Kofax White Paper. AP Automation for Microsoft Dynamics AX. Best practices for Accounts Payable

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1 Kofax White Paper AP Automation for Microsoft Dynamics AX Practical Advice on Why to Do It and How to Get It Right This white paper is written for finance professionals who are considering investment in accounts payable (AP) automation software for Microsoft Dynamics AX. It will discuss best practices, provide an overview of AX AP functionality, discuss software that can extend AX to deliver the desired best practices and provide an overview of the Kofax AP Agility accounts payable automation solution for AX. Best practices for Accounts Payable Best practices are methods or techniques that have been proven to deliver superior results. Many organizations have authored documents on best practices for accounts payable, including The Hackett Group, Aberdeen Group and the Institute of Finance & Management (IOFM). Most importantly, best practices are in use among the world s leading organizations, especially those that have invested continually in AP automation and reaped the rewards of that investment. Finance professionals should consider best practices when developing an automation strategy, and should evaluate software for its ability to deliver them. The Hackett Group s research has identified an important set of best practices that include centralized invoice receipt, consolidation into shared service centers, the electronic capture, separation, classification, extraction and validation

2 White Paper AP Automation for Microsoft Dynamics AX Page 2 and online entry of data in the ERP, workflow with clearly defined rules for time to respond, formalization of secondary approvers, a single online portal for employees and self-service portals for supplier interaction. As Hackett attests, these are the best practices that are material when automating AP. IOFM s exhaustive best practice checklist contains many considerations. For example, in the area of controls it includes segregation of duties, avoiding duplicate invoices and monitoring invoices on hold; in operations it includes measuring productivity and establishing and reporting benchmarks. These are among the most visible of IOFM s best practices that should be embedded in software that automates the process. These best practices serve as the foundation for an efficient, effective and comprehensive AP process that will achieve high quality at a low cost, and create satisfied internal customers. Most importantly, it creates satisfied suppliers as they are paid accurately and on time. The automated, end-to-end process puts AP in charge of its cash. As invoices are rapidly approved, on-time payments ensure the capture of available discounts trade financing or dynamic discounts can enable the capture of additional discounts and cash requirements are available real-time and online. Best practices deliver material financial benefits. The Institute of Financial Operations July 2013 study documents that 16.3 percent of organizations have a cost per invoice of less than $2, while 56 percent have a cost greater than $6. While it is rare for an organization to publish the results of their investment in AP automation software, available studies document that it is a very attractive investment, achieving payback in less than 18 months. Why AP Automation? Motivations for implementing accounts payable automation differ from one organization to another, but common motives include: It s a good investment: Accounts payable automation s attractiveness as an investment is well documented. Studies by The Hackett Group, the Institute of Finance and Management, Aberdeen Group, the Institute of Financial Operations and many other independent industry experts document broad and substantial cost savings that can be leveraged to justify the investment. Optimize an important asset Cash: Accounts payable is one of the organization s largest consumers of cash. The automated accounts payable process enables AP to accurately project its pending cash requirements. It eliminates guesswork and negotiation. The automated process optimizes capturing early payment discounts. Improve compliance & visibility: Digitize invoices and other AP-related documents for archive and compliance purposes and for better visibility internally. Support the complete review of all information online through accessible and straightforward user interfaces Achieve operational excellence: Process information from invoices and other AP documents faster, more productively, more accurately and with better visibility for improved productivity and control at lower cost. Reduce errors dramatically and embed internal controls into the process, ensuring adherence and reducing AP s workload. Improve supplier relations: Establish new levels of engagement and collaboration through information-rich AP process automation, optimization and analytics. Deliver financial agility: By transforming and simplifying the information-intensive interactions that typify AP processes, increase the flexibility of financial operations.

3 White Paper AP Automation for Microsoft Dynamics AX Page 3 Microsoft Dynamics AX: a Rising Force Based on a product acquired over ten years ago, Dynamics AX, the flagship offering of the Dynamics line, has matured into an ERP offering that is now a contender for large enterprise ERP, competing with Oracle and SAP. In 2010, Gartner Research named Dynamics AX a leader in vision and execution. Dynamics AX 2012, the most recent release, vaults Microsoft into the leadership position for ease of use with its role-tailored user interface based on Fluent (the foundation for other Microsoft user interfaces). It features a global foundation that can scale to 10,000 users in a single instance and enables pervasive integration with other Microsoft technologies and products, including Microsoft Office, Exchange and SharePoint. Dynamics AX is therefore easy to adopt for employees already familiar with Microsoft product interfaces, and is simple to connect to customers, suppliers and partners. When contrasting with SAP and Oracle, customers will note that ease of use and connectivity are significant differentiators for Dynamics AX. The 2012 version is positioned as agile, embeds consistent processes and a focus on tasks and, while a strong competitor in any industry, also includes industry solutions that meet the specific needs of manufacturing, the public sector, retail, service industries and distribution. It offers role- and task-based security and provides management with rich, embedded business intelligence that includes a set of KPIs and 800 out-ofthe-box reports. It is available today as an on-premise application, with partner-based private cloud, and a roadmap for Azure, Microsoft s cloud, in the near future. In Panorama Consulting s 2012 Clash of the Titans, an independent comparison of SAP, Oracle and Microsoft Dynamics, it is noted that while SAP and Oracle are seeking to grow by tailoring their offering to medium and smaller sized organizations, Dynamics AX has made significant progress with larger organizations. Cited by customers for its ease of customization, high flexibility, ease of integration, familiarity of user interface, strong inter- and multi-company support, strong multicurrency and localization capabilities and more, it also has the shortest implementation time of the Big Three. Accounts Payable for Microsoft Dynamics AX: Getting It Right Manage the Process, Not Just the Data ERP s role in AP automation is to manage the data. Microsoft Dynamics AX presents AP staff and others with a series of screens that are used to create suppliers, enter invoice data, post invoices, and pay invoices. It does not address the processes surrounding the data, most notably invoice capture and entry, purchase order matching and exception processing, invoice approval, the easy entry of accounting codes, inquiries, exception processing (escalation, expedition, return to supplier, etc.) and the automatic enforcement of internal controls. Best practice AP automation for Microsoft Dynamics AX requires complementary technology and solutions to automate these processes and deliver a more efficient, error-free, streamlined, secure and compliant AP operation. Given its more recent ascendance into large enterprises, proven AP solutions from reliable partners are less available than for Oracle and SAP. Automate Low Value, Error-Prone Tasks Invoice capture and entry is mind-numbing, low-value work. In the manual process, an AP professional first sorts the invoices, identifies the supplier in the master file and enters the appropriate information. This task is the source of many AP errors, and its repetitive nature

4 White Paper AP Automation for Microsoft Dynamics AX Page 4 works to its disadvantage. Invoice capture and entry is also characterized by invoices in a variety of different media, including paper, fax, EDI, e-invoices from supplier networks and attachments. In many cases, organizations employ different processes for each media type, which is expensive and contributes to error rates, even when data entry may not be required. Consistent Processing of All Types of Invoices The best practice is to employ a single, consistent process for the capture of all types of media, preserving the invoice as submitted in its original format; the automated extraction of data; its validation against ERP data and business rules and resolution of any discrepancies identified during processing; concluding with the automated entry of invoice data into Dynamics AX. Automation eliminates AP data entry completely. Organizations should carefully examine capture software to ensure that it manages all media formats in a single, consistent process. Multiple processes require multiple systems and role specialists, often leading to a different representation of data in the downstream process. The accuracy of the smart capture process requires AX data integration to ensure accuracy of items, including the validity of supplier identification, purchase orders, checking for duplicate invoices and more. Eliminate Re-Keying The accuracy and quality of the smart capture process is based upon its ability to identify key pieces of invoice information, including invoice number, purchase order number, supplier name, supplier address, items purchased, unit price, supplementary charges (including tax and freight) and total charges. The smart capture process identifies the purchase order number, matches the invoice data to the purchase order and, if aligned, automatically approves the invoice for payment. It also compares the invoice number to existing invoices from that supplier, identifying duplicate invoices and removing them from further processing. This level of invoice processing automation eliminates re-keying and releases more value from your Dynamics AX investment. Accounts Payable for Microsoft Dynamics AX: Getting It Right Manage the Process, Not Just the Data Automate Low Value, Error-Prone Tasks Consistent Processing of All Types of Invoices Eliminate Re-Keying Streamline Data Correction Automate Purchase Order Matching Streamline Non-PO Invoice Processing Embrace Employees Outside of AP Drive the Process to Completion Auditing and Compliance with Internal Controls Optimize Visibility Streamline Data Correction Good AP automation routes discrepancies quickly to a validation operator for efficient resolution. Using a browser-based interface tailored to this power user, discrepancies are highlighted and resolved through pointand-click actions. Processing thousands of invoices from thousands of suppliers, with no standard format for the presentation of this information, organizations will benefit from software and services that offer a robust catalog of this information, and whose processing will learn from the validation operators actions during processing. This is required to achieve the highest quality at the lowest cost. Once correction is complete, the smart capture process ends with the automated entry of data into Dynamics AX, with each transaction linked to an electronic copy of the invoice as originally submitted. An AP system will initiate the right workflow processes and move processing along without delay.

5 White Paper AP Automation for Microsoft Dynamics AX Page 5 Automate Purchase Order Matching Purchase order processing is a manual process in Microsoft Dynamics AX. AP professionals must search for the purchase order, enter the invoice number, check all lines to ensure that they are valid, and post the invoice (a process that cannot be reversed). When the purchase order invoice does not match all items on the PO (variances in line items include quantity shipped v. ordered, partial shipments, quantity received v. shipped, price billed v. ordered, items substituted, etc.), AP must manually address each item. This frequently requires them to refer these items to the buyer by copying and e-or-snail mailing them. AP automation should perform the matching task and utilize best practice workflows to notify the appropriate user, typically the buyer, of the discrepancy and present them with the information needed to take the appropriate action. This can include approving the invoice as is, correcting it or sending it back to the supplier, with comments and a request for clarification. The buyer will need access to all of the relevant information, including the original purchase order, the invoice as submitted, goods receipt notices, etc. This information should be easily accessible, either presented by the workflow or available via a single click, with the information presented consistently and clearly. Streamline Non-PO Invoice Processing Non-purchase order invoices require review, accounting coding and approval, a manual process in Microsoft Dynamics AX. This requires the identification of the appropriate user, typically the employee who ordered the goods or services. When their name is on the invoice, the smart capture process will identify them, and the non-po workflow will notify them of an invoice awaiting their review and approval. At times the name is not on the invoice, or the approver is a person other than the buyer. Rules can be created to manage these exceptions, or AP is required to identify the appropriate employee. Embrace Employees Outside of AP Once notified, the employee will need to review the transaction and original invoice as submitted. The presentation of information is critical to productivity, accuracy and processing speed. The Dynamics AX AP workspace is created for the finance and/or purchasing user. The non-po invoice requires processing by a user who is typically not familiar with AX. They require an intuitive presentation of the invoice data, where they can point and click to access the next level of information (e.g., the original invoice). They may choose to approve the invoice for payment, reject it, route it to another employee or send it back to the supplier with comments. Drive the Process to Completion In the manual process, invoices awaiting approval frequently languish in the user s inbox. This is AP s biggest headache, leading to late payments, unhappy suppliers and rush payments. The automated process creates reminder alerts and escalations to managers, removing the need for AP to babysit and nag. Microsoft Dynamics AX requires AP to enter accounting codes to associate the expense with the appropriate general ledger accounts. For example, an invoice from a marketing services firm may contain line items for different accounts, such as public relations, advertising or events. AP is not the best source of knowledge for understanding how the invoice should be coded. The highest accuracy is achieved when these codes are entered by the buyer/approver, as they best understand the items invoiced and how their functional organization has budgeted for them. Account codes are not intuitive. The automated process asks the approver to enter the accounting codes, and presents the user with the list

6 White Paper AP Automation for Microsoft Dynamics AX Page 6 Figure1: End-to-end Invoice and AP Automation improves financial performance Finance Director AP Manager Supplier Exceptions Request Comment, Return to Supplier, Cancel, etc. Multichannel Invoice Capture & Extraction Capture Extraction Validation Entry / Coding 219-A Approval Review / Audit Payment Digital Image Supplier Header Line Item Amounts Data Validation Business Rules GL Codes Hierarchy Escalation Spend Limits Business Rules Route to Group or User Confirmed Reports & Analysis AX AP Clerk LOB Employee LOB Manager of valid codes. It drives momentum in the process eliminating latency and removing delay. Where additional approvals are required, such as when the amount of an invoice passes a threshold, AP automation also pushes these approvals to the right people, reminds them of approval deadlines, provides all the information that approval decisions require and ensures clear visibility of approval status. Approval processing is a highly manual and delay-ridden process in many organizations even though this is acknowledged as a major source of delay and of missed opportunity for discount capture. Best practices require that automated workflows access the user hierarchy created for Dynamics AX, and automatically route invoices, notifying the appropriate manager or executive as required. For example, all employees may be authorized to review invoices of less than $500, while managerial approval is required for invoices up to $10,000, and executive approval is required for invoices greater than $10,000. AP automation drives this flow, respects and enacts the right approval hierarchy and eliminates the opportunity for invoices to sit unattended to in inboxes.

7 White Paper AP Automation for Microsoft Dynamics AX Page 7 Auditing and Compliance with Internal Controls Post-approval review is required for quality assurance and to ensure the integrity of internal controls. All of the data for each invoice must be available to permissioned staff, making it easy for the post-approval quality review to access the required information and quickly make an informed decision. The rules for internal controls should be embedded into the approval process and, should a potential violation occur, the invoice should be routed for further processing. Segregation of duties, for example, requires that an individual should not be allowed to create a supplier, enter an invoice for that supplier and approve that invoice for payment. This is the most common source of fraud in accounts payable. Most finance organizations, however, cannot dedicate employees to each of these tasks to achieve role-based segregation of duties. Rather, they assign employees to avoid conflicts. When the conflict does occur, a manager must review the transaction and approve or reject it. Optimize Visibility In addition to the functions of invoice receipt, entry into AX, and approval workflows, the solution should provide finance management with the information required to optimize the process. While all of the information for every invoice is available in AX, the information about the process, and its participants, is manual. AP automation provides dashboards and reports to identify and resolve bottlenecks in the process, monitor service levels and KPIs and report on the productivity and accuracy of individual employees. Ideally this is provided in the form of packaged reports and a real-time dashboard. The Successful Approach to AP Automation Given the complexity of the process, the characteristics of Dynamics AX, the organizational effort, and the size of the investment, it is critical that AP automation gets done right the first time. While many of the available solutions meet some of the basic requirements for example, enabling the capture and entry of invoices or managing PO and non-po workflows most fall short of delivering the best practices and quality that are necessary before the real ROI of an AP automation investment can be realized. Here are some important factors to consider when planning your AP automation investment: Leveraging Dynamics AX The effort and investment required to implement an ERP system is well documented, and those responsible insist that it be a single source of the truth. Its data must be leveraged throughout the process and, upon conclusion, it must contain all of the data associated with the transaction. This can be achieved during the AP process by real-time data inquiries so the AP process is driven by up-to-date ERP data, leveraging AX as the single source of the truth. Centralizing Invoice Receipt Buyers are invested in the personal relationship with their suppliers. They want to handle invoices well to support the relationship, to immediately verify the goods and services as received, and to maintain control of the relationship. With the best of intentions, this leads to myriad problems, including lack of visibility into liabilities, inevitable delays as the invoice sits idle in their workspace and poor execution in the smart capture process. Visibility into liabilities is a crucial factor

8 White Paper AP Automation for Microsoft Dynamics AX Page 8 in financial performance. A large, misplaced invoice that is not visible during a period close contributes to the risk of cut-off fraud, or the overstatement of results. While suppliers may enjoy the personal relationship with the buyer, few things are more important to them than getting paid correctly and on time. When the invoice receipt is not centralized, not only is the smart capture process delayed, but the efficiencies in knowledge and labor are lost. Best Practice Workflows The PO and non-po workflows described above will instantiate the organization s rules into practice. They will also provide the foundation to ensure the process performs as required. Reports, alerts and escalations arise from the data created and managed by the workflows, resulting in a well performing process. This is the essence of the objective in AP process automation. Organizations must ensure that the solution is created by AP experts who are experienced in the process and knowledgeable about best practices. Less than complete best practice workflows will result in errors and poor performance of the process. Responsiveness to Organizational Imperatives Organizations grow organically and through acquisitions, and at times, they contract. People, regulations and competitors change over time. Technology continually moves forward. After successful automation, AP must be positioned to respond to the dynamics of change. Solutions must be evaluated, selected and built on their ability to respond to change. They should enable global operations from the outset. AX-based companies require solutions that are built with Microsoft technology, ensuring maximum integration and efficiencies in staffing and empowering the organization to change the solution as required. Leveraging the Data Process automation should empower the owners of the process. AP is still a notoriously paper-driven process, and the trend away from paper is slow. Pragmatic organizations acknowledge the need to manage both paper and electronic invoices. AP has long suffered from a lack of visibility into the process, and a lack of knowledge about the status of the process, individual invoices, the performance of approvers, the performance of AP and the cost implications. Many organizations cannot calculate their current cost per invoice. Solutions that leave reporting, monitoring, KPIs and SLAs for the organization to organize, calculate and monitor will leave AP without the vital information it needs to meet its commitment to internal customers and suppliers. The Kofax Solution for Microsoft Dynamics AX AP Agility is a flexible, AX-integrated, best-in-class accounts payable solution from an AP market leader. The solution delivers the following capabilities and value, critical to AP excellence in a Microsoft enterprise: 1. Multichannel smart capture of invoices: whether invoices arrive through paper, fax, , EDI, XML or mobile channels, AP Agility delivers high-quality digital images for use throughout AP processing. It also automatically extracts and validates supplier, header, line item and amount data, and automatically drives AP workflow with that information. 2. Best Practice AP workflows: AP Agility delivers high levels of touchless processing by minimizing user interaction, and providing straight-through processing where possible (e.g., pre-approved PO purchases). Where human intervention is needed, Kofax makes that intervention efficient and productive with dynamic AP workflows

9 White Paper AP Automation for Microsoft Dynamics AX Page 9 3. Out-of-the-box integration with Microsoft Dynamics AX: Kofax accesses AX data throughout the end-toend invoice and AP automation process to streamline validation, entry, matching, approvals and reviews and to ensure compliance with policies and rules codified in AX. The result is an integrated AP process that preserves AX as the system of record while driving greater productivity. 4. Kofax Partnership with Microsoft: Kofax is a Microsoft Gold Partner and Global ISV Partner. AP Agility includes not only pre-built, out-of-the-box integration with Microsoft Dynamics AX, but also integration with SQL Server, Exchange, SharePoint, Lync and Dynamics CRM, and is deployable on-premise or on the Windows Azure cloud. Kofax brings its established AP market leader status to the partnership. Over 1,000 organizations worldwide use Kofax invoice and AP automation solutions to process more than 50 million invoices annually, representing over $350 billion in annual spending. Our staff embodies a combined 400+ years of invoice and accounts payable experience and supports our continued product innovation along with our customers successful adoption of Kofax AP solutions. AP Agility features and benefits include: Kofax AP Agility Features Multichannel Invoice Capture capture information from multiple devices and sources, including mobile devices, web portals, scanners & MFPs, faxes, s, electronic files, and XML/EDI data streams. AP Master Data Integration Services enhance, classify, separate, extract, and validate all invoices and invoice data, whether structured or unstructured. Leverage pre-built Kofax invoice transformation that boosts invoice recognition and processing on day #1. Exploit automatic invoice learning to maintain productivity on new invoice types. Avoid duplication of PO, supplier/vendor, GL account and invoice information. AP Workflow automate workflow to streamline AP processing and improve productivity of AP staff, approvers, etc. Graphically design process flows, approval rules and business controls to continually optimize AP processes. Business Intelligence & Analytics view near-real-time analytics of invoice capture and AP workflow performance. ERP Integration use pre-built and flexible ERP connectivity to integrate with master data in systems of record. Achieve cash flow visibility and optimization. Completely web-based clients and service oriented architecture (SOA) reduce software installation footprint by using browser-based interfaces for all users. Leverage multi-tier, componentized architecture for flexibility of deployment, fault tolerance and ease of maintenance. Available on-site or via a hosted SaaS subscription install on-premise or in cloud to suit your organization s technology strategy. Kofax AP Agility Benefits Speed Cost Visibility Control Accuracy Cash Optimization Ease of deployment Ease of use Ease of Change Microsoft Affinity Automatic invoice capture, deadline-driven workflows and a no re-keying approach accelerates end-to-end AP processing Reduced human touch and more efficient approval processing cuts cost per invoice Invoice and AP workflow information easily viewed and analyzed Audit trails automatically created, business controls enforced, issues quickly escalated Smart invoice data capture and cross-referencing to master data radically reduces errors Early pay and dynamic discount opportunities identified and alerted, ERP invoice posting accelerated Rapid configuration and implementation on-premise or in cloud achieves go-live quickly Browser-independent user interfaces for invoice capture/review and AP approval, including for mobile workers Fast, achievable process improvement using built-in visual design of workflows, business controls, user screens, etc. For organizations that leverage Microsoft Dynamics AX, AP Agility is pre-integrated to this and other Microsoft technologies to allow swift, easy deployment in a Microsoft-centric environment

10 White Paper AP Automation for Microsoft Dynamics AX Page 10 Features and Benefits Summary AP Agility delivers multiple layers of value, from traditional paper digitization, to information extraction to feed accounts payable processes, to process automation, optimization and analytics. Ease of use and full mobility is delivered to AP staff suppliers and the wider workforce who may be engaged in approvals, reviews or oversight. Browser-independent user interfaces engage mobile and other workers productively. Built-in visual design of workflows, business controls, user screens, etc. enables rapid process improvement. And AP Agility integrates out-of-the-box to Microsoft Dynamics AX. Your Next Steps? In this paper we have sought to answer the questions of finance professionals who are considering investment in accounts payable automation software for Microsoft Dynamics AX. We have discussed best practices, explored potential reasons to make an AP automation investment, provided an overview of AX AP functionality and discussed software that can extend AX to deliver the desired best practices. We have also provided an overview of how Kofax provides a solution for those who believe that AP automation is a worthwhile addition to their finance operation. About Kofax Kofax is a leading provider of smart process applications for the business critical First Mile TM of customer interactions. These begin with an organization s systems of engagement, which generate real time, information intensive communications from customers, and provide an essential connection to their systems of record, which are typically large scale, rigid enterprise applications and repositories not easily adapted to more contemporary technology. Success in the First Mile can dramatically improve an organization s customer experience and greatly reduce operating costs, thus driving increased competitiveness, growth and profitability. Kofax software and solutions provide a rapid return on investment to more than 20,000 customers in financial services, insurance, government, healthcare, business process outsourcing and other markets. Kofax delivers these through its own sales and service organization, and a global network of more than 800 authorized partners in more than 75 countries throughout the Americas, EMEA and Asia Pacific. For more information, visit kofax.com. Kofax provides many additional resources to assist those interested in acquiring an AP automation solution for Microsoft Dynamics AX. We encourage you to consult our website, download our most recent white papers and other information, and join us at industry events or webinars. Our experience in AP automation qualifies us a resource to you as you consider what to do next. Please feel free to contact Kofax specialists for assistance, whether you are building a business case, selecting a solution or simply interested in discussing your challenges with an experienced partner Kofax, Inc. All rights reserved. Kofax, the Kofax logo, First Mile, AP Agility and Point of Origination are trademarks or registered trademarks of Kofax, Inc. in the U.S. and other countries. Other names may be trademarks or registered trademarks of their respective owners. ( )