Automated Payables Solutions: A Moment of Truth
By Chris Morris, Director of Payment and Treasury Solutions, Cambridge Global Payments
From my perspective, key behaviors among high performing businesses are that they continually seek ways to innovate, reduce costs and become more efficient. In this respect, automation of key business processes reflects a clear opportunity for efficiency gains. The traditional procurement and accounts payable (AP) function is no exception. Utilizing a digital approach to both procurement and payments, it’s now possible to prepare invoices for approval and electronic payment in under 24 hours.
This impressive claim is consistent with benchmarking research for ‘best-in-class’ industry performance. For example, according to the Aberdeen Group (a leading North American IT research and analysis firm), top industry performers take just 4.1 days to process an invoice from receipt through to approval at an average cost of $3.34 per invoice. This compares to worst-in-class performers, where invoice processing and approval takes 16.3 days at an average cost of $16.67 per invoice.
Take a moment now to think about where your business might sit within this performance range. Even if you don’t use the same key performance indicators (i.e., invoice processing time and average cost), it’s reasonable to assume that if your business still relies on manual, paper-based AP processes, you are more likely to be experiencing below average performance.
Now comes the moment of truth. That is, with just these few seconds of candid self-reflection regarding your current procurement and payables functions, you should be able to make a reasoned judgement as to whether you want your back-office process to be better and more efficient. Hopefully, the answer is an unqualified yes! For instance, you might have a stack of paper invoices sitting on your desk, or the desks of your staff, waiting to be processed. Or you know that your existing manual data entry, invoice matching and approvals process is contributing to a loss of productivity and costly errors (such as incorrect data entry, duplicate supplier profiles and late payments). If any of these issues resonate, the following information may be helpful in your consideration of a holistic solution for your organization’s “procurement-to-payment” (P2P) process.
The Case for Automated Payables
We live and work in a digital age. Technology innovations have created an opportunity to centralize key payments processes, to drive human resource and infrastructure efficiencies, and to achieve time and cost reductions. Changes to financial standards, tax obligations and more rigorous regulatory compliance and reporting requirements have also contributed to make procurement and AP processes more technical and complex. In addition, customers and suppliers have much higher expectations regarding access to payments information and electronic fulfilment options. All of this puts today’s procurement and payables functions under enormous pressure.
Automation Drives Efficiency
Automation is the critical solution to drive efficiencies. Key goals of automation are to improve quality, visibility, timeliness, accuracy and overall process efficiency. It should also support financial and senior management decision-making. Recognize also that automation is a change management initiative that requires executive support, strong leadership and good design to be effective. In most organizations, it is the purchasing, procurement and/or financial folks like you who are best-positioned to lead this change. Consider working with your internal teams or partnering with a trusted service provider to help quantify and monetize the key benefits (listed below) of an automated payables solution as part of your cost/benefit analysis for conversion. Internal collaboration is key to identify synergies across the “procurement to payment” supply chain.
Key Benefits of an Automated Payables Solution:
Importantly, automation initiatives for procurement and payables should consider best practice processes and controls. The simplest way to do this is to contact different AP automation suppliers and outsourcing providers and explain your unique needs. There’s certainly no need to re-invent the wheel or start from scratch (i.e., you don’t have to be the expert). Here are some key steps to keep in mind as you consider how best to move from your current process to an efficient automated solution.
Step one: Digitize your invoices. Paper invoices can be converted to electronic format with front-end scan and capture technology. Once digitized, electronic data can be automatically populated into a web-based workflow system that is customized to your unique requirements. Flexible technology options for electronic invoicing can also help build supplier relationships and reduce invoicing costs.
Step two: Customize a web-based workflow system. A web-based workflow system should be designed to integrate seamlessly with your organization’s existing accounts payable system and processes. This overlay approach is designed to leverage your existing accounting system and help minimize costs and streamline implementation. For you and your staff, it will mean less teething problems and retention of existing (familiar) interfaces and reporting capabilities. Integration of the web-based workflow system with a supplier portal can also enable suppliers to check on the status of invoices, providing better end-to-end visibility and control.
Step three: Review and update your process controls. The web-based workflow system will provide for efficient invoice routing and approval from a PC or mobile device, coupled with purchase order verification, exception management and resolution. Accordingly, a critical requirement is to review (and update) your existing procurement and AP processes to ensure that proper internal and management controls are in place. If you’re considering an outsourced solution, make sure the third party has the capability to document and enforce internal control procedures (including changes) so as to comply with financial transaction standards and accommodate changing regulatory and audit requirements.
Step four: Choose an electronic payment fulfillment system. An electronic payment fulfillment platform can provide optimized funds disbursement for payment of approved invoices from the web-based workflow system. Leading service providers will have proven best-practice supplier enablement processes to address the key challenges of getting suppliers to provide accurate contact and banking information. The fulfillment platform will automate electronic payments and provide secure and flexible remittance options, including electronic funds transfer (EFT) and prioritized card payments. The top performers in the industry can address those challenges with very little IT resource requirement.
Step five: Safely upload invoice payment data. The most efficient solution is to generate a single payment file (i.e., in TXT, CSV or XML format) from your existing AP system for upload to the electronic payments platform. Typically, this is done via Secure File Transfer Protocol (SFTP). Payment files, with beneficiary and payment information, can then be dropped into a secure folder and automatically uploaded for supplier validation and custom remittance. Consolidated funding transactions are initiated via an Automated Clearing House (ACH) debit and can be reconciled against your AP sub-ledger. Where payments are transacted in foreign currencies to global suppliers, a reconciliation file will show the exchange rate and funding amounts for each payment.
Step six: Consider a “straight-through” processing system. Scalability of an automated payables solution is your final consideration. A quality outsourced solution should be sufficiently flexible to respect any limitations of your existing accounting system while also adhering to corporate workflow processes and policies. Further, service providers should have the ability to provide strong accounting expertise, maintain the integrity of your database, and provide 24/7 customer and compliance support.
For the procure-to-payable function, ‘best practice’ performance reflects the ability to process invoices for approval and electronic payment in less than a day. Integration with an electronic payment fulfillment platform is critical to blend secure file transfer capability with supplier validation and custom remittance options. This level of sophisticated automation is achievable today. Organizations should target a best-fit solution that leverages existing procurement and accounting systems and back-office infrastructure, while enabling continuous process improvement and compliance. Outsourced technology providers should be able to offer a fully integrated and scalable technology platform, coupled with personalized support.
As Director of Payment and Treasury Solutions at Cambridge Global Payments, Chicago, Chris Morris works closely with global procurement and purchasing professionals in many different industries to advise on their current processes and develop thoughtful strategies and programs aligned with common departmental goals of reducing operational cycle times and measureable cost savings through optimizing the P2P process. He also advises on matters of foreign currency volatility. He can be contacted via www.cambridgefx.com. For more information on how foreign markets and currency volatility will impact your business next quarter, check out Cambridge’s Currency Insights.
Cambridge Global Payments is a leading provider of integrated cross-border payment services and risk management solutions. As a trusted partner for over 20 years, Cambridge delivers innovative solutions designed to mitigate foreign exchange exposure and address unique business needs. The company’s award-winning capabilities and industry-leading technologies simplify the way businesses connect with the global marketplace. As one of the largest bank-independent providers globally, it is flexible and responsive, with offices across North America, Europe, and Australia. Learn more at cambridgefx.com and follow Cambridge Global Partners on Twitter and LinkedIn.
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