Why scanning invoices will never give you 100% automation

By Jussi Karjalainen | 4th August 2014

In the current business climate, Accounts Payable (AP) automation is on the agenda for the majority of organisations. This focus is driven by a need to better serve suppliers, ensure timely payments and drive cost efficiencies in back office operations. Automation has well known benefits, but what does it really mean? And more importantly, how do you get there? What is the foundation, the number one area in your AP automation project you need to get right?

Why automation?

The purpose of automating AP is to increase the number of “straight through” transactions, rather than requiring staff to manually process invoices.  It is no longer customary to have your AP team spend their time fighting through a variety of supplier payment enquiries, getting to the bottom of duplicate payments, chasing up unapproved invoices, or dealing with other implications associated with manual invoice processing. By enabling your AP staff to concentrate on proactive work and continuous process automation you can unlock some very attractive cost benefits.

In the ideal world of AP automation, at least 90% of invoices are processed automatically, but very few businesses have reached that magic number. It is possible to achieve 90% automation, however firstly you need to understand your existing process end to end, and identify the parts that present the greatest obstacles. The strategy here is to concentrate on relevant parts and continuously remind yourself of the objective. The quality of data invoices from your suppliers typically stands out the most. You can only truly achieve the goal of automation if invoices from your suppliers are 100% accurate. Businesses that don’t achieve this tend to work on the wrong process components in an attempt to increase their automation rate. Data quality is the foundation to achieving higher levels of automation.

24-07-2014-01Best practice in AP automation typically involves aiming for an increased number of spend categories to be procured i.e. mandated purchase orders (POs). Ideally the first objective of an AP automation project is to drive spend through the POs, while maintaining identification of spend categories that are not suitable for all spend.

Once the PO spend categories have been identified and the business procures, through the use of mandated processes, the next step is to look at recurring spend. In a typical organisation more than 30% of spend is repeated on a monthly, bi-monthly or fortnightly basis. This number usually surprises people, but when you look beyond your typical recurring expenses, including categories such as rentals and cleaning, a lot more than we would expect belongs under the umbrella of recurring spend. All of the recurring invoices can be automated using the right technology.

Automation of contract based invoices requires the definition of procurement contracts, where the criteria for matching is determined by the pattern, invoice amounts, vendor and tolerances for dates and amount. For example, specific information such as supplier name, contract or account number, an expected invoice date and expected invoice amount (with tolerances if applicable), can be used in combination to match and identify an invoice against the parameters of the contract. If any of the parameters fail, the system can automatically  pass on the invoice to the contract owner in your business, in order for the exception to be handled appropriately..

Challenging the convention

We already highlighted the importance of quality and its impact to the downstream payables process, but let’s take a step back and re-think where document to data conversion processes are coming from. In order to automate financial systems, one fundamental issue should be addressed.

For nearly three thousand years we have been exchanging information in self contained packages called documents. Further to this, in the world of electronic billing, AP and Enterprise Resource Planning (ERP) systems, we are sending and creating documents to drive the financial processes. We receive POs which then need to be keyed into financial systems; paper or email invoices are received and require to be keyed into the financial systems (whether emailed or posted). The fundamental problem here is the creation of the document (such as: invoices, POs, shipping notices etc.). In the world of computerised financial systems, every time a document is created we immediately generate a problem to the next person in line that tries to use that data effectively.

When we create a PO and either email or mail it to our supplier, 24-7-2014-02their challenge is to ensure the same information is created in their system. Every time a supplier creates an invoice sent by mail or email the buyer is faced with the issue of trying to capture as much relevant information as possible to support the approval and matching related AP processes. Why? Because our thinking is constrained around having to create a document in the first place!

A SMARTer Network

This is where the concept of SMART networks comes into consideration. What is important when multiple businesses begin exchanging data with each other, is that systems are fully interoperable to “talk” to each other as they are unlikely to be the same. A SMART network between businesses (for example between a buyer and their supply chain) translates the information between the financial systems so that they work in an interoperable manner, in real-time, with 100% accuracy. To some, this may sound similar to standardised Electronic Data Interchange (EDI).. However, implementing EDI traditionally requires resource heavy data mapping, translation mechanics and implementation project management of each of the trading partners. In comparison, a SMART network can support the supplier and buyer connecting to it via the file formats already existing in their financial systems, rather than introducing new ones. This is a particularly attractive proposition from the suppliers’ perspective as the there are no changes to the suppliers. Getting suppliers’ support is easy and implementation time reduced to only hours per trading partner, making the return on investment highly appealing.

The SMART network removes the document creation process 24-7-2014-03which generates the issue of paper to data conversion within the downstream AP process. Technological advances in onboarding each supplier no longer takes days or sometimes weeks (such as EDI), but has been brought down to hours and in some cases minutes! No longer is there need for the buyer to worry about emailed or mailed invoices, capturing invoice details from the documents being constrained to a few key fields, or having to worry about scanned image quality. The SMART network connects the supplier to their customer enabling them to submit their invoice by completely electronic means, in real time and with 100% accuracy. A SMART network also offers the mapping of all data in the supplier invoices, not just a few clearly defined fields. It is the quality and completeness of the data and speed of invoicing which delivers efficiency in the downstream AP process and this creates a business case for both supplier and buyer. The supplier no longer has to pay to invoice their customer (printing, mailing or installing new systems); instead they increase their chances to get paid on time, as their customer now has better chances to automate the approval, matching, reconciliation and payment of each invoice.

What is then a realistic aspiration for straight through processing?

24-07-2014-04As the buyer no longer struggles to convert paper or emailed documents to data suited to their ERP or AP system (but instead receives invoice data from the suppliers with 100% accuracy), a true AP automation process can be employed where invoices can be matched against POs on a line level. Matching recurring invoices against contracts and a full financial approval workflow automation is now achieved for any spend that is not PO or contract based. This in itself does not give you 90% automation, but is the best possible starting point.

This establishes a solid foundation for the identification of the next bottleneck process where further automation can be implemented; whether it is how the business procures the goods or services in the first place, or perhaps identifying further spend categories for POs. In short, once the foundation is right, the automation options are limitless.

 

Jussi Karjalainen | Product Director, Financial Solutions

Jussi has consulted, designed and implemented more than 40 Jussi-KarjalainenAccounts Payable automation projects for large corporations in Asia Pacific and Europe.

Converga InvoiceMe is a network enabling businesses to collaborate with each other and exchange financial information in real-time with 100% accuracy. Converga’s InvoiceMe was launched 2 years ago and currently has more than 100 companies connected within the region.

Converga supports the entire business journey of from manual process optimisation to full automation and transitioning to a paperless business environment. Solutions range from outsourced managed services to AP workflow automation and 100% electronic invoicing.

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