Turning Accounts Payable Into a Strategic Partner: How AP Automation Drives Better Financial Visibility and Decision-Making

Transcription

1 Turning Accounts Payable Into a Strategic Partner: How AP Automation Drives Better Financial Visibility and Decision-Making AN APP2P NETWORK WHITEPAPER SPONSORED BY

2 Turning Accounts Payable Into a Strategic Partner: How AP Automation Drives Better Financial Visibility and Decision-Making Financial decision-making is a balancing act. Senior executives must balance priorities such as corporate growth, profits, and cash flow against concerns about debt, regulation, and cost of goods. But keeping these priorities and concerns in balance requires tremendous financial insights. It is for this reason that senior finance executives are taking a greater interest in accounts payable automation. What are these senior finance executives hoping to achieve by automating accounts payable? Lower overall accounts payable costs are certainly part of the equation, and rightfully so. But of greater importance, according to research from the Aberdeen Group, are strategic benefits that affect procurement, treasury and the C-suite. These include: Improved/standardized processes Optimized working capital management Higher on-time payment performance Improved spend management These strategic objectives are out of reach without visibility into financial information. And that s where accounts payable automation comes in. Senior finance executives recognize that as long as data is trapped on paper invoices and in manual processes, they will not have the timely insights and analytics they need to accomplish strategic objectives such as supply chain financing, liquidity management, and mergers and acquisitions. Compared to their peers, best-in-class accounts payable departments have more than four times the rate of visibility into overall organizational cash flow on a day-to-day basis, a Days Payable Outstanding (DPO) rate 13 days lower, and 61 percent lower invoice processing costs. 1 This paper delivers industry and peer insights into the growing importance of financial visibility to senior finance executives, four components of accounts payable automation that deliver strategic visibility benefits, and examples of real-world organizations that have achieved such benefits from accounts payable automation. Financial Visibility: A Strategic Imperative Improved visibility is a strategic item on the accounts payable agenda of financial executives. A whopping 69 percent of controllers surveyed by IOFM in 2015 indicated that improving visibility into cash flow and cash management was among their priorities. Additionally, 66 percent of controllers reported that developing effective measures to gain visibility into overall performance of finance and administration functions was among their top priorities IOFM, Diversified Business Communications. No part of this publication may be reproduced, stored in a retrieval system or transmitted by any means, 2

3 This clearly illustrates that controllers recognize that financial visibility is critical for: Reporting and auditing Cash flow analysis Liquidity management Spend management Contract compliance Supplier relations Unfortunately 45 percent of controllers surveyed by IOFM in 2014 identified the lack of visibility into invoices and payables information as their top payables challenge. Another 42 percent of controllers pointed to difficulty handling, managing and finding invoices as their biggest payables challenge, a clear illustration that the need for enhanced financial visibility is gathering momentum. The root of the problem is paper-based accounts payable processes which limit visibility in several ways: key data is not captured, data is hard to access, data is not readily available, systems are fragmented, and decisionmakers cannot access critical variables. Poor visibility into invoices also undermines the C-suite s ability to effectively manage cash the most important job metric to 38 percent of senior finance executives. 2 It s no surprise then that 41 percent of senior finance executives cite improved visibility into invoices and payables information as the biggest benefit of AP automation, topping all other benefits, including lower invoice-processing costs and fraud mitigation. 3 But to achieve this improved financial visibility, finance executives must understand and address four critical components of accounts payable automation: 1. Streamlined workflow 2. Automated indexing and storage 3. Tight integration between accounts payable and back-end systems 4. Reporting tailored to the needs of stakeholders 45 percent of controllers surveyed by IOFM in 2014 identified the lack of visibility into invoices and payables information as their top payables challenge. Another 42 percent of controllers pointed to difficulty handling, managing and finding invoices as their biggest payables challenge. Streamlined Workflow It takes 45 percent of accounts payable departments between 6 days and 25 days to process a single invoice (from receipt to payment approval), according to the Institute of Financial Operations (IFO). Invoices without a purchase order or for non-goods orders which typically involve an approval process encompassing multiple individuals take even longer. 3

4 Case Study: Avnet Fortune 500 company Avnet is one of the world s largest distributors of electronic parts, enterprise computing, storage products, and embedded subsystems. Avnet EM EMEA, a subsidiary of Avnet, provides services and solutions to a broad base of more than 100,000 customers and 300 suppliers. It also is the hub of a complex supply chain, processing more than 750,000 inbound invoices annually. The company streamlined its invoice processes to reduce manual touch points and achieve high levels of straight-through processing and also implemented a scanning solution to further automate the inbound processes. Since then, ongoing improvements have enabled Avnet to drive other significant improvements in the invoice process and embark upon e-invoicing. Avnet EM EMEA has already seen the cost of processing inbound invoices drop from 6.50 Euro to just 0.76 Euro. Information now flows directly from supplier invoices into Avnet s SAP system via its automated accounts payable solution. This cuts costs and ensures that any errors are highlighted quickly to enable fast remediation. Additionally, the accounts payable solution is reinforcing Avnet s supplier relationships while providing a strong platform for the adoption of supply chain financing. In a manual, paper-based environment with geographically dispersed managers, getting invoices from one party to another typically requires staff to scan invoices and mail them to the appropriate individual. The is then opened, printed, signed, re-scanned and ed back to the accounts payable department for processing. This manual routing of invoices for approvals is not only expensive and timeconsuming it also makes it difficult for staff to gain visibility into the status of invoices. A lack of visibility into invoice routing also opens the door to lost invoices, which can result in latepayment penalties, missed opportunities to capture early-payment discounts, and supplier inquiries. Workflow solutions automatically route invoices that require approval (such as non-purchase order invoices) or exceptions based on pre-defined rules. Freed from the drudgery of manually processing invoices, staff has more time for value-added activities such as reporting and analytics. Automated workflows also ensure that invoices requiring review are always sent to the appropriate person. Alerts and notifications, and real-time invoice tracking, help eliminate delayed or lost invoices. What s more, online collaboration facilitates the resolution of disputes between trading partners. This enhanced visibility with automated invoice workflows benefits organizations in several ways: Better management of the month-end accounting close and financial reporting process Faster resolution of disputes with instant access to data and online collaboration More opportunities to capture early-payment discounts through faster cycle times Faster resolution of supplier inquiries with ready access to invoice and payment status 4

5 To prove the point, according to the Aberdeen Group, accounts payable departments are able to process invoices 74 percent faster with automation compared to manual processing as a result of less manual keying, automated matching of invoices to purchase orders, electronic routing of invoices that require approval, and the elimination of manual keying of data into back-end systems. Sixty percent of controllers say that electronic approval and exceptions workflows were among their 2015 technology initiatives, topping all other technologies. 4 Automating invoice approval and exceptions workflows also delivers working capital benefits. Without automation, only 48 percent of payments are made on time, according to IOFM s research. But the rate of on-time payments jumps to a median of 90 percent when payables departments incorporate even a modest level of automation. Poor visibility into invoices also undermines the C-suite s ability to effectively manage cash the most important job metric to 38 percent of senior finance executives. In addition to eliminating late payments, accelerating invoice approval cycles with integrated accounts payable automation solutions provides organizations with more opportunities to capture early-payment discounts. For example, suppliers may offer a 2 percent discount if a bill is paid within 10 days instead of the usual 30 days. Over time, those discounts can add up. In fact, 16 percent of organizations surveyed for AIIM s Automating AP/AR Financial Processes report cited significant early-payment discounts as the biggest benefit of accounts payable automation. A company with $1 billion in annual revenues can achieve $1.6 million a year in early payment discounts, according to benchmark data from the Hackett Group. Automated Indexing and Storage Physically storing accounts payables documents makes it difficult to retrieve and assess invoices over time. In fact, two-thirds of organizations say that invoices, purchase orders, correspondence, supporting documentation and contracts are not easy to find. 5 To make matters worse, geographically dispersed personnel must wait for documents to be retrieved, copied and faxed or ed. Physical document storage also hinders an organization s ability to comply with audits or regulations on data access. Without automation, audits can turn into immensely expensive and time-consuming exercises requiring staff to rifle through filing cabinets and storage bins and try to establish clear audit trails. Physical document storage is also expensive (i.e. rent and insurance) and is at risk of natural disaster. Storing paper documents off-site creates its own visibility issues. Documents required for a financial close can be sent off-site too soon resulting in complicated audits and/or difficulties for procurement who cannot easily research spends on particular items or with certain suppliers. Electronic imaging and archive capabilities ensure that invoices are easily accessible to all authorized staff, even on-the-go staff via a mobile device. Invoices can be electronically linked to related documents such as purchase orders, check copies, proof of delivery documents, remittance advices and ad hoc documents such as s to provide a comprehensive view of each invoice, supporting approval workflows, as well as audit and compliance reporting. 5

6 Case Study: Ogilvy CommonHealth Worldwide Parsippany, NJ-based Ogilvy CommonHealth Worldwide (OCHWW), the health behavior change specialists of Ogilvy & Mather, is an example of an organization that struggled with cash flow visibility in a paper-based workflow environment. OCHWW receives approximately 35,000 paper invoices each year from its suppliers and many of these invoices need to be routed for approval or exceptions handling. As a result, staff had limited visibility into the invoice approval process. To improve cash flow visibility, OCHWW deployed an accounts payable automation solution seamlessly integrated with the agency s existing JD Edwards EnterpriseOne ERP system. The solution provides accounts payable staff with real-time visibility into invoice status. Globally-dispersed users can view invoices and related content such as purchase orders, remittance advices and check copies online via a web portal or directly within JD Edwards EnterpriseOne. What s more, OCHWW now has the visibility necessary to enforce financial and legal compliance regulations. It is for these reasons that 44.8 percent of controllers surveyed by IOFM reported that deploying an image repository for document archival and retrieval was among their technology priorities for Tight Integration between Accounts Payable and Back-End Systems Corporate accounts payable functions must interface with an enterprise resource planning (ERP) solution or other host accounting system for visibility as well as general ledger and budget management. Best-in-class accounts payable automation solutions enable tight integration with back-end systems without expensive customization and training, or the need to buy additional ERP user licenses. These advanced accounts payable solutions can be linked directly to an ERP system, enabling automated two- and three-way matching for PO-based invoices, as well as exceptions processing of non-matching invoices. Non-PO based invoices are automatically routed to appropriate staff for general ledger coding and approval. Non PO-based invoices that require exception processing can be viewed within an ERP system, or when necessary, within the accounts payable solution portal for review, coding and approval. Tax amounts for non-po invoices can be automatically calculated and coded based on the defaults in an ERP system. Once invoices are approved, the solution also creates a voucher in the ERP system. To be sure, integrating accounts payable with back-end systems accelerates invoice cycle times. But businesses can gain even greater benefits from the enhanced visibility the integration provides. Integrating accounts payable with ERP solutions and other back-end systems provides complete online review of all invoices as well as the ability to access data on invoice status, invoice volumes, and metrics such as operator productivity. All invoice data is available within the ERP or accounts payable system. A fully auditable record for each invoice, including the ability to view all invoice interactions and status changes and any documents related to an invoice, helps enforce financial and legal compliance regulations. Direct links to the address book and vendor master file in an ERP system allow for data validation and updates, eliminating the need for manual synchronization. 6

7 Case Study: Service Systems Associates Automation has helped Service Systems Associates (SSA) improve visibility into their invoice statuses, audit history, and reporting, while reducing paper storage and overnight shipping costs for payments. SSA provides service amenities in U.S. aquariums, zoos, and museums serving more than 27 million visitors per year. Its rapidly growing number of locations and tiny accounts payable staff of 1 ½ full-time equivalents (FTE) made it increasingly difficult for the company to manage the 3,500 invoices it receives each month. After an extensive evaluation of available solutions, SSA deployed an accounts payable solution that is integrated with its Microsoft Dynamics accounting software. Automating accounts payable provided SSA with greater visibility into invoice status, reducing the money it spends each year on overnight shipping of last-minute payments by $7,200. Accounts payable staff can now go into Microsoft Dynamics and find invoice information in seconds instead of searching through storage tubs filled with invoices. Automation also enabled SSA to eliminate physical storage costs and duplicate copies, resulting in $7,000 a year in savings. This 360-degree visibility into financial information through the tight integration of accounts payable and back-end systems provides decision-makers with the strategic insights they need to: Accurately forecast cash flows Make fluid decisions about keeping cash versus taking supplier discounts Gain leverage in negotiations with suppliers Identify opportunities to optimize electronic payment usage More easily analyze spend patterns Not surprisingly, this kind of visibility into business and financial information separates best-in-class companies from their peers. Aberdeen Group reports that best-in-class companies have more than four times the rate of visibility into overall organizational cash flow on a daily basis, compared to average companies. Reporting Tailored to the Needs of Stakeholders Nearly 60 percent of organizations are facing greater demands for real-time visibility into their accounts payable department financial information compared to two years ago, IFO reports. To make the right decisions with regard to investments, financing and budgeting, CFOs need full visibility into accounts payable which research suggests is lacking. In fact, six out of 10 treasurers think that their cash flow forecast has either significant or major inaccuracies. When CFOs are unaware of their spend liabilities, they can overstate or understate cash flow, take needless risks, or become needlessly risk adverse. As a result, CFOs are unable to invest optimally or address strategic goals such as 7

8 funding growth, paying down debts or financing mergers and acquisitions. CFOs aren t the only stakeholders who need access to accounts payable information. Controllers, treasurers and procurement leaders also require greater access to payables data as part of their job. Manual approaches to invoice processing make it difficult to impossible to quickly and fully assess spend liability and track spending patterns across locations, and prevent buyers from optimizing spend with suppliers or establishing predictable payment arrangements. Best-in-class companies have more than four times the rate of visibility into overall organizational cash flow on a daily basis, compared to average companies. The majority of organizations currently track and/or report on cash flow against current/future expenses. 6 Purchase order (PO)-based activities typically result in a series of spreadsheets proliferating within offices or at various locations to cover the exceptions that arise in the normal course of business. With non-pobased activity, accounts payable has no ability to determine what has been procured and what remains to be paid meaning that businesses can be inundated with a batch of invoices at the end of a quarter. Without visibility into actual liabilities, unexpected invoices can cause headaches, particularly if they arrive after a financial close and necessitate adjustments and corrected financial statements. Case Study: ASSA ABLOY ASSA ABLOY, a security company, gained a 360-degree view of its financials by integrating an accounts payable solution with its ERP system. The company is divided into two global and three regional divisions, with more than 40 group companies and approximately 44,000 employees worldwide. Previously, they used an accounts payable solution that didn t interface with their ERP solution which resulted in time-consuming, redundant, and costly manual processes. Upon learning that their existing accounts payable solution was being phased out, they began an exhaustive evaluation of available solutions. Topping its criteria for a new accounts payable automation solution was tight integration with their legacy ERP system on which the company was standardizing. ASSA ABLOY selected an accounts payable solution that integrated with the company s legacy ERP system and used the same interface to significantly reduce the learning curve for users. Invoices are now automatically entered into ASSA ABLOY s ERP system after scanning, providing remote workers with instant access to invoice information. The integrated accounts payables solution enables users to access all account-related documents such as images of invoices, POs and checks, and ad hoc files such as s related to a specific transaction. All account-related documents are uploaded and attached paper clipped to invoices during the coding and approval stage. 8

9 Case Study: Taggart Global Taggart Global builds and operates state-of-the-art coal preparation plants and material handling systems worldwide. In addition to its 14 permanent utility sites, Taggart is constructing 20 to 40 new sites around the world at any given time. Each of these sites works with multiple vendors resulting in more than 30,000 invoices per year that are processed by Taggart s three accounts payable clerks who also process between 80 and 100 expense reports each week. Sending and receiving a large number of invoices through the mail resulted in inaccurate reporting at the end of each month, and made auditing a headache. After an evaluation of four options, Taggart selected an accounts payable solution that would work with its proprietary project management software and seamlessly integrate with the company s Microsoft Dynamics GP platform. Taggart s accounts payable staff now has full visibility into invoice processing and expense reporting at every stage of the process. Invoices and expense reports can easily be tracked, and the problem of lost invoices has virtually been eliminated. Integrated reporting provides accounts payable staff and project managers with financial and operational insights. Additionally, project managers have self-service access to documents, reducing the number of inquiries to the accounts payable department. For these reasons, 40 percent of organizations identify improving AP reporting and analytics as a top priority for 2015, according to Ardent Partners 2015 epayables 2015: Higher Ground report. By leveraging integrated accounts payable automation solutions authorized users such as CFOs, controllers and treasurers can get instant online access to financial information at virtually any point in the process via dashboards and a library of standard reports that offer real-time visibility into accounts payable operations. Bundled reports included with some accounts payable automation solutions provide a comprehensive view, not only of transactional data passing through the system, but also analytical information such as productivity and audit data. Enhanced reporting provides sophisticated options for viewing and analyzing system data. In most accounts payables systems, reports can also be customized or added as needed. CFOs can use these tools to access organization-wide spend visibility, AP cash flow, AP process metrics, and financial KPIs (e.g. DPO). They can also drill-down into business units and locations. Summary Business leaders cannot accomplish their strategic business and financial objectives without full visibility into their financial data. Decisions on working capital management, investments, and mergers and acquisitions require real-time insights into spend-related liabilities. It is for this reason that more organizations are automating accounts payable to improve financial visibility and agility. Best-in-class accounts payable automation solutions enable organizations to accelerate workflows, automate document indexing and storage, more tightly integrate accounts payable with back-end systems, and generate timely reports tailored to stakeholders. 9

10 These powerful capabilities bring a new level of visibility and control to finance operations, putting decision-makers in full command of their cash, which, in turn, benefits the entire enterprise from accounts payable and procurement to treasury and the C-suite. Most importantly, it transforms accounts payable from a tactical operational function into a strategic source of enterprise-wide visibility. About the Sponsor This whitepaper was sponsored by Bottomline Technologies. Bottomline Technologies (NASDAQ: EPAY) powers mission-critical business transactions. We help our customers optimize financially-oriented operations and build deeper customer and partner relationships by providing a trusted and easy-to-use set of cloud-based digital banking, fraud prevention, payment, financial document, insurance and healthcare solutions. Over 10,000 corporations, financial institutions, and banks benefit from Bottomline solutions. Headquartered in the United States, Bottomline also maintains offices in Europe and Asia-Pacific. For more information, visit About the AP & P2P Network The AP & P2P Network is the leading provider of training, education and certification programs specifically for Accounts Payable, Procure-to-Pay, Global and Shared Services professionals as well as Controllers and their F&A teams. Membership to the AP & P2P Network ( provides comprehensive tools and resources to financial operations professionals who manage or are deeply involved in the Accounts Payable and Procure-to-Pay process. Focus areas include best practices for every AP & P2P function; AP & P2P metrics and benchmarking data; tax and regulatory compliance (e.g. 1099, 1042-S, W-9, W-8, Sales & Use Tax, Escheatment, VAT, Canadian Tax, Internal Controls); solutions to real-world problems challenging your department; AP & P2P automation case studies; member Q&A networking forums, Ask the Experts, calculators, and more than 300 downloadable, customizable AP & P2P policies, flowcharts, templates and internal control checklists. A membership to the AP & P2P Network provides tangible ROI to any organization saving your organization time, money and keeping you compliant. Over 10,000 professionals have been certified as an Accredited Payables Specialist or Manager (available in English, Simple Chinese and Spanish), and Certified Professional Controller through the AP & P2P Network and its parent company, the Institute of Finance & Management. AP & P2P Network also hosts the Accounts Payable and Procure-to-Pay Conference and Expo (Spring and Fall), designed to facilitate education and peer networking. The AP & P2P Network is produced by the Institute of Finance and Management (IOFM), which is the leading organization providing training, education and certification programs specifically for professionals in Accounts Payable, Procure-to-Pay, Accounts Receivable and Order-to-Cash, as well as key tax and compliance resources for Global and Shared Services professionals, Controllers and their F&A teams. With a universe of over 100,000 financial operations professionals, IOFM is the trusted source of information in the rapidly evolving field of financial operations. 10

11 Notes: 1: Aberdeen Group 2, 3, 6: Institute of Financial Management 4: Aberdeen Group 5: Association for Image and Information Management 11