Business Drivers for Payment Automation (TAWPI Conference)

by Erin McCune on April 16, 2008

in AP, B2B, Payables, Receivables

[I am in Las Vegas for the TAWPI Payments in Transition conference – these are my notes from one of the sessions. An index of all of the sessions and links to the rest of my notes is here. – EMc]

Business Drivers for Payment Automation
Andrew Pery, Chief Marketing Officer, Kofax

[program blurb] Over the last five years, the role of accounts payables has changed dramatically. In the past, accounts payable departments were cost centers with responsibility for paying suppliers and updating the general ledger. Today, however, it is viewed as a critical function for optimizing cash flow and providing financial management support.  Driven by the need to improved efficiency and meet regulatory compliance mandates, accounts payable departments are striving to improve the services they provide for their organizations, while looking to reduce costs, increase efficiency and enhance business relationships.   In this presentation, Andrew Pery will explore these business drivers and how technology is evolving to reduce points of failure in the payment process, improve customer relations and drive repeat business. Pery's presentation will focus on five key phases of process: 

    * Early capture
    * Intelligent invoice recognition and extraction
    * Process transparency
    * e-invoicing
    * Data quality


My notes/observations:

Technology exists but integration is challenging.

Value of intangible assets “Physical assets are generally subject to decreasing returns while knowledge assets generally enjoy increasing returns because knowledge is cumulative –the more intensive the use of knowledge, the larger the benefits.” (source: Baruch Lev, Brookings Institution Press, 2001)

For example: 1) human capital, collective knowledge and wisdom of employees. How they interact with customers and suppliers. 2) process capital – enable and empower knowledge worker 3) customer capital – during relationship with customer, repeat business, customer loyalty.

Beware of cost of poor customer service. McKinsey study reveals that a nominal decline existing customer revenue can have major impact on profits. 5% decline in revenue from existing customers, results in 15% decline in profitability.

Customer- invoice, remittance = standard artifacts of business; predictor of repeat business, use data for competitive advantage.

How are organizations utilizing payment data? Not very well. Significant lack of visibility into payment – less negotiating leverage when entering contracts with suppliers; discounts/rebates/penalties, invoice status – working capital management is hampered.

Need integration.

AP spends a lot of time responding to inquiries (30%) – Have you received my invoice? When will I get paid? Rather than focus on resolving exceptions. Cost approx. $5-30 per call.

Invoice processing costs $80 – worst, $1 best (best requires EDI peer-to-peer, large provider with significant IT and small number of very large suppliers). Median cost is $11 per invoice.

Workflow – the real cost is exception handling and manual error corrections. In and outbound calls, invoice data clean up $20-40 per invoice for AP, $4-10 for AR. (See slide 6 of presentation for good diagram depicting average cost per element of workflow.]

What is the solution? Integrated, continuous channel for capturing data from various sources. A transactional vs. batch process. Capture invoice with email, fax, scanner, wherever it enters the organization. Capture and parse data – meta data related to vendor, date, inv #, dollar amount + line item information, what kind of document, determine status (no errors? Needs review/exception processing) is the PO number correct? – Use workflow to alert appropriate organizational contact (or supplier) to resolve issue.

5 possible ways to improve

  1. Control paper flow – initiate early capture – when are docs scanned? AP 60% at end of business process (scan to archive, not as part of workflow). 71% respondents indicate they will implement early scanning. Yet organizations are decentralized, with offices in different time zones, locations, etc.
  2. Reduce manual labor – capture data from document based on technology. Meta data moved to business application for matching and processing. Organizations (esp AP ) have not make use of it. Manual keying is labor intensive and error prone. Delays. Can’t get discounts. Intelligent doc recognition (requisition, PO, sales invoice, etc. – scan samples into system so system can infer based on doc layout and data elements)
  3. Process transparency. Persistent, bi-directional dialogue with customers and suppliers – with access to image, analyze whether correct. Event based workflow to notify customer of exception or error. Push responsibility for resolution to supplier rather than AP. Provide supplier with acknowledgment that invoice received, notification of error, or acknowledgment that approved, processed and payment is forthcoming. Allows AP to focus on exceptions. Good service to supplier customers of AP.
  4. Add electronic invoicing, too (2011 electronic expected to equal paper invoices). Hybrid solutions are necessary – receive invoices both electronically and paper. Similar workflow. 2-3 days to transmit paper invoice. Electronic 2-3 seconds.
  5. Ensure data quality. Need highly reliable, quality data at every step in order to increase level of automation STP. Validate against PO

Savings = $22 savings per invoice.

Q – how far along in adoption of automated invoice processing?

Most organizations can capture invoices. Adding better doc recognition and proactive notification. Accelerated adoption of e-invoicing. But hybrid for many years to come.

Q biggest challenge?

Disparate technologies for capture, e-invoicing, notification – need to integrate in order to realize maximum benefit.

Q – How to encourage customers to send electronic invoice. They send PDF. That doesn’t really help. Okay, I’ve got an image.

XML version of document is most powerful, but not all supplier AR systems have capability.

>> Return to index of TAWPI conference sessions

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