By James Tucker, Global Director of Marketing, Financial Solutions, Ariba Inc.
In recent decades, companies have devoted significant time and resources to improving the efficiency and effectiveness of their accounts payable (AP) organisation. And in the current economic environment where cash is king and companies are looking for any and all ways to free up and maximise it, many are stepping up their efforts. But what do they need to succeed?
With large-scale implementations of ERP and EDI systems, AP has certainly become more efficient. Yet most finance executives remain dissatisfied with where things stand. Why? There’s still too much paper and manual processing, filing and matching involved to achieve the kinds of efficiencies and savings that they need to weather changing economies.
To remedy the situation, many are moving to e-invoicing and leveraging technology-based solutions that enable them to execute it. Such solutions attack the inefficiencies that exist between companies – such as sending and receiving invoices and payments - to enable more effective collaboration. Delivered in the Cloud, they can be easily shared and accessed among trading partners, allowing for common business processes in areas like billing, treasury, and AP.
Yet the invoicing process remains flawed. AP teams still spend inordinate amounts of time and effort processing paper invoices. Current studies show that one in five invoices still contains an overcharge or other exception. Why? Because many companies are attempting to tackle the problem through digitisation alone. And it’s clear that this only leads to bad invoices being delivered faster.
"With an increasing sense of urgency, companies are automating the invoice management process. But many are simply passing bad invoices faster. A new breed of cloud-based solutions ensures that only the good ones get through."
So what’s the solution? Smart Invoicing. With smart invoicing, e-invoices undergo an automated validation process at the point in which suppliers submit them, improving accuracy, eliminating errors and rework so that only valid and approved invoices reach AP. Companies adopting this approach are achi
eving upwards of 98% touchless invoice processing or higher as validated invoices post directly to ERP systems.
When done right, smart invoicing can deliver process efficiency gains, typically measured in terms of the number of invoices processed per full time equivalent staff. Organisations with over 10 full-time employees dedicated to processing invoices have reported as much as 70% cost take out.
Other hard-cost savings can be generated through the capture of early payment discounts. Many companies simply cannot process their paper invoices fast enough to capture early payment discount savings – which can be significant. With smart invoicing, they can not only capture these discounts, but ensure they materialise by avoiding exceptions that delay invoice approval speeding up the invoice cycle time. Some companies using a smart invoicing approach are already capturing almost £1m in annual discount savings.
Smart invoicing initiatives also have a positive impact on working capital. With improved visibility and control, finance organisations can avoid paying invoices upon receipt and pay to term which will stretch their payables and have a positive impact on DPO. Many companies are able to use their growing cash reserves and cash freed up from smart invoicing efficiency gains to fund discount programs. These savings are used to drive operational improvements and also helps provide much needed liquidity to supply chains that are struggling under today’s tight lending practices.
Without question, smart invoicing can help AP organisations take their performance and efficiency to the next level. But identifying the right solution is absolutely essential to success. Smart invoicing is about more than transforming paper documents into electronic ones. To drive results, a solution must:
- Eliminate (not automate) errors at the source
- Permit suppliers of all sizes to easily and inexpensively connect
- Dramatically reduce the quantity of paper handled, stored and matched
- Improve supplier collaboration
- Match purchase orders, receipts, and contracts to invoices
- Accommodate varying degrees of supplier technical sophistication
- Allow 100 percent capture of invoice volume
- Improve compliance across contracts, preferred vendors, and global e-invoice tax regulations
- Provide visibility into cash flow
- Remove latency in invoice and payment processing
- Reduce the volume of supplier inquiries
- Offer multi-lingual, multi-currency capabilitie
- Provide global, localised support for a company and its suppliers
Many companies are finding such solutions in the cloud. “A unique strength of on-demand and cloud solutions is the integration and validation at the business process level, of pulling together many disparate elements of a process -- but with the proper governance along the way,” said Dana Gardner, Principal Analyst, Interarbor Solutions. “Managed automation across all the elements of the process makes invoicing work far better. And it leads to even further benefits up and down the supply chain.”
Patrick Ogborn, Vice President, eCommerce, OfficeMax, an early adopter of eInvoicing solutions, agrees. "Implementing an electronic invoicing process has allowed OfficeMax and its customers to reduce purchase order and invoice processing errors. And this has enabled tighter integration and collaboration with our customers."
As OfficeMax has found, smart invoicing isn’t just about streamlining AP or accounts receivable. With the right solution in place, companies can drive a more collaborative and efficient commerce process through which they can improve performance and profits and ultimately, their advantage in the marketplace.
James Tucker is Director of Marketing, Invoice and Payment Solutions at Ariba Inc, responsible for all aspects of product marketing for Ariba’s on-demand invoice and payment services, discount management, and working capital optimisation. Before joining Ariba Tucker was vice president, product marketing at JPMorgan and director, product marketing at Xign Corporation. Tucker holds a B.S. Computer Science from Plymouth State University and an MBA in Finance and Marketing from St. Mary's College.