Five Best Practices for Successful A/P Automation

Networking, nodes, handshaking and protocols are words we hear during data integration projects. These technical terms highlight the underlying principles that can make or break your accounts payable (A/P) automation project. If you can’t identify addresses or format messages correctly, exchanging information is time-consuming at best; in the worst cases, messages are lost or undeliverable.

Taking a moment to consider the value of strong networking and relationships highlights best practices for A/P automation:

Maintaining accurate contact information.

Providing visibility to external trading partners.

Tracking each exchange throughout your organization.

Using workflows to route information.

Measuring the results.

Expediting reconciliation and controlling the process of payments to vendors is an enterprise-wide process that leverages relationships within your department and business, and outside your four walls.

1. Clean Up that Rolodex

How does your organization maintain vendor data? Software and processes will not solve a problem inherent in many organizations where data have been added over time. One vendor may be entered into your accounting and procurement systems multiple times, with slightly different but overlapping data. M&A and organization changes for the vendor and the receiving organizations compound the problem. Your A/P automation project relies on being able to quickly route receipts of goods and services and payments to vendors and service providers.

Developing and maintaining a vendor master file through a concerted master data management (MDM) process is key to the entire procure-to-pay process flow. Any good relationship requires knowing certain key facts about each party – address, contact information and the payment terms. Business organizations may act as both vendors and customers; suppliers can be internal to your company or external vendors. Look across the full range of transactions to identify all entities that should be part of your vendor master file.

The data model identifies the vendor and a vendor definition, a static record of factual information. Next, consider the many touch-points to the vendor record and how the information flows throughout your A/P process. Interfaces that allow vendors to enter and maintain their own data and route these data for approval will speed both the initial supplier onboarding and maintenance of the vendor record over time. A strong network relies on an up-to-date list of contacts and addresses; your A/P automation effort relies on up-to-date information on your trading partners.

2. Provide Visibility to All Stakeholders

Portals that allow vendors to quickly check on the status of their own orders save time and effort handling calls. Expectations for retrieving data have jumped dramatically, and your stakeholders likely now expect that researching the status of an order and the associated payments should be as easy as searching for movie times on the Internet.

Paper-based systems cannot achieve the standards for record retrieval, nor can they meet goals for quickly retrieving data for compliance audits. Distributed organizations with multiple sites lose valuable time and energy scanning documents or sending paper to another facility for processing. Replacing mail and fax with paperless systems is a critical step towards visibility to each document throughout the A/P processing cycle. Providing all parties quick access to the relevant information, while considering security and privacy, builds trust across the network.

Past B2B efforts have relied on setting up electronic data interchanges (EDI) to transmit data. One option gaining traction is Web-based forms to select a shipment and enter the corresponding billing information. These forms are often easier to implement. Instead of a complex data integration project involving both parties, onboarding new training partners requires providing them a Web page address and a set of instructions for entering and validating the data.

3. Provide Enterprise-wide Visibility

Each invoice represents a trade of cash in return for goods and materials received; this exchange is at the heart of each A/P transaction. Identifying what was purchased, the approver and general ledger account to debit for the material or service is critical. Linking the invoicing process to receiving and quality collection process flows reduces disputes downstream if receipts are corrected or deviations are found during a quality testing process. Tracking amounts credited to your organization for returned or substandard material should be included in the solution.

Track, trace and control this exchange throughout the procure-to-pay cycle. Supply chain executives may focus on and automate the most typical types of exchanges as a first step. While doing so, consider the full range of transactions performed within your value chain. Some organizations process invoices that do not have a corresponding purchasing document – these “non-PO” invoices often require special handling. Billing for consumption of vendor-managed inventory; maintenance, repair and operations (MRO) activities; calculating fees for disposal; and freight costs – all these can take up a disproportionate amount of time and effort.

Reconciliation of invoices involves more than purchasing materials in today’s complex value chain. Ancillary processes include outside processing and contract manufacturing. You may use merge-in-transit and drop-ship processes to deliver a completed product to the customer. Integration with third-party logistics (3PL) providers and the ability to invoice for freight, taxes and custom fees across multiple borders are keys to a strong solution that will deliver dividends for years to come. Consider strategic initiatives in other areas of your organization, and ensure your model is flexible enough to accommodate requests and future growth.

4. Use Workflows and Rules to Route Documents and Schedule Payments

Workflows embedded within A/P automation systems route each document and specific line items within the document for rapid disposition and approval. The majority of requests can be quickly matched to a valid receipt, approved and routed for payment. The exceptions can be flagged and routed to the appropriate persons for action. An audit trail clearly identifies who viewed, updated and approved or sent documents. Robust workflows accommodate changes in personnel or availability, sending documents to a backup or manager if a party is not available or doesn’t respond within a defined timeframe.

Workflows enable efficient reconciliation and approval, and enterprise-wide visibility provides quick access to the supplier payment terms. Workflows can further help your A/P team strategically schedule payments instead of reactively paying invoices before penalties apply. A/P automation allows your organization to capitalize on discounts and make the best use of working capital.

5. Continually Benchmark and Re-measure Impact and Results

Documenting the cycle times and looking for the processes that consume the most time and resources will bring problems to the surface. Organizations classified as “best-in-class” by Aberdeen Group were 96 percent more likely to measure the invoice processing cycle time than their peers, corresponding to significant decreases in cost and time expended per invoice. (See “E-Payables Benchmark 2009,” Aberdeen Group, September 2009.) Incorporating business intelligence (BI) and business activity monitoring (BAM) tools in the A/P automation initiative provides visibility to performance metrics used to measure and fine-tune processes.

A/P projects cannot simply work to speed up payments; this would potentially create downstream problems with accuracy. Thus, your A/P automation project must be an enterprise-wide initiative, working with MDM initiatives to maintain an accurate vendor master, speeding up reconciliation, so that payments are matched to the order and up-to-the-minute receiving data, the approver and account are identified, and the vendor payment method is quickly determined. This, in turn, allows your organization to consider cash flow and payment terms to find the optimum date for scheduling payment. Achieving optimum results starts by identifying your network of partners, providing visibility to internal and external stakeholders, tracking and controlling exchanges, automating processes so each event receives the appropriate response and, finally, measuring results to look for opportunities for continual process improvement.

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