Automated Invoice Workflow is one of the main keys of payables automation.
If an accounts payable department is trying to become more efficient, it can be a task figuring out where to improve first. You can’t have electronic invoices coming in if you don’t have a way to approve them, and implementing AP workflow by itself is hard to cost-justify without the electronic invoice savings. So it makes sense to implement both electronic invoicing and payables workflow at the same time.
At times when these decisions are being discussed, there might be the suggestion (usually from the purchasing group) to require a purchase order for every invoice instead of implementing invoice workflow. Bad idea. For anyone that’s had to deal with an all-PO organization, the inefficiencies are obvious. Services are requested, provided, invoiced, and then people start scrambling to create a purchase order after the fact. It’s much more work than simply approving an invoice per payment controls and can cause some real riffs between you and your suppliers. As is the case with a number of initiatives that come from purchasing, it’s a “we think we can do accounts payable’s job better than accounts payable” mentality and it’s not healthy. We work a lot with both payables and purchasing departments and a well-run organization understands the different roles both play.
When automating payables, you need to accommodate the matching of PO invoices (the topic for another blog) as well as the routing of non-PO invoices. But selecting and setting up an automated invoice workflow system for users outside your payables department can be a daunting task. For that reason, I give my thoughts on what to look for.
The good invoice workflow systems are going to offer the following functionality:
- Entry points based on invoice information. Invoices need to first be routed to the person in your organization who requested the service. Any workflow system that sends invoices to accounts payable is a waste of money. The whole point of automating your payables workflow is to eliminate effort in payables, not just change from one effort to another.
- Non-AP Coding with memory and defaulting. Believe it or not, the original requestors either know enough to code their own invoice, or they can be taught the few values they would ever use to code their own invoices. When the AP workflow system remembers their most commonly used values, it makes it all the easier to transfer coding efforts to requestors.
- Routing based on hierarchy. After the initial entry point approver (requestor usually) has approved/coded the invoice, the invoice workflow system should route based on hierarchy and approval limits. So if Mary has an approval limit of $5,000 and reports to Jeff, an invoice for $7,500 should automatically route to Jeff after Mary approves it. Hierarchy is important in enforcing payment controls. If a system simply asks the approver if they want to forward the invoice for any more approvals, it is not enforcing the payment controls and the payables department is going to have to enforce the payment controls manually.
- Routing based on business rules. Hierarchy should cover a good portion of payment controls, but there are often exceptions or special rules that need to be accommodated. The best AP workflow systems will offer routing based on anything on the invoice, as well as special approval limits. For example, Jeff oversees Project 67, so while he normally has an approval limit of $15,000, for Project 67 he has an approval limit of $25,000. Meanwhile, the controller is concerned about marketing expenses for Project 67, so a special rule is created requiring her approval for any invoices over $5,000 that are coded to Project 67 and the marketing account.
- Smooth running features. Add vacation re-routing when certain approvers are gone as well as automated escalations when approvers haven’t approved invoices within the allotted time and you have an accounts payables workflow system that is going to be extremely efficient and is going to get you some kudos.
Tags: accounts payable, Accounts Payable Department, AccountsPayable Workflow, AP Worflow, Automated Invoice Workflow, Electronic invoice, Electronic Invoices, Invoice Workflow System, Non PO Invoices, Payables Automation, PO Invoices
Congratulations, you have decided to pursue an AP Automation initiative for your organization, now what? Making the decision to make efficiency gains, speed up processes, provide valuable visibility, and reduce costs is a major step toward AP Automation, but it is only the first step.
There are many companies in the market place that tout that they are AP Automation, but are they really? If you Google AP Automation, more than half of the companies are just scanning houses that are not removing paper, they are actually adding steps to the process. Now these do have some efficiency gains, but it is an intermediary step at best. The world is going paperless. End of story, it is happening. Companies want to send out invoices and bills electronically because it saves them money. How many of your household bills do you get with notices on how to go paperless? Phone companies and cable providers are all trying to get you to allow them to send you your bill electronically; don’t you think your vendors want the same? AP Automation is about automating the entire process, from creation to payment.
Now that you understand that you are actually looking for a company that can get you and your suppliers paperless, how do you find and select them? Research is an obvious way, especially with the complex algorithms used by search engines. A generic internet search can provide you with a multitude of options. Also going to trade shows, like IOFM and IFO’s Fusion are excellent ways to go and meet with the providers in person and get a feel for who is legitimate and who is not. You can meet with them and see who the differentiators are and who will fit with your organization’s needs.
Once you have narrowed down your search, my best suggestion is to ask for references up front. This is quicker than going through a huge RFP process that will garner technical specification of what companies say they can do, but can they actually deliver? If you check references up front, you can eliminate all but a few, and then you can concentrate on having them show you a demonstration of their product, and how it will specifically meet your unique needs.
People talk about cost reduction in payables automation, electronic invoicing, cloud invoicing, Electronic Invoice Presentment and Payment (EIPP), but where do the savings really come from? I thought it relevant to show where real companies have reduced costs, to show what parts of that payables automation solution are going to have the most impact.
To understand the impact of payables automation, we need a before and after picture. If we create a generic payables department processing 10,000 invoices per month, we would expect to see about 12 people in that payables department (1 manager, 1 supervisor, 10 clerks). If our fictional clerks process more than 1,000 invoices per month, then their pretty efficient or have very simple processes. If they process less than 1,000 invoices per month, they are probably not as efficient or have some complex processes.
Those typical clerks would be involved with opening of mail (invoices), organizing into batches, coding, distributing for approval, purchase order matching, dispute resolution, data entry, filing and responding to queries from both suppliers and buyers from your organization. There are other items such as vendor management and check printing, but most of their time and effort is spent on the previous items.
Before the payables automation solutions of today, imaging and EDI could relieve some of their efforts. Imaging reduced the need for archive and filing, but by itself, it couldn’t do much for the other tasks the clerks were performing. EDI eliminated much of the upfront paper processing, but because most systems had limited controls (either treating EDI as approved, or in more complex systems matching to a purchase order), buyer organizations could not process all invoices via EDI. These tools help with certain invoices or with certain tasks, but overall their impact is very limited.
The main advantage to payables automation was the combining of imaging, electronic invoicing, workflow, purchase order matching and a portal where suppliers and buyers could view the entire invoice process. With payables automation, most every aspect of the clerk’s duties has been automated.
Let’s examine the process with payables automation:
- The invoice is keyed online by the supplier, or they upload a file, or schedule an automated feed. For those suppliers who can’t comply, they send paper to a PO Box where it is imaged and digitized into an electronic invoice. A paper invoice is never sent to the buyer.
- Electronic invoices related to purchase orders are matched in the portal before the supplier submits the invoice, so exception processing is the responsibility of the supplier and they can communicate with the buyer directly to resolve the issue. There are no match exceptions for payables clerks to resolve.
- Non-purchase order invoices are routed for approval and coding. The buyers don’t really have an excuse not to code their own invoices. The full coding descriptions and most recently used lists make it easy. There is no data entry or coding of invoices, approval validation is built into the system, so no human intervention is necessary.
- The approved, matched invoices are loaded into the payables system for payment by the client or iPayables.
The real savings are in the reduced workload. There are very few clerk duties that haven’t been automated. The end result is that clerks are moved out of the payables department. The 1,000 invoices per clerk metric that is an average of paper processing, changes to 6,000 invoices per clerk.
Discounts that were lost with a slow paper process are easily captured with the average approval of invoices dropping from 22 days to 4 days. Dynamic Discounting increases the savings further enabled by the quick approval process, easy visibility and reliability of early payment if suppliers are willing to pay the client specified discount.
As you can see, there is a lot more happening in payables automation than was possible with simple imaging or EDI.
Tags: Cloud Invoicing, Dynamic Discounting, edi, EIPP, Electronic invoice, Electronic Invoice Presentment and Payment, Electronic Invoices, Electronic Invoicing, Imaging, Payables Automation, Purchase Order Matching, Workflow
AP Automation is much more than just imaging
An image is just that, an image. By itself you can’t do much with it other than look at it and store it. Add some indexed data from the image and now you have the additional pieces which can be used to really make automation work.
Service is key
Having gone to a university with 30,000+ students and also experienced schools with smaller student bodies, the big difference is a much more direct and personal experience. With large ERP providers the solutions are either ‘as-is out of the box’ or they can be modified but at considerable expense. The smaller players provide the same if not more functionality but with a greater level of service, customization and are generally much more accommodating to your special requests.
Invoices – Many roads lead to automation
So just how do invoices get to you? That is one of the great areas of flexibility that AP automation can afford your company. Suppliers can do any of the following:
- Create and submit invoices online
- Submit a file of invoices online or via FTP
- Submit files via EDI
- Send invoices via FAX, Email or Paper to an email, FAX, PO Box or your current address
- You as the customer can also enter the invoices as needed. (I personally would do this one last and only once in a while, if the supplier was really nice.)
This is just the first part, the on-ramp of automation. Once you have the invoice electronic all of the other benefits follow.
Workflow – keep it simple
Just like picking out a movie for 100+ people, you can’t make everyone totally happy, so you need to identify your key, critical path processes as the core of your workflow. Then exceptions can be added as are truly needed, but keep these under control.
Supplier Adoption – Incentives and a little nudge
Suppliers are smart and are looking for opportunities to improve their business. AP Automation is a win-win for both customer and suppliers. At times all that is needed for suppliers is a little nudge from their customers and possibly a reminder of the benefits they will receive.
There are a lot of opinions about what constitutes an electronic invoice, including pontification on this blog about the distinction between “real” electronic invoices versus the pretenders – emailed invoices and imaged paper. But, perhaps because of the advancing years, or maybe just a wee bit more experience, I’m beginning to soften my stance. I’m still firm on the position that a stream of invoice data – raw from the supplier, parsable and understandable by computer systems – provides the most benefits. But if the goal of electronic invoicing is to improve visibility, reduce approval or match time or take advantage of dynamic discounts then I’m starting to believe that these goals can be achieved with a process that includes these “impure” electronic invoice sources.
I’ve said this before that any Accounts Payable Automation solution worth its salt will include the capture of invoices from every source; paper, fax, email, web and EDI. Perhaps as an extension of this thought and in an effort to avoid the mistakes of EDI in the past, let’s cultivate a mindset of inclusion instead of exclusion. I know that my marketing folk’s heads are exploding now as I muddy the waters that divide us from imaging providers but can’t a paper invoice, once scanned and properly indexed, be counted as an electronic invoice? It can be matched to a PO. It can be routed for approval. It can be aggregated into dashboards and fed electronically into ERP systems.
Maybe if, instead of adhering to a dogmatic definition of what is an electronic invoice, we should look at the objective we are trying to cover, efficiency we are attempting to gain and the vision we are striving to implement. It is true that a supplier that remains completely offline will miss out on many of the benefits of electronic invoicing. It is also true that a company with a solution that is at once comprehensive and flexible in its approach will have the highest prospect for success. Of course iPayables is such a company.
What are all the parts involved with a fully automated payables solution?
Check out a new presentation by iPayables on Payables Automation.
This short presentation will give you a high level overview of the how InvoiceWorks prevents paper invoices from ever entering your building, and automates the full payables process. From submission to payment, InvoiceWorks full payables automation gives 100% visibility and control and dramatically lowers your per invoice cost.
You know when you have an argument and it just sort of sits with you for a while? Like a berry seed stuck in between your teeth? I’m still stuck on these quasi-automation solutions I see in the Electronic Invoice Presentment and Payment marketplace. I was reviewing an Electronic Invoice Presentment and Payment (EIPP) application that had developed all these great tools for the AP clerk. It’s irritating. Why are we enabling an obsolete position?
Yes, everyone loved the elevator operator. And it was a pretty important position when elevators were operated by gears and levers, but does anyone really think that position is relevant today? Once the technology advanced to the point that anyone could operate it, the need for the elevator operator disappeared.
The fully automated EIPP solutions of today are like elevator buttons. Yes, you still need an administrator for the whole system the way you still need elevator technicians that make sure everything is working. However, there’s really no need to have an AP clerk looking at every invoice and clicking on the screen on behalf of the supplier and buyer who can click on the screen just as easily themselves. EIPP has gotten that simple.
Fully automated payables with EIPP enables the buyer and the supplier to complete the invoicing process without a payables clerk (assuming we’re excluding inferior solutions). With a fully automated EIPP solution, any of the processes you’ve taught your AP staff can be configured into your EIPP system. A fully automated EIPP solution knows your PO matching rules and tolerances, it knows your approval routing rules with exceptions and special processing, it knows how to re-route approvals based on vacation and proxy situations even better than your AP clerk knows.
And a fully automated EIPP solution doesn’t do anything on accident. It doesn’t mis-key an amount after everything’s approved. It doesn’t forget that the particular project code needed additional approvals. It doesn’t just bypass duplicate detection rules when it’s “pretty sure” it’s not a duplicate invoice. It can calculate dynamic discounts and offer them to qualified suppliers. It’s available 24/7 to give suppliers and buyers status of any invoice as well as a description of all matching activities and all approvals processed and pending.
Creating tools for the AP clerk is akin to manufacturing elevator chairs for the elevator operator to sit on. For the AP clerk, it’s really just insulting. If they’ve been around a while, chances are they can think of much more productive things to do than keying, stapling, and answering supplier inquiries. Automate the mundane tasks and let them work on contract audits. Move them to another department. Train them in asset management. Try them in other accounting positions.
Just make sure that if you’ve received mandates from your executive team to cut costs and eliminate waste, that they don’t show up and see an elevator operator sitting in a chair asking them “what floor?”
Tags: Accounts Payable Department, AP Clerk, AP Staff, Approval Routing, Dynamic Discount, e-invoicing, EIPP, Electronic invoice, Electronic Invoice Presentment and Payment, Electronic Invoicing, PO Matching