The evidence in favor of switching to automated invoice processing is pretty overwhelming. As well as being faster and more efficient, automating the process of capturing invoices can save your company money at every stage. But persuading your company to make the switch can be daunting; not only does it involve changing the established system, but there are significant upfront and ongoing costs involved.
Convincing your company to start automating its invoice processing depends on successfully demonstrating that the return on investment for accounts payable automation is worth the cost, and for that, it is important to have a strategy to support that case. You can build this strategy by answering four basic questions.
Question #1:What is paper process really costing my company?
No matter how skilled your accounting department may be, any system that relies on manually inputting data from paper is slow and subject to human error. Every time a piece of paper changes hands, the opportunity to misread, misplace or misunderstand something is introduced. For a company that handles tens of thousands of invoices per month, even a small margin of error can result in huge losses (For some companies, these losses could be in the millions).
An electronic invoice system almost completely eliminates the potential for human error and there is no longer a need for lengthy data capture. Authorization can be done with the click of a button rather than by funneling paper from department to department. Automating your accounts payable process not only reduces error rate but also increases visibility and control.
Question #2:How much money could we save if better appropriated our skilled labor force?
Once the lengthy data capture process has been eliminated from the invoice processing system, the burden on the accounting staff decreases dramatically. Employee hours – often hundreds per month – that were once dedicated to efforts such as manual entry, routing, and filing can be used more efficiently, either by reducing the accounting staff and lowering the overhead, or by reallocating them to tasks that are of more profitable use to the business such as creating an audit team.
By automating the AP process, your company can produce large amounts of easily accessible data about the operations of the business; analyzing this data for trends and patterns that could benefit the company is a far more profitable use of employee time than the arduous task of processing paper invoices by hand.
Question #3:How much money are we missing out on with lost discount opportunities?
It is not uncommon for suppliers to offer discounts for early payment – after all, the sooner a supplier is paid the better their own cash flow situation will be. Typically, the discounts apply to payments made within ten days of receipt of invoice, but with a paper system it is almost impossible to process an invoice in fewer than ten days (the average processing time is closer to thirty). Switching to an automated AP process that includes e-Invoicing, workflow, PO Match/Flip like iPayables InvoiceWorks, drops the average processing time down to three days, which is well within the window for any supplier’s discounts. Even small discounts make a difference when multiplied by thousands of invoices, and the ability to capture those discounts consistently can save huge amounts of money.
For those contractual discounts that are still not captured in time, iPayables offers Auto Slopping which offers suppliers early payment on a sloped discount rate based on a predetermined APR. For example: a 32% APR a supplier could be offered a 1.89% discount for missing the contract date by a day. Lastly, Dynamic Discounting comes in to play by offering all of the suppliers that don’t offer discounts an opportunity for early payment. By using advanced algorithms in real time to determine justifiable discount terms for the supplier, iPayables helps you capture discounts that normally wouldn’t have been available to you.
Question #4:Does the gains of implementing an APAutomation solution outweigh the cost?
Between losses in efficiency due to over staffing and misuse of human capital, a high error rate because of manual entry, and lost discounts, along with other miscellanea, a company’s per invoice average cost can be as high as $15-$20 per invoice. In a large company handling tens of thousands of invoices per month, this equates to millions of dollars of loss.
By reducing the potential for human error and automating the authorization process by switching to an automated accounts payable process, you can lower your cost by more than 70% or more. In the latest Aberdeen Report, analysts have determined three key performance indicators that define the “Best-in-Class” AP departments and these are:
1) 4.1% days to process and invoice from receipt to approval.
2) $3.34 average cost to process an invoice from receipt to approval
3) 90% capture rate for available early-payment discounts
These same analysts have determined that these “Best-in-Class” companies have achieved these through automating. Start-up costs and monthly fees of even the most expensive invoice automation systems start to look like a drop in the ocean next to the millions of dollars that can be saved each month. At iPayables, in most cases the return of investment is in the triple digits. And that is a business case no department head can ignore.
FERNANDO LUGO JR. Regional Director of Sales for iPayables and in charge of enterprise accounts in industries of healthcare, finance, and energy. Before iPayables, Fernando was Director of Business Development for Globetek Media, a US based technology consulting firm with an International focus. Fernando contributed to this months post.
Tags: Accounting Department, Accounts Payable Automation, AP Department, AP Process, ap workflow, Dynamic Discounting, Electronic invoice, Invoice Automation, Invoice Processing System, InvoiceWorks, PO Match/Flip
When the time comes for an organization to review options or even pull the trigger on a new investment or project, the notorious return factor will always be the focal point. Many possible initiatives are deemed hard to justify and thus, fall to the wayside. Either because the benefits received are intangible, or the benefits are tangible but hard to quantify. Another justification against it, is that it might take too long for the benefits of a potential investment to come to fruition. It’s an unfortunate truth that many businesses will fail to capitalize on golden opportunities to gain further profitability and perhaps even fail altogether by not being more intuitive.
These types of arguments however, don’t apply to Electronic Invoicing. Switching from paper processing to payables automation (e-invoicing), often yields immediate impacts that are rather apparent. The numbers alone are often quite impressive and make a compelling argument. A favorite saying (albeit cliché) amongst our sales team is that our “solution sells itself.”
So how does InvoiceWorks really sell itself? Our research has shown the majority of iPayables customers hit the “break even” point within the first year. Or in other words, you can potentially make more money implementing AP Automation than what you paid to use the service before the end of your first year! In fact, with the use of our dynamic discounting feature, returns for some of our larger clients have yielded in upwards of 300%! Considering some of our clients are some of the largest companies in the world, those numbers are very substantial.
In addition to ginormous monetary returns, there are plenty of other often overlooked, but still meaningful benefits when implementing a top-tier e-invoicing solution like InvoiceWorks. One obvious example is the decrease in environmental impact an organization can have when completely eliminating paper from its accounts payable department. Imagine the hundreds of thousands of paper invoices that were processed by our customers prior to switching to iPayables!
Not only does InvoiceWorks increase an organization’s transparency and accounting accuracy, it can also reduce head count and allow companies to re-allocate valuable employees to other areas of the company. As you can see, there are many residual benefits that go beyond the financial impact of transforming your AP department into a revenue generator.
Automating your payables process also benefits your suppliers who can take advantage of Dynamic Discounting / Early Pay feature. In fact, just sending invoices electronically using InvoiceWorks to our customers means that a supplier will be paid 30-40 days earlier than by using paper. Further flexibility is afforded them by choosing to be paid early if they are willing to cut a few points off the total invoice cost (Dynamic Discounting).
Unlike our competition, we don’t charge suppliers to use our platform and we have a team that is dedicated to actively reaching out to all of them to get them on board. We help answer any of their questions, and help with the technical aspects of getting up and running with iPayables InvoiceWorks. Still not convinced? Give us a call at (949) 916 -7407 or visit our website at http://www.ipayables.com. We will be happy to perform a custom ROI analysis tailored to your business needs.
ADAM LEVIN is a member of IPAYABLES SALES TEAM and contributed to this months post.
“I hate shuffling paper and with today’s technology dealing with paper is so inefficient.”
This was a quote from a VP of Finance responding to the question; why do you believe that E-invoicing is such a good product for your AP Department? A few other AP Managers and Controllers responded and contributed to this topic.
From a Controller of a Service Company came this response, “Because you don’t have to rely on it to come in the mail, it comes faster and you can reference it into your accounting program. It also allows you to keep it into your computer so you can easily reference it and file it in a jungle drive.” Sic
It’s extremely important for invoices to be dealt with in a timely fashion. Relying on the mail when processing invoices could be a disastrous proposition especially when referring to time and money. I just saw on the USPS website information regarding mail delays due to a snow storm on the east coast.
The north east is bringing heavy snow and mixed precipitation throughout the Mid-Atlantic and Northeast. The Postal Service is currently experiencing impacts to delivery and retail services in Georgia, South Carolina, Virginia and the Washington, DC area. Further delays are expected in Pennsylvania, New York, South Carolina, Virginia and Washington, DC. We will make every attempt to provide service where it is safe to do so. Please check back for updates.
With E-invoicing there are no mail delays, therefore it comes faster and more efficiently. Efficiency is also manifested in how easily it can be incorporated into your accounting system. You can import invoice data to your ERP system, reducing mistakes made manually. Electronic Invoicing brings you instant access to your invoices instead of having to search through file cabinets and chasing down paper copies.
A Controller answered the question and said, ‘“It simply costs too much; too much to buy, too much to print, too much to sort through, too much to attach, too much to scan, too much to store. Electronic invoicing allows both a vendor and their client/customer to be more efficient and save costs. One of the largest is labor costs. It is surprising how small and efficient an Accounts Payable Department or Invoicing Department can become through E-invoicing.”
My last response came from an AP Manager of a Healthcare company. He said, “Freeing employees from the daily grind of mindless processing permits them to engage in tasks which are more appropriate and satisfying to today’s Accounts Payable workers, and (I believe) benefits an organization with a more productive allocation/ratio of equipment and human resources to the discipline of Accounts Payable.”
These responses came from those who work day to day in Accounts Payable and are making Electronic Invoicing happen within their organizations. They see how E-invoicing is faster, quicker, more efficient, and saves money with instant access. They also are experiencing reduced labor costs that are freeing up time for better productivity in their organizations. They understand why businesses believe in E-invoicing and are making Electronic Invoicing their choice to process invoices. As a result, they are turning their AP Departments into profit centers.
If we take a minute and look back to all the business technologies that have come and gone over the years, it’s easy to agree that in recent times the internet has had the most impact on these “transitions”. In order to stay competitive, a business needs to be on the forefront of innovation and efficiency. Take the music industry for example; the brick and mortar companies that didn’t change their business model to compete with iTunes and online radio are now nonexistent. The same thing is happening right now with bookstores and magazines competing with products like the Kindle.
The point being that obvious trends should not be ignored because there are always consequences for lack of action, especially when it comes to this internet thing. These consequences aren’t always the collapse of an organization, but perhaps the missing out on millions of dollars’ worth of savings that might come in handy someday. Now, how would you define or identify an obvious trend? I think a good example would be how multiple governments around the globe are making a certain business technologie like electronic invoicing mandatory. These policies along with the natural progression of technological advancement, hint at what’s beyond the horizon. I’ll quit being ambiguous and simply state that Electronic Invoicing or AP Automation is sweeping its way around the world like a technological tsunami and the only way to not fall behind is to hop on the wave!
A technology journalist named Elaine Graham nailed it with the following quote in a recent publication: “Whatever the remaining technology and legislation challenges, at whatever stage various regions are in the adoption cycle, and however many pros and cons there are in the business case of implementing or outsourcing e-invoicing, one thing has become increasingly clear to both the global corporate community and governments over the last decade…” e-invoicing “is one of the most important strategies going forward for improving productivity and preserving the environment, given the billions of tons of paper invoices generated globally each year”. She obviously agrees with my technological tsunami analogy.
A robust AP Automation solution like iPayables InvoiceWorks contain powerful tools like Dynamic Discounts and Early Pay which can help to sustain and better manage a supplier’s cash flow long-term. It has been well documented that most business fail not due to it’s non profit margin, lack of sales or heavy competition; rather it stems from inability to manage cash flow. Whether it’s the environment, efficiency, savings, increased accounting accuracy, or even turning your AP department into a revenue generator… you can’t argue that it’s a good idea to implement this new and rapidly advancing technology. Are you ready to ride the e-invoicing wave? Contact us today! http://www.ipayables.com
ADAM LEVIN is a member of IPAYABLES SALES TEAM and contributed to this months post. Before iPayables Adam was the Regional Sales Manager for Channel Vision Technology, covering an 11 state market in the South Central and Southeastern United States. Channel Vision is a manufacture of over 700 products in the Custom Electronics industry.
Recently, we were happy to learn that Transformation Management Consulting LLC, an independent research and consulting firm specializing in the payables industry; conducted a study comparing all the major Accounts Payable automation solutions available. It specifically evaluated the affordability, functionality, number and quality of offerings; as well as the overall automation potential of each specific solution.
Out of the eight providers evaluated, iPayables scored top marks in several categories including affordability, functionality and was one of only two solutions that offer dynamic discounting; a key discount-capture component for businesses who process high invoice volumes. The purpose of the study and subsequent white paper was “to provide insight relative to the spectrum of Accounts Payable automation solutions available and to draw some correlations between the level of automation achievable and the affordability of that solution relative to other platforms providing a comparable level of automation potential,” said the author.
Transformation Management Consulting broke down the solution providers into two different categories, those who only support the “front-end” capture, matching, exception management and routing of the invoices; and those who support a full electronic invoice presentment and payment (EIPP) suite. Of those that did, iPayables one of two rated as “very affordable.”
Another noteworthy aspect was in the area of workflow where the author highlighted our approach mentioning that “iPayables allows for simultaneous workflow streams as necessary to support multiple business hierarchies. For example, an individual could have certain permissions and authorization capabilities within workflow for normal invoice review and differing permissions and authorization levels within another workflow for a particular project or capital expenditure event.”
Although some of our direct competitors such as Ariba, and Basware might be larger companies, neither of them according to this study, have both the combined affordability, functionality, workflow and dynamic discount offerings that are standard with an iPayables implementation. The study further validates why iPayables has been able to consistently win major accounts against those lager EIPP providers.
“Decision making concerning what EIPP provider to choose, can often be a confusing one,” said our CEO Ken Virgin.” The study gives clarity as to who the upper-echelon providers are and what functionalities are available to prospective clients.” A copy of the study, “Exploring the Spectrum of Accounts Payable Solutions” can be viewed by going to http://pages.ipayables.com/WhitePapers1.html
It’s no secret that an organization’s ability to survive and prosper often depends upon their willingness to find and utilize new revenue streams. One such innovative and often unrealized revenue stream is the dynamic discounting (or early pay discount) feature offered by iPayables and a very few other AP Automation providers.
Dynamic discounting provides ample time for a supplier to be notified that the invoice has been approved and can be paid early with a discount. That discount is controlled by the customer, who typically require rates far less than what is being offered by factoring agencies. Suppliers can either opt for the discount, or select a date to be paid and the application will let them know what the exact discount will be. This makes cash flow forecasting far more accurate and efficient.
Dynamic discounting is the definition of the preverbal “win-win.” Both the customer and the supplier benefit by offering an early pay option. The customer benefits by consistently taking advantage of the additional discounts captured (which would bring a smile to any CFO’s face) and the supplier gets the financial flexibility/ stability of having that payment clear faster.
Over the last 10 years, the industry has seen the processing of paper invoices steadily decline as more companies have automated their payables processing using an E-invoicing (AP automation) system such as InvoiceWorks. With a click of a mouse, invoices and payments can be viewed and approved which affords the AP department using the application, additional time they would not otherwise have if processing with paper.
The time savings results in flexibility that enables the customer to offer early pay discounts to their suppliers who might need a payment to process faster and are willing to pay a little extra for it. Discounts previously unavailable due to a slow paper processing, are now being captured with the average approval of invoices down from 22 days to just under four.
Benefits of Dynamic Discounting:
- Buyers can pay their suppliers early in exchange for a discount.
- Buyers can benefit from double-digit, risk-free returns.
- Organizations can earn more early payment discounts.
- Workflow is strengthened and buyer/ supplier relationships improve by providing suppliers with quick, easy access to cash.
- Average increase for working capital is from 10 – 30%.
A few years ago, one of our clients (the world’s largest restaurant chain) picked iPayables as their EIPP provider and started utilizing the Dynamic Discounting feature. Early Payment Discounting increased their cash flow enabling them to have a quicker approval time with better visibility and reliability.
This restaurant chain has effectively transformed their accounts payable department into a revenue generator. In fact, in the last year they generated nearly $200,000 from discounts alone! By taking advantage of dynamic discounting, this organization is actually generating more money then what they are paying iPayables to use their top-of-the-line AP Automation solution. Along with the other financial benefits of using an electronic invoicing application like InvoiceWorks, dynamic discounting is a proven revenue stream that nearly any mid-market to enterprise organization should be taking advantage of.
To learn more about how your organization can take advantage of Dynamic Discounting and generate profit in AP, give us a call to set up a demonstration (949) 916-7411 or visit our website at www.ipayables.com.