Using invoice line-item visibility to your advantage
Accelerating the approval of invoices has proven to be a difficult task for most finance departments despite the recent emphasis on technology solutions to combat labor intensive, paper-based processes. In a recent research report published by Boston-based research firm Aberdeen Group, 83 percent of domestic and 86 percent of international organizations continue to receive bills in paper format. On average, the firm's industry benchmark reveals that paper invoices take 27.6 days to process. Part of the reason invoices take such a long time to go from receipt to approval is the hierarchy of approvers through which the invoice must pass.
When you consider that very few invoices these days contain just a single line item, the notion that it takes nearly a month to process paper invoices doesn't seem so far fetched. Multiple line items typically lead to multiple cost centers, which inevitably lead to multiple approvers. Without the ability to capture those individual line items and interject them simultaneously into the workflow queues of the required approver's finance departments can only sit and wait as invoices move from desk to desk for approval.
In a business climate demanding greater visibility and control of expenses, a growing number of finance directors have sought alternative approaches to streamlining the payables process. Most of these alternatives are built around solutions ranging from in-house data capture and automation tools to the paperless workflow of electronic invoice exchanges. But the key factor in accelerating the approval of invoices lies in the power to efficiently route, and track, invoices at the line item or cost-code level, aided by an automated, non-linear workflow.
Getting Down to Business
In the absence of industry standards for electronic invoicing, the costs of traditional Purchase-to-Pay cycles for businesses processing a significant number of invoices each year can add up quickly. In an attempt to reduce AP transaction processing costs, some organizations have looked to purchasing cards or “p-cards”. While p-cards have been quite successful in driving efficiencies for small-ticket items, they are generally regarded as a modern day equivalent of 'petty cash' because they fail to provide the detail required for proper GL coding. And at the end of the day, p-cards don't eliminate paper from the process.
Likewise, given the tendency of low-volume vendors to shy away from submitting invoices electronically, customers of invoice exchanges — offering captive vendor networks and facilities for uploading invoice data online — are frequently unimpressed by the limited efficiency gains realized. For network vendors, the hope is that once a supplier is driven to submit electronic invoice data files for one client, that "connection" can be leveraged for other payer organizations in a growing network of both buyers and sellers. But at best, only a small fraction of vendors — on average between 30 and 35 percent — ultimately subscribe to these networks. With such a small percentage of vendors participating, customers of these exchanges find it difficult to fully realize the process efficiency and cost reduction potential for e-invoicing initiatives.
Managing Today's Paper Reality
As paper-based trading remains the norm for the majority of business-to-business transactions, the first step to increasing line-item visibility and control is the ability to efficiently and effectively process detailed invoices, both paper and electronic. According to a 2004 study by The Hackett Group, an Atlanta-based global strategic advisory firm, the average cost to process an electronic invoice line item is about 15 percent of the cost to process a paper-based invoice. For the average company, electronic processing amounts to $0.58 per line item, compared to $3.84 per line item for a paper-based invoice.