Companies are paying renewed attention to spend, cash flow and working capital in today's economic climate. Much of the information about how and where they are spending their money and details on their outstanding liabilities reside in the Accounts Payable (A/P) department. In A/P, companies can not only see what they are actually spending, but they can also identify potential opportunities for cost savings.
But what if A/P processes are inefficient and the information is inaccurate or out-of-date? Under those circumstances, it's very difficult for management to really see what's going on. Unfortunately, that is how many businesses are operating today.
Despite the many benefits organizations can gain from A/P automation, many are still finding themselves stuck in "old world" processes, where paper invoices are handled entirely manually in paper format or are scanned and processed manually. Even though many companies are interested in moving to the "new world" of e-invoicing and process automation – where they can have large volumes of invoices passing straight through their systems without any human intervention – statistics suggest that this "new world" is far from the current reality.
The first step in an automated A/P workflow is e-invoicing – the electronic exchange of invoices between supplier and buyer – and a key area of interest for organizations. A recently released survey, "e-Invoicing: The Buyer A/P Perspective,"1 conducted by IAPP-TAWPI2 and sponsored by my company, Basware, found that 80 percent of companies recognized the importance of e-invoicing to their organizations. They cited improved processes, increased accuracy and lower costs as the leading reasons to pursue e-invoicing. Eliminating paper and speeding up transactions were also important considerations.
Despite their interest, the reality is that many companies are still in the early stages when it comes to e-invoicing, and business payments and invoices continue to remain largely paper-centric. According to the survey:
- Only 19 percent of large businesses receive more than 61 percent of their invoices electronically.
- Only 26 percent of the companies surveyed fully automate their invoice receipt and approval process.
- More than half of the companies surveyed continue to manually capture invoice data and have a manual review process.
- Of the respondents that started an e-invoicing program in the past year, only 2 percent receive more than 40 percent of their invoices electronically.
The report uncovered key barriers that are impeding broader adoption of e-invoicing, including insufficient business system capabilities of buyers or their suppliers, resistance from suppliers, inadequate funding, and the need to overcome the learning curve.
To overcome resistance, savvy companies are collaborating with suppliers to get them onboard with e-invoicing adoption. A key best practice is to ensure that suppliers see the added value that e-invoicing provides them, such as increased invoice accuracy and faster payment. While some companies are making it mandatory for their suppliers to submit e-invoices, it is important that they make sure the process is easy and convenient to encourage supplier participation.
Other invoice workflow processes are similarly lacking the level of automation needed for Finance departments to function properly. A related Basware survey, "Lost in Transaction,"3 studied 550 Accounts Payable departments around the world, and found that weaknesses in A/P processes are costing companies money.
According to the study, more than one-third of companies surveyed had not paid suppliers on time due to invoice and cross-departmental errors. In the previous 12 months, 30 percent of the companies missed early payment discounts, while 27 percent incurred late payment fees.
A majority of A/P departments indicated that invoice processing could be sped up, and more than half thought it could be more accurate. According to the survey results, human errors, by both the A/P and Procurement departments, are the biggest cause of accounts payable errors, yet many are still bound to manual processes. More than one-third still handle invoices manually or through a spreadsheet.
Breaking Free from Manual Processes
A majority of the companies in the "Lost in Transaction" study believe that moving toward higher levels of automation will improve profitability, and think that A/P automation is a reliable method for reducing payment and accounting errors.
Process automation provides significant business benefits and gives A/P departments peace of mind through increased visibility and control. It not only helps A/P increase invoice accuracy and decrease late payments, but it also helps the organization achieve broader improvements in cost savings, business processes and capital management.
Another factor identified by one-quarter of the companies as a contributor to financial errors is the lack of communications between the A/P and Procurement departments. If these departments can integrate processes and systems, they can have full visibility and efficiently share knowledge and resources online. Increased collaboration and integration not only brings greater communication, but it also enables companies to reduce errors and more effectively manage finances.
Finance departments need to have dynamic and flexible processes to effectively manage the constant flow of cash through an organization. Against this backdrop, A/P automation should be regarded as an ongoing evolutionary investment that will help companies increase accuracy, save time and money, and give them control over finances, especially now when, more than ever, cash is king.
- The survey, conducted in June 2010, polled 188 members of IA/PP-TAWPI. Respondents were primarily A/P managers, and nearly half were from large companies with more than 2,000 employees.
- International Accounts Payable Professionals (IAPP) is internationally recognized as the guidance-setting association for the accounts payable profession. TAWPI is The Association for Work Process Improvement.
- The Lost In Transaction study was conducted for Basware by independent research company Loudhouse during May and June 2010. The study polled 550 Heads of Accounts Payable from organizations around the world with between 1,000 to 50,000 employees.