Turning to Technology

Many companies are seeking to streamline their enterprise resource planning (ERP) accounts payable (AP) systems to cover more of their upfront business processes, such as document/electronic transaction capture, workflow approval routing and analytics. But this part of the financial value chain has generally been overlooked from a technology perspective, yet is ripe for adding value.

AP automation offers improved effectiveness and efficiency and there is a broad range of technology available that works with existing ERP solutions, providing controls for upfront processes, as well as analytics, that can be used to manage the complete procedure.

While automated AP solutions are attractive, be aware that the majority of purchasing activities are non-PO related or are processed outside of an ERP system. And even if you have multiple ERP systems or multiple instances of a single ERP, then AP automation can be leveraged to provide a common interface to support a single financial management process.

Meeting the needs

Another major consideration is the requirement of faxing, imaging and optical character reading (OCR), which brings data into financial suites. Most AP technology offers partnerships that can be leveraged to capture invoices, but their major value is in their management capabilities, which augment existing ERP AP solutions by expanding the scope of control and management through workflow routing, approval processes and analytics.

With many companies challenged to reduce costs while providing higher levels of service, a significant issue is the management of financial transaction processes that are ‘clogged’ with paper, disconnected data and legacy systems. Indeed, in prior research, Gartner has found that the reach of financial management applications has been extended into supplier and customer-facing processes. While many of these solutions are being used to automate transactions, not all have reached far enough to handle many of the workflow and content requirements.

Furthermore, core ERP processes often fall short when faced with unstructured content and workflow automation with accounting transactions. For example, ERP and financial application vendors offer AP invoice workflow and automation as part of their AP and procure-to-pay offerings. These solutions have good functionality, but are often not adopted because they lack integrated OCR or an effective user interface.

At the same time, traditional document management solutions, designed for archiving and retrieval, are not suited for financial-management-specific transaction processing.

Fortunately, there are AP invoice specialists that have come to market, such as 170 Systems, Basware, Open Text, ReadSoft and Imagitek, which integrate with the AP software from ERP systems, such as Oracle and SAP. Many broader content vendors also provide workflow/content solutions that can be used for this process, and some, such as Hyland Software, have targeted solutions for AP imaging and workflow.

Capturing the invoice

The use of workflow tools begins when an invoice enters the AP process, usually manually. In the US, around 80% of invoices are paper-based. In Europe, e-invoicing adoption in 2007 was, on average, between 2% and 3% (although use of electronic data interchange and e-mail submissions would increase this number). Finland scored highest at 10%, with other Nordic countries and Switzerland ahead of the rest of Europe. E-invoicing is not widely used in Eastern Europe, with adoption rates below 1%.

Despite such relatively low take-up, many organisations could benefit from electronic invoice systems, and there are numerous solutions available that leverage a supplier portal to facilitate e-invoicing.

These systems enable suppliers to view the status of pending payables and remittance details. There are three approaches to supplier e-invoicing to consider:

• The e-invoicing module of an e-procurement system from vendors, such as Ariba and PurchasingNet, enable buyers to leverage the typically multiprotocol, electronic pipeline established for exchanging purchase transaction data in e-procurement to support electronic invoice receipts and matching.

• The supplier portal of a supply chain solution, such as Oracle iSupplier Portal or i2 Total Supply Management, enables suppliers to ‘flip’ POs to create their invoices and upload electronic invoice files for review and payment.

• Stand-alone supplier e-invoicing, such as OB10 or JPMorgan, extend one or more plain-old-purchasing systems or supply chain systems. These tools generally support multiple formats for invoice submission.

The majority of organisations deal with paper invoices, and most countries have invoice archive regulations that require the storage of copies for a certain period of time. Most AP invoice management technology has the capability to scan for their own capture systems (such as Hyland Software), or have partnerships for imaging and/or OCR capabilities (such as the Imagitek partnership with EMC for document capture). Capturing paper invoices enables significant improvements in the financial management process and reduces the need to send inter-office mail and special courier dispatches around the organisation for document archiving.

Strengthening internal controls

AP invoice technology also offers workflow management for invoice receipts, discrepancy resolution, approval, segregation of duties and auditing. In addition, these solutions can improve control and visibility, helping present the workflow status of a document through online system audit trails and documents.

The technology also allows organisations to choose to set up different approval and routing rules based on different types of invoices or supplier arrangements, such as PO-based, non-PObased, preapproved and supplier maintenance (which is also typically set up through preapprovals).

In addition, travel expense management (TEM) vendors, such as Concur and Infor, have brought solutions to market for non-PO-based transactions, using their TEM solutions as a foundation for workflow, approval and integration with AP systems, but these do not rival the robust functionality and ERP integration that is within AP invoice automation solutions.

Integration with ERP

While AP invoice automation works with existing ERP solutions, it does not replace them. An optimal implementation would leverage your investment in ERP where corporate data is managed. The ERP system will do this for payment purposes, but it can also configure the invoice automation solution to bring in POs for matching to catch errors upfront from ERP.

Integrating with the ERP purchasing solution can therefore enable PO-based invoices that match to proceed directly to payment. For those that do not match, alerts and notifications can be put in place to resolve potential mismatches or to highlight non-PO items. Many of the products offer integration with ERP by taking advantage of a single signon procedure, such as those offered by ReadSoft and 170 Systems, eliminating the need for employees to juggle multiple logons and systems.

Analytics and the AP process

Invoice automation also offers status reporting to provide performance metrics and to monitor the end-to-end AP process. Typical performance metrics that should be configured in these embedded analytics include:

• Status of payments
• Analysis of discounts
• Invoices held up in error
• Suspect invoices
• Duplicate invoices
• Non-PO invoices by supplier or requestor.

Although not typically grouped under the analytics umbrella, some options, such as 170 Systems, have a supplier portal that greatly reduces the need for AP back-office interaction with suppliers around the status of payments. Suppliers can, in turn, check the status of payments with the organisation online rather than having to make a phone call, and they can get involved quickly with dispute resolution. In this particular solution, suppliers can also submit invoices directly to organisations, creating another electronic invoicing channel.

Considering the benefits

A key ingredient of AP invoice automation’s success is how it offers cost optimsation via increased throughput with existing resources, thereby reducing technology and business process costs per transaction. This can help improve productivity for the finance function and employees, while reducing operating costs, such as those related to copying, filing and transporting documents. It can also improve invoice routing and approval between the requester and the approver, helping the organisation comply with regulations such as Sarbanes-Oxley in the US, while improving control over suspect payments.

Organisations that are seeking to enforce an enterprisewide AP process can also benefit, particularly if they operate one or more ERP solutions. It can be leveraged as a way to temporarily postpone an ERP consolidation project if one of the major justifications of it was to improve AP management. In such a situation, the system can continue to be used in the future, assuming there is a consolidation to a single ERP solution, because current ERP options do not support most of the functionality within these tools.

A further benefit is how automated solutions improve relationships with key suppliers by increasing the speed and accuracy in which invoices can be processed. The system’s greater visibility ensures that invoices are not left behind in the process, reducing the involvement of line managers in resolving discrepancies with suppliers.

A final consideration is how invoices are captured and managed through analytics. This includes optimising cash management by enabling an organisation to effectively capture discounts and eliminate late-payment penalties.

The price is right?

These solutions are typically priced around €200,000, making them unsuitable for small to mid-size firms. Most customers are large enterprises in the upper mid-market where they face greater challenges in managing a global AP process. However, solutions designed for smaller organisations are starting to emerge, such as Ever Team’s system targeted specifically at Dynamics Navision users.

Depending on the conditions of the business process, there can be a significant service component (that is, approximately two to four times the cost of typical licence fees) for the implementation and the requirements of the initial scope of the project, which may come as an unwelcome surprise to many.

Invoice automation may be used to postpone future ERP consolidation, but given the optimisation AP offers it can be a driver in postponing an ERP project, allowing improvements in other financial management areas, such as moving to a global chart of accounts or achieving the cost-benefits of a single ERP platform over a decentralised approach.

So far, ERP vendors have not provided offerings that span the entire AP process. Instead, they have established relationships with many partners to provide this functionality. This direction is sure to change over time, and ERP vendors could make acquisitions that do not favour the specialty vendor. For example, Oracle has acquired Stellant, but it still has partnerships with niche vendors around AP invoice automation. We have seen this in other application areas, such as corporate performance management, where partnerships were dropped in favour of newly acquired products.

The bottom line

The move to automated AP invoice systems should be seriously considered by IT and finance professionals in midsize to large organisations. Smaller organisations that are more decentralised may also consider these tools; however, pricing may approach some of the outlay costs for the ERP system in total, and this would typically not be advisable.

However, these tools represent a significant opportunity for organisations that want to improve the quality of service around AP, and the analytics and visibility around AP management.