March 8, 2013 Balancing the Budget with Payables Automation
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