by Ted Ardelean | 8/25/14
Our previous posts provided solutions for the most common challenges associated with invoice intake and invoice approval and processing – the first two stages of the accounts payable (AP) process. Traditionally, these stages are incredibly time consuming: requiring invoices (typically in paper format) to be routed from the buyer to the AP department; the invoice data to be manually converted and entered into the organization’s ERP system; the invoice to be validated by line-checking items against company data; and, finally, any discrepancies to be resolved before the invoice is approved for payment.
To help streamline some of these issues, the posts included recommendations on centralizing invoice receipt so they arrive directly to the AP department. Other suggestions included accelerating the data entry process through imaging and data capture and extraction technologies, and implementing automation software to route invoices for approval and discrepancy resolution, which enables “straight through processing” (not requiring human intervention). By taking these measures, our research indicates that companies can reduce the cost per invoice by 29 percent and the invoice cycle time by 31 percent, and process 117 percent more invoices per full-time employee per month.1
However, the invoice payment stage offers its own set of challenges. Many companies large and small struggle to pay invoices on time, which often incurs late fees and removes the possibility of capturing vendor discounts. According to the Association for Financial Professionals (AFP), 50% of all sent and received business bills in 2013 were made using paper checks, which is not only time-consuming but can also make companies more vulnerable to fraud: the AFP reports that 87% of attempted or actual business payment frauds in 2012 involved paper checks. Despite the risks associated with paper checks, just 20 percent of companies make the majority of their payments electronically, according to the AFP.2
Fortunately, by implementing the recommendations outlined in our previous two posts – such as using an automated front-end paper-to-digital conversion process – companies have already taken valuable steps toward alleviating the challenges associated with the invoice payment stage. Additional options include using the Automated Clearing House payment system or purchasing cards to complete payments, which generally carry less risk of fraud than paper checks do. Companies can also work with their suppliers to establish a dynamic discounting program, which accelerates payments in exchange for a reduced price or discount.
One of our clients, a leading biopharmaceutical company, offers one example of the tremendous impact imaging, data capture and extraction, and workflow automation technologies can have on the invoice payment stage. Because of inefficiencies in this company’s AP department, it struggled to pay suppliers on time and accurately. Late payments strained the company’s relationships with its vendors, who began asking for advance payment and threatened to disrupt the company’s manufacturing production schedule. As a result, the company had incurred a continuous three-thousand-invoice backlog.
Working with this company, we implemented the same process outlined in this series: centralizing invoice receipt, automating paper-to-digital invoice conversion, flagging invalid invoices, and processing exceptions and collecting necessary approvals in adherence to the company’s policy. By following these steps, the company successfully reduced its monthly backlog from 3,000 to 50 invoices, increased on-time payments by 22 percent, and reduced average non-exception invoice cycle time from five days to just a day and a half. Supplier calls for advance payment vanished.
In today’s competitive business climate, ensuring that a company’s AP department solves issues rather than creating new ones is more critical than ever. Although the lifeblood of any AP department is the people, even the most skilled AP professionals are still susceptible to error and have a finite level of productivity. There are no magic bullets, but thanks to advancements in imaging, data transfer and automation technologies, companies can effectively transform their AP departments from burdens into assets.
1 Survey data from Canon Business Process Services (2013) “High-Performance Accounts Payable: Three Key Drivers to Success.” White paper is available for download at http://cbps.canon.com/resources/index.aspx
2 Survey data from the Association for Financial Professionals (2013) “2013 AFP Electronic Payments Survey.” White paper is available for download at http://www.afponline.org/epaymentsSurvey data from Canon Business Process Services (2013) “High-Performance Accounts Payable: Three Key Drivers to Success.” White paper is available for download at http://cbps.canon.com/resources/index.aspx
Ted Ardelean is a marketing director for Canon Business Process Services, Inc., a leading provider of managed services and technology that enable organizations to improve operational efficiency while reducing risk and cost.
Latest posts by Ted Ardelean (see all)
- Turning Hidden Document Data Into Value That Can be Mined - September 1, 2015
- The Case for Outsourcing Accounts Payable - March 5, 2015
- Optimizing the Three Stages of Accounts Payable, Part Three: Invoice Payment - August 24, 2014