoice needs to be disputed, buyer and supplier must revert to a manual process. They have no choice, because the supplier is not connected electronically in any way.

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No line items With most scanning solutions, all the buyer captures electronically is the supplier’s name, the invoice number and date and the total amount of the invoice. Some scanning providers will claim that they can deliver line items with OCR, but in reality this is extremely expensive and labor intensive. The result is no line items for electronic matching with POs or against contracts. This means more manual intervention because the approver has to review the scanned image and then revert to a manual process to accomplish any sort of price and quantity matching.

eInvoicing Advantages eInvoicing Advantages Eliminating paper reduces costs, adds speed and efficiency and reduces errors. Without scanning, organizations achieve much faster throughput, enhanced productivity and faster business decisions based on more accurate data.

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Eliminate data entry With eInvoicing, the supplier does all of the data entry for you. If it’s a large supplier, the invoice will come directly out of their ERP system. If it’s a smaller supplier, they’re usually only too happy to enter the invoice through a web form, especially if it means they will get paid on time. You completely eliminate data entry into your AP system.

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Eliminate vendor queries Studies show AP departments spend up to 30% of their time responding to calls from suppliers and their internal staff. And of that 30%, 15% is for invoices that are already paid3! eInvoicing eliminates this part of AP’s workload.

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Capture ALL early payment discounts With eInvoicing you receive the invoice electronically for your coders and approvers instantaneously, so cycle time for approval is drastically reduced. Less than five days for approval is common, so there’s no reason to miss a discount again. Moreover, many eInvoicing systems provide specific functionality (such as alerts) to notify users of invoices needing immediate approval.

3 PayStream Advisors webinar, October 2008


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Enable online disputing Unlike scanning solutions, eInvoicing enables buyer and supplier to connect in real-time. All transactions and communications are instantaneous, including disputes. In addition to reduced cycle time, only one copy of an invoice passes between buyer and supplier online. There’s no reason to “send another invoice,” which eliminates duplicate invoices and payments.

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Capture line items You get all line items, since the vendor enters all of the line items for you. With true electronic line items you can match against POs, receipts, and even price lists for non-PO invoices. You get the “Holy Grail” of invoicing – automated approvals.

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Enable spend capture The chart of accounts in your ERP system was likely designed to meet the needs of Finance. However, Procurement and Operations staff typically need to look at spend in a different way. With the receipt of line items, you now have all of the detail that Operations and Procurement need for their specific analyses. Some eInvoicing systems even come with spend analysis engines to help.

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Create a platform for collaboration One of the key advantages of eInvoicing is that it connects buyer and supplier in real time. This means you can do things you simply can’t do in the paper world, such as Dynamic Discounting. This is the ability for buyers to offer sliding scale discounts “on the fly” to their suppliers, and then have the system automatically calculate the appropriate discount depending on when the supplier wants to be paid.

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Improve supplier relations Another “softer” but significant benefit: Your suppliers will love you because they will save time and money too.

eInvoicing Requirements ▸▸ It requires supplier on-boarding Suppliers may be nervous at first (though they will quickly find it is easier than they think). The best solution is to outsource this task to your eInvoicing provider. They have a great deal of experience in bringing vendors of all shapes and sizes on-board.

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Broader internal buy-in is needed You’ll need internal buy-in for any solution you implement, including a scanning solution. The difference with eInvoicing is you will likely have to broaden your stakeholder group beyond AP, since the benefits of eInvoicing extend to Procurement and Operations, too.

Hybrid Solutions: The Best of Both Worlds? A new breed of scanning + workflow solutions is coming onto the scene. In these new solutions, the supplier begins the process by scanning the invoice, but then, rather than printing and mailing the invoice, they submit the invoice electronically through a web-based workflow. You receive the invoice instantaneously and can then process the invoice (code and approve) without having to do any scanning or data entry. Since you and your suppliers are connected in realtime, there’s no need to revert to a manual process if an invoice needs to be disputed. You simply dispute the invoice online, and the supplier can then modify the invoice as required and resubmit. Hybrid Solution Advantages The supplier does the scanning for you Because the supplier scans the invoice before submission, you can completely eliminate scanning on your end and enjoy headcount and infrastructure savings associated with this task.

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The supplier is connected electronically This means that you and the supplier enjoy a shared workflow, so there are no lost invoices, no manual processes in the case of a dispute, and instantaneous delivery and visibility.

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The supplier can see the invoice status Unlike traditional scanning + workflow solutions where the supplier is completely disconnected from your approval process, in a hybrid solution, the supplier can see the status of the invoice online, eliminating supplier queries into your AP department.


How to Choose an AP Automation Solution

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Implementation flexibility and upward compatibility These solutions typically provide several options: you do the scanning; the supplier does the scanning; or the supplier submits a true electronic invoice. But the key is that whatever option you choose, all invoice processing is done through the same workflow. This means that you can tailor your implementation plan according to your supplier demographics. For example, perhaps your highest volume suppliers submit true eInvoices, your medium sized suppliers scan and submit electronically, and for that small group of suppliers that only submit invoices occasionally, you scan the paper invoices that arrive through the mail. As your supplier demographics change or your organization grows, you have the ability to vary the implementation, but ensure that your approvers are only ever dealing with one workflow.

Hybrid Solution Limitations Still no line items Because you’re still fundamentally dealing with an image of an invoice, you won’t capture any line items. So this is the point where you need to consider whether or not line items are required to accomplish your goals. Do you need PO/contract matching or line item capture for spend analysis? If these are in fact value drivers for your organization, you should consider true eInvoicing, since it is the most economical method for capturing invoice line item data.

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Still requires some supplier on-boarding Because you will need to ask your suppliers to change their business process slightly, you or your eInvoicing provider will still need to do some on-boarding. The actual change for the supplier is fairly minor – they will need to login to a web-based system and attach a scanned invoice – but it is a change nonetheless. The best hybrid solutions offer supplier self-registration which makes the on-boarding process quite simple. But, this is functionality you will want to assess if you are considering a hybrid solution.

In-House vs. Outsourcing Another consideration when implementing eInvoicing will be deciding on doing it in-house or outsourcing to an eInvoicing provider. In-house gives you control over the solution and enables you to customize it to your particular needs. However, that control comes at the risk of considerable time and expense. The startup costs can be high vs. SaaS (Software-as-aService)-based turnkey solutions, and the time to implement will probably be much longer. In addition, SaaS-based providers upgrade their software regularly based on input from multiple customers. This means you keep pace with technology and market innovations by being part of a broader user community. Another consideration: Tapping into an established SaaS-based provider means your suppliers may already be transacting through the SaaS solution. Also, with an outsourced provider, you get the necessary software and hardware infrastructure, technical support and maintenance taken care of, and the SaaS provider delivers scalability to accommodate your growth. If you do choose to outsource, choosing the right eInvoicing provider is an important element of your success. The right provider should bring to the table a wealth of experience gleaned from implementing other companies. You will want to check their throughput volume and references to verify their ability to handle the scope and size of your organization.

Recommendations for Success True eInvoicing has been around long enough for best practices and leading vendors to emerge. Following are some concrete steps to success:

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Determine your value drivers and choose the solution that fits those drivers. For example, perhaps one of your key goals is to achieve automated approval through PO or contract matching. Then you’ll need to move to true eInvoicing to get the necessary line items. Or maybe your main driver is the elimination of data entry for AP, and you don’t see much value in capturing line item data. In this case, a scanning plus workflow solution may be a better fit.

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Settle on a system that automates the entire process, including matching, approval routing, document handling and reporting.


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Use POs for purchases where you can. For the non-PO based spend, you’ll want to price match with contracts/price lists. That way you’re reaping the benefit of checking the line items electronically for price on all invoices – a huge time saver for your approvers.

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Let the eInvoicing provider do the work for you with respect to advice on workflow and system configuration. Also, let them do the supplier on-boarding for you, since they have tools and processes already in place.

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Determine which suppliers will deliver the highest value to you (either based on invoice volume, spend, or both) and get them engaged, even if you need to offer them a short-term incentive, such as early payment, or at least make sure you pay them on time. With eInvoicing, you can pay whenever you want to.

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Encourage suppliers and internal customers to use the web for self service status reporting. Most AP departments spend 30% of their time just answering queries on status from vendors and internal staff.

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Remember that one solution may not fit all your suppliers. Larger organizations may want to connect directly from their ERP to the eInvoicing platform and smaller ones will be comfortable with web-based forms. Make sure your chosen provider can handle all types of suppliers.

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Understand that 5% to 20% of your invoice volume will likely continue to come in on paper (ad hoc purchases, vendors who send a handful of invoices per year, etc.). Make sure your eInvoicing provider can handle scanned invoices too, so your approvers will only have one workflow for all types of invoices.

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Regarding supplier buy-in, be as forceful and clear as you can be in your request to get them involved. After all, you are the customer.

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Get Procurement and AP working together. The invoicing and payment process is part of a much broader Procureto-Pay process. The highest value is driven when all stakeholders are aligned, agree to the goals of the project, and drive change together.

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Upper management support is critical, especially since this is a multi-disciplinary process that typically involves Procurement, Finance and Operations.

What to Ask Service Providers It doesn’t take long to separate the prime contenders from everybody else. Here’s what you should ask:

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Can their solution handle all your required document types. POs? Receipts? Invoices?

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What is their user base – buyer and seller?

Does it handle POs and non-PO invoices? What about services invoices? Is the matching at the header level, line level, against a catalog or price list, against receipts? If workflow is required, how robust is it? Does it handle true eInvoices and scanned invoices in one workflow? Does is handle your various approval hierarchies and spend authorities? Does it handle coding, disputes, credits – all of the things you do in the paper world? What functionality is available to make the supplier’s job easier (eg. PO flip, invoice templates, reporting, etc.)? Ease of use for the supplier means faster supplier on-boarding. If it’s a SaaS solution, what is their uptime record? How strong are their supplier on-boarding, implementation and support teams? Can they back up their claims with references and case studies?

(Next: Summary)


How to Choose an AP Automation Solution

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Summary This is not the time to spend time and money on interim approaches that fail to provide the benefits, value and ROI of full AP automation. By choosing the right eInvoicing solution and provider, your business won’t just save time and money, it will benefit from better access to data, enabling better monitoring, planning and responsiveness to market conditions.

eInvoicing Savings ▸▸ ▸▸ ▸▸ ▸▸ ▸▸

Costs 83% less than paper 4 Much faster than paper: 1-3 5 days vs 20-45 day elapsed processing time Enables early payment discounts, saving on average .3% of total spend5 Call volume to AP reduced drastically (30% of all calls to AP are status calls6) Reduces errors

4 PayStream Advisors webinar, October 2008 5 Accenture, White Paper, “Dynamic Discounting: Transaction Cost Savings of 50% Are Not Enough” 6 PayStream Advisors webinar, October 2008

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How to Choose an AP Automation Solution  

How to Choose an AP Automation Solution ADP ® Procure-to-Pay Solutions Balancing Risk with Reward

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