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Automation is a tricky word when it comes to accounts payable operations. For some departments, those just starting the journey toward becoming fully automated, it means introducing imaging technology that streamlines the way they handle invoices. For departments that have embraced the latest advancements in AP technology, it means taking advantage of dynamic discounting through portal software that lets vendors service their own accounts.
One thing is clear: Technology holds the key toward transitioning accounts payable from a cost center into a profit center and making the AP professional’s job strategic and even more relevant. The problem, industry watchers say, is that there’s no “one size fits all” solution, and each department is left to cobble together its own set of tools to fit its individual needs. So should an AP department automate or not? It’s a tough call. Some aren’t sure where to begin, how much to automate, or what technology to use.
But there’s good news. The number of tools is growing as innovative companies work to solve the AP automation dilemma. As the AP profession gains new stature, capturing the attention of controllers, CFOs, and even CEOs looking to cut costs and preserve precious dollars in an economy hit hard by recession, companies that offer solutions in AP technology are racing to come up with ways to improve speed and accuracy in processing payables.
“It’s a green field for us,” says Joe Flynn, president and CEO of Lavante, a San Jose, Calif., company that specializes in strategic recovery and vendor file management. “We’re introducing technology where none exists and through means that are affordable and accessible to companies of all sizes.”
The challenge
How much is the AP profession using technology? Not much yet, according to the 2009 AP Automation Study conducted by International Accounts Payable Professionals, Hyland Software Inc., and IAPP’s sister organizations, International Accounts Receivable Professionals and The Association for Work Process Improvement.
Proponents say automation can help AP departments save time and money, reduce errors, and recover dollars lost to unrefined processes. It can free AP professionals to focus on strategy while technology takes care of the tactical work. But right now many departments are using just enough to get the job done. The study’s results, released in December, show an overwhelming majority are still using paper – hand-delivered or snail-mailed – to process invoices.
And that’s not expected to change dramatically anytime soon. Fewer than 12 percent of those surveyed plan to introduce the latest automation tools into their AP processes within the next year.
Those tools include:
• Front-end data capture – scanning invoices when they come in.
• Back-end data capture – archiving documents by scanning them in after they’re used.
• Optical character recognition (OCR) – scanning documents to mine pieces of information such as words and numbers and electronically move them into the database.
• Approval workflow – routing tasks based on a user’s role and access.
• Electronic invoicing – transmitting invoices to suppliers electronically.
• Electronic payments – transmitting payments to suppliers electronically.
• PO flip – electronically generating invoices from purchase orders.
• Electronic data interchange (EDI) – sharing information between computers electronically by using standard formats for items such as purchase orders, invoices, and payments.
• Electronic funds transfer (EFT) – generating electronic payments and collections.
• Evaluated receipt settlement (ERS) – conducting a transaction without an invoice, using only a purchase order and a receipt.
• Dynamic discounting – working with a sliding scale of payment terms depending on timing of remittance.
• Supplier/vendor portal – using a Web-based interface that allows suppliers to see and update the status of their transactions and electronically communicate with the purchasing company. These are also increasingly used for vendor on-boarding, or introducing new supplier information into the database.
• Travel and entertainment expense reporting system – submitting and processing receipts and expense reports electronically.
• Outsourcing scan and capture – hiring a company to scan in documents and capture information from them into a database.
“We’re always surprised at how little automation is being used out there,” says Jim O’Rourke with ICG Consulting in Scottsdale, Ariz., which helps AP departments integrate technology into their processes. “You’ll find different companies using different elements of it. Some companies are using imaging, some on the front end and some on the back end. Some are using OCR, EDI, PO flip. In any one of those given technology silos, there’ve been a lot of good advancements. But we’re not seeing a lot of holistic adoptions. … We’re not seeing that one killer technology solution. That’s what’s still missing.”
Baby steps
How will the culture change when employees are accustomed to receiving invoices by mail, paying with a paper check, and walking down the hall to turn in their expense reports?
The first step toward transformation is eliminating paper, experts say. Some AP departments think that means back-end data capture, or scanning pieces of paper into an electronic format that can be archived electronically instead of stored in a filing cabinet.
“That’s where we were in 1991,” says Nick Sprau, vice president of marketing for Metafile Information Systems headquartered in Rochester, Minn. “That is an important first step, but we like to skip that one. If that’s all you’re going to do, you’re defeating the purpose.
“Capture information up front electronically instead,” he says. “Use an electronic filing cabinet. Capture those invoices electronically when they come in, not in stacks on a desk. The worst thing about paper is it can be in only one place at one time.”
One of the biggest obstacles to implementing paperless processes, Sprau says, is the fear that customers will walk away if you ask them to do something new, or that entering information for all of an AP department’s vendors – the on-boarding process – will be too cumbersome.
“We need to relieve the mentality of AP departments that it’s either all or nothing,” he says. “This is a spectrum of efficiency that can be traveled at their own pace. Typically, 80 percent of invoices are coming from 20 percent of your suppliers. If you are doing major business with suppliers and you ask them to do something, they will adhere to it because they value your business. If you can do that, this will eliminate 80 percent of the problem right off the bat.”
Organizations are increasingly recognizing that the transition from manual to automated AP departments can be achieved through multiple small steps rather than a “big bang” initiative, consulting firm PayStream Advisors of Charlotte, N.C., wrote in its 2008 white paper “Imaging and Workflow Automation: Using Today’s Imaging Technology to Improve Business Processes.”
PayStream outlines four stages of AP automation, from focusing on invoice and document management – the elimination of paper, the first stage – to the second and third stages, which involve electronically receiving invoices and using advanced OCR techniques to mine information from paper invoices, to the most advanced stage, which involves handling almost all transactions electronically and taking advantage of the maximum cost savings that can come with automating.
“Innovative buyer organizations have also considerably reduced the number of invoices flowing through the approval workflow process and are relying heavily on straight-through processing to manage clean invoices – those that do not have any errors or those that meet certain predetermined criteria,” PayStream Advisors wrote in the white paper. “This enables organizations to direct valuable AP resources toward managing exceptions and accelerating dispute resolution with suppliers.”
Part of the challenge, though, is that the four stages are not necessarily linear, O’Rourke says. They don’t have to be implemented in sequential order. That gives AP departments numerous choices to make when they decide to automate.
“AP does not lend itself well to standardized solutions. Every business is different, every company is different,” says O’Rourke from ICG Consulting. “The way they do payables is different.”
He points to the varied needs of some of his client companies: One requires different approval processes depending on the department. One has to pay liquor bills by a certain day of the month by law. Another is in the food business and has to pay invoices within seven days, before meat spoils, and “automating the process isn’t just convenience, it’s their livelihood, it’s their business. They’re incredibly automated because they have to be.”
A single type of AP automation doesn’t fit all scenarios, he says. “Therefore, people are left all over the board. You see a great vendor, fall in love with that solution … you go out and spend money on an OCR project, and a year later, you’re kind of disappointed in the results. That’s because you’ve implemented one phase and haven’t changed what you’re doing.
“Very few people are helping do a holistic, unified process. There is no one technology vendor, no single source, so the AP department has to have a vision, plan, be patient, and then go out and follow this path.”
Accounts receivable doesn’t have the same concerns when it comes to automating, O’Rourke says. “In AR, there aren’t the cultural differences. Everybody wants to collect money and collect it fast. It’s all the same game, and it doesn’t matter what business you’re in or what margin you’re working with. … AR gets a lot more focus, because guess what: Companies are more willing to invest in something that helps them collect money – not in helping them pay their bills. When it comes to standing in line at budget time, AP doesn’t get a lot of visibility.”
Another major obstacle, O’Rourke says, is trying to get AP to fit into the technology companies are already using.
“The 800-pound gorilla in the room is the ERP system,” he says. “Once you bring in SAP or Oracle, they’re great accounting systems, but not great AP processing systems. AP has to use them, and unless you wrap some technology around it, that’s a lot of the problem.”
Unfortunately, when a company spends money on an ERP system, he says, it’s not going to be wild about also investing in AP technology.
The people factor
Automating is not always the most politically correct decision an AP department can make. Streamlining processes is good for the company’s overall bottom line, but it sometimes means fewer people are needed to handle the tactical parts of the job.
Salaries and benefits are by far the largest component in calculating the costs of processing invoices, according to 95 percent of respondents in the IAPP 2009 Automation Study. However, when asked whether introducing technology into their departments resulted in a reduction of staff, 49 percent of those responding said no, 28 percent said yes, and 23 percent were not yet sure how their departments would be affected.
Even if automation means fewer employees are needed to process the routine transactions, O’Rourke says, AP professionals ideally can instead turn to strategic work, such as handling transactions that can’t be processed manually because of exceptions; determining how to take advantage of discounts that come from paying early; recovering payments made in error; further streamlining accounts payable processes; and additional tasks that can’t be automated. Or they can transfer to other departments or split their time between AP and AR, purchasing, procurement or other financial functions.
“Be smart about it, and if you can, place these people,” O’Rourke says. “What’s the point in automating if you’re not going to have a more efficient operation? It is an issue and we see it all the time. … People don’t like to see people get laid off, and that’s understandable.”
Growing companies can use automation to prepare for the future. By using technology, O’Rourke says, AP departments can take on the additional work of a larger vendor base or a merger or acquisition without adding staff, which is a big plus.
Paper, paper everywhere
Perishable Distributors of Iowa started automating some of its processes in mid-2008 in an effort to reduce data entry and decrease the movement of paper. In a worst-case scenario, it was possible for a single document to be touched as many as 32 times as it made its way through the company’s approval processes.
Automation has been a journey for the food wholesaling company based in Des Moines, which has to process the documentation that comes with receiving 70 tractor-trailer loads of products daily. The company hasn’t been able to fully automate its AP processes because of the variety of ways its 4,500 vendors submit invoices, from the high-tech procedures of companies like Kraft to the handwritten documents a mom-and-pop operation submits dockside for a load of shrimp. PDI requests that vendors send their invoices electronically but doesn’t demand it.
“We’re dealing with extreme ends of the invoice process here,” says Gary Churchill, assistant vice president of information technology for the company, which is a subsidiary of Hy-Vee Inc. “There are limits to how far we can go in demanding from our vendors. We believe in a very strong partnership with them and not an adversarial one.”
PDI tries to bypass the manual scan process as much as possible by using electronic data interchange or PDF images. “Every time you enter data manually, you increase the risk of error,” Churchill says. “We wanted to take the workload out of it for our users so they’re reviewing the document for accuracy to pay it.”
Since the company started working with Metafile to automate its processes, its AP team has seen multiple benefits, Churchill says. Accounts payable has been able to handle the workload with the same staff even though its operations have expanded. There are fewer problems covering shifts when someone is sick or on vacation. AP workers don’t have to look for duplicate payments or issues like multiple invoices for a single purchase order or multiple purchase orders for a single invoice because those tasks are now handled electronically.
The new system shortened the time it takes to process an invoice from seven days to one. The department can take advantage of more discounts for early payment now because the system is running transactions through the workflow by due date, so items that need to be paid first are tracked automatically. A digital dashboard allows the AP supervisor to monitor invoices in real time, using a color-coded system to indicate items due in the future, in seven days, or in three days. The supervisor can also use the workflow technology to quickly track down any single transaction.
It’s now easier to communicate with customers and vendors via e-mail, where AP can share images of documents and respond more quickly to questions.
To begin automating, the company created a roadmap of what it wanted to accomplish and held meetings with a team made up of people from treasury, purchasing, inventory, and transportation, in addition to accounts payable. The information technology department took the lead on the project.
“We were so paper-driven,” Churchill says. “A portion of the warehouse was dedicated just for paper.”
Next, the company is introducing automation into its processes for handling expenses, including maintenance contracts for hardware, purchasing documents, capital expenditures, and travel and entertainment reimbursements. In the long-term future, the company plans to expand automation into the transportation and human resources divisions, using technology to track freight and process applicants.
“We’re not limiting ourselves to what we can scan in,” Churchill says. “We plan on embracing it and going paperless as much as we can.”
The future
While some AP departments make initial decisions about the basics of jumping into the technology pool, the industry that supports them continues to plug away at the latest, greatest solutions. That’s a challenge because the AP profession is evolving, which means service providers are aiming at a moving target.
Sherry DePew, vice president of product management for strategic recovery and vendor file management firm Lavante, formerly served as head of the accounting shared services division at Boise Cascade, where 100 percent of the invoices were processed with paper. Even for a paper manufacturing company, that seemed excessive to her. She remembers saying, “We’re so far behind – how will we ever catch up?”
DePew led her team’s move into technology, and when she left in 2008, about 96 percent of dollars and 88 percent of invoices were handled electronically.
Today she touts the services of Lavante, which operates in a paperless environment. The company of about 70 employees has grown rapidly since the development of its on-demand strategic recovery portal and is now expanding to offer a self-service vendor portal that enables vendor on-boarding, updating of critical data, and uploading of documents for shared visibility across a client’s entire enterprise; and TIN management services, which automate the process of collecting and matching a vendor’s W-9 form and its tax identification number, or TIN, with the IRS. The company is developing additional portal-based features for future release.
“Think of all the different parts of a company that are communicating with suppliers to gather information: procurement, contracts, AP, tax, risk management, diversity,” DePew says. “As they’re gathering these pieces of information from the suppliers, they’re all gathering a core base of about 20 pieces of information along with it – attributes like the name, address, and phone number. Think about how much time you’re spending with every single touch point with this vendor, and then multiply that – say, 25,000 vendors by eight or 10 contacts within a company. Demand is huge today, and corporations don’t have the resources to collect all this information and keep it up to date.”
Vendor/supplier portals and dynamic discounting seem to be the pinnacle of AP automation, but other gee-whiz technology is keeping the industry interesting.
Oversight Systems of Atlanta started out in 2003 building software that looked for fraud in accounts payable. In beta testing, the first clients said, “You didn’t find fraud, but you found mistakes and you know who did them.” They were thrilled, says Patrick Taylor, the company’s founder and CEO.
Today, Oversight offers technology that continuously monitors transactions to look for waste, abuse and errors, instead of just fraud. Then it drives the problems through an automated resolution process to determine how to fix them.
“Our beginning premise is that no business process works perfectly,” Taylor says. “Things go wrong because people are involved, and people make mistakes once in a while, and sometimes technology doesn’t work perfectly. The sooner you find and fix the problem, the better. It’s always easiest to correct a problem immediately than it is to do it a week later or months later.
“We keep track of all that so you can prove to your auditors everything you’ve done. You can have reports to improve the process. We’re going to accumulate great data, such as ‘Fred’s always making mistakes so Fred needs more training.’”
One big trend he’s seeing, Taylor says, is that people like the power of using purchasing cards but are not fully confident in the ability to manage the risk involved. They’re less expensive to process than purchase orders, for instance, but there’s no risk in someone using a purchase order to go to Nordstrom’s to buy clothes.
“People are trying to figure out how to drive the control they need into those programs,” he says. AP departments are also trying to determine how to automate the process of making sure organizations follow terms negotiated with vendors for items such as hotel rooms, he says.
The basics
For companies like Metafile, which has been in business about 30 years, helping AP come up with solutions has been all about understanding the processes behind the operation and then integrating them with the organization’s existing technology before introducing new tools.
“It really is being able to understand that entire process from a high level and integrate with not only the other technology within your organization, but also with the other stakeholders inside and outside the organization beyond AP,” Metafile’s Sprau says. “Simply making what the typical AP worker does more efficient is not enough to push this thing. There’s a lot of, ‘If it ain’t broke, don’t fix it,’ but they don’t understand how broke it is. They don’t understand how many discounts they’ve missed, or how much time they spend going to look for answers to suppliers' questions about the status of invoices.”
Once automation is used to take out some of the inefficiencies and even bottlenecks that can develop within an AP department, a company can obtain real-time visibility into what it expects to spend, what kinds of additional discounts might be available, and other issues that are sure to get the attention of high-level executives such as the CFO. Supplier relationships can be handled more proactively, and calls can be fielded in a more timely manner. There are a lot of possibilities.
“It’s our goal to make the routine things happen automatically and have a very efficient way to handle the exceptions,” Sprau says. “There’s always going to be something that doesn’t flow through, but that should be put in an organized and easy-to-find spot so it can be focused on. … We’re not trying to take the personality out of this work. We’re trying to make AP employees be value-add instead of having them push paper around. Let the humans do the human things.”
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