In the ideal automated environment, contracts would be codified and system-readable, and as invoices are received electronically they would be compared with the contract. Only the exceptions would require any human intervention.
Tremendous opportunities exist in an environment where e-invoices can be cross-referenced to ensure transaction compliance. This is where best-in-class global shared service centers and organizations are heading, since the ability to manage invoices back to deal terms is vital in a competitive market.
An additional benefit of this intertwined data environment is its capacity to build bridges between the accounts payable and procurement departments. As the two departments work more closely together, they can identify additional contract opportunities, enhance the corporate relationship with suppliers and benefit the organization in ways that go far beyond low-cost purchasing and invoice processing.
Now Discounts Make Sense
Until now, for many companies it made little sense to attempt to negotiate additional early payment discounts, since they weren't in a position to process payments on invoices quickly enough. In an electronic environment where as much as two weeks can be shaved off the A/P process, that is no longer true. This moves the A/P department into a position where it can help to drive the establishment of additional discounts.
The same is true of additional volume-based discounts or other contractual arrangements that benefit both the company and its suppliers. With an increased ability to manage these arrangements, thanks to the availability of the required data, A/P can be a driving force here as well. As the contracts can be managed in near real time, special arrangements are far more practical than in an environment in which contracts are only validated once a year through an elaborate audit.
Once the heavily clerical and administrative aspects of the A/P process are reduced, the A/P department has the opportunity to focus on more strategic areas, particularly treasury management and audit compliance. Because A/P departments have been historically transaction-oriented, strong leadership and a degree of reeducation are necessary to transform A/P into a function that is more strategic and that adds more value to the corporate bottom line.
By shedding the "clerk" mentality that can result from a transaction-focused process and moving to take advantage of the strategic role that electronic invoice data have made possible, the A/P department can assert itself as a key player in the corporate financial structure.
Moving A/P to the Fore
Driven both by Sarbanes-Oxley considerations as well as a desire to streamline their processes, companies want to move the A/P process away from a back-end paper-based or imaging environment. Corporate controllers are increasingly declaring such environments unacceptable because they keep liabilities hanging for an indeterminate amount of days and provide a less-than-satisfactory audit trail.
The ability to leverage invoice data is one of the most powerful arguments for a move to e-invoicing. It provides a real-time window into an organization's financial obligations and cash flow. At any given moment, the organization is able to determine its obligations relative to its available and anticipated cash on hand.
There are benefits both for buyer and supplier companies. As Forrester Research noted in an October 2007 electronic invoice presentment and payment (EIPP) report: "Treasury can determine when and how each invoice will be paid if it has a complete picture of all liabilities, including invoices under dispute or query. Analytics (can) identify invoices that are eligible for early payment discounts and to forecast cash requirements for payment of validated invoices. Suppliers can see which invoices have been approved and can use this information to get advance payment by supply chain finance providers at a better rate than normal invoices."
|About the Author: Thayer Stewart is vice president of business development and marketing for OB10, a global electronic invoicing solution provider. He has more than 15 years of industry experience, including 12 years with American Express. More information at www.ob10.com.|