By Thayer Stewart
The next great advancement in the digitization of the accounts payable (A/P) process will be leveraging the vast quantities of data that it makes available. Putting these data to work for the benefit of the corporation not only results in significant financial benefits for the organization as a whole, but it also elevates the A/P function itself to the "next level" in a number of ways.
Just as 2007 saw a growing number of Fortune 1000 companies and other large organizations move to electronic invoicing, this year will see those same companies moving beyond the obvious financial gains that automating the invoice process yields. The immediate attraction for these companies and for the many other e-invoicing adopters was the ability to save as much as 60 percent off the $5 to $15 that it costs to handle a single typical invoice. They also saw the value in streamlining their workflow, eliminating errors and processing invoices more quickly in order to take advantage of supplier discounts.
While these advantages do justify a migration to e-invoicing, in many ways they are only the beginning of what an enterprise can accomplish once it begins to leverage the vast amount of data that e-invoicing enables.
Making a Strategic Approach Viable
e-Invoicing sets the stage for this strategic approach. When an invoice is sent electronically, all data on the invoice become easy to manipulate and utilize. That includes the extensive line-item detail that accompanies most invoices and that in paper form is typically ignored due to the difficulty of capturing and applying it.
Gaining visibility into this type of detail — for example, to make sure employees are buying from the right suppliers and that suppliers are charging the negotiated rates — is the next step in the procure-to-pay cycle.
In a paper-based invoice environment, the task of extracting line-level detail (with product description, part numbers and prices) has been so overwhelming that it hasn't been attempted on any significant scale. No company wants to employ enough clerks to log every invoice item just to be sure that the invoices are in line with agreed pricing and other contract stipulations.
Now that technological and business case considerations have advanced to the point where companies can much more easily and cost-effectively receive the majority of their invoices electronically, it becomes possible to implement systematic approaches to auditing invoices in real time to ensure compliance. In the past, companies have had to rely on occasional audits as their best method of managing the financial aspects of their negotiated contracts. The auditors analyzed the invoices, looked for contract-invoice disagreements and then worked with the company to collect refunds on any overpayments to suppliers.
Gaining momentum is the idea of joining e-invoicing with contract management systems to ensure price compliance from vendors. As early as 2009, we may see this type of joint application become widespread. Among its benefits:
- Enabling comparison of invoices to specific contract terms to ensure expected gross margins.
- Allowing companies to capture missed credits, cash discounts and allowances, and to prevent duplicate payments.
- Detecting fraudulent vendor activity based on invoice attributes such as consecutive invoice numbers, low-dollar invoices, etc.
- Performing spending analysis to give buyers and the procurement staff better leverage in sourcing contracts and deals.
- Confirming diversity spending guidelines across the supplier base.
Line Item Detail and the Contract
The major obstacle has always been invoice detail. If an office supply company sends an invoice for $250 with a dozen line items noted, most companies will log only the $250 total amount. It simply hasn't been cost-effective to break out all the detail.
As a result, that eliminates any chance of determining whether the per-box prices for paper, or the per-carton prices for paper clips, for example, are being accurately represented. This is where e-invoicing and the contract management application could assure transaction compliance.