Accounts Payable Automation Benefits

WHITE PAPER Accounts Payable Automation Benefits Facts and best practices by leading analysts Purchase to Pay by ReadSoft. Automated accounts payable processing Author:Paul Steele, Wille Dahl, November 2010; Updated: May 2011 Copyright  2011 ReadSoft - www.readsoft.com Accounts Payable Automation Benefits Page 2 (11) Evidence for Accounts Payable Automation Benefits Research-based evidence shows that automation is yet again the way forward for cost savings and improved efficiency Enterprises are increasingly aware that paper and people-based processes lead to high AP transaction costs and missed business opportunities. In a recent survey1, approximately half the organizations interviewed stated that they had problems with manual data entry, inefficient processes and manual routing of invoices for review and approval. Other issues were lost or missing invoices, a high number of discrepancies and exceptions, an inability to see outstanding liabilities and no way to capture all discounts offered by suppliers. This White Paper examines the recent research findings carried out by several independent business analysis companies, namely:  Aberdeen Group  Gartner Inc  The Hackett Group  PayStream Advisors Inc It breaks down the AP automation issues faced by organizations and highlights the numbers behind the proof that there are major benefits to be gained in implementing an AP automation system. It also shows the criteria for selecting a solution provider and how organizations need to make sure they choose an experienced provider such as ReadSoft to guide them through a proven process. The sources of the facts and figures that support this evidence are provided in the conclusion of this document. These consulting companies conclude that there is tremendous potential for improvement by automating the AP process - namely invoice receipt, invoice matching and approval workflow. Best-in-Class performance advantage Source: The Aberdeen Group: Imaging and Workflow April 2011. ReadSoft - White Paper © 2011 Accounts Payable Automation Benefits Page 3 (11) Key Factors Driving Change Time and Money Time and money are the key drivers for AP automation1 – along with high paper usage, most AP departments still suffer with high AP transaction costs and cycle times. The top two pressures driving organizations to reassess their AP function are lowering invoice processing costs and improving and/or standardizing the AP process. Research has shown that best-in-class enterprises report2 :  Invoice processing costs that are, on average, 84% below their peers;  Invoice processing time cycle times that are, on average, 59% faster than their peers. Other Drivers Other reasons why organizations3 focus on electronic enablement of AP transactions are:  Buyers and sellers gain savings opportunities by partnering and improving the process between each other;  Technology has become flexible to integrate with existing business systems, and more affordable;  Process, data and system standardization simplify implementing the technology;  Improved performance in areas such as complying with contracts and optimizing working capital;  Sarbanes-Oxley (SOX) drives organizations to adopt technology with the necessary controls as part of the application. Top Automation Priorities Based on survey results4, the following emerged as top automation priorities: Implementing or increasing electronic invoicing was the most popular option with a majority (40%) of organizations stating that this was the top priority on their automation plan. Enterprises are no longer interested in merely finding a better way to handle paper; they are looking to eliminate paper altogether. Automated approval workflow for invoices was another popular option with 21% of organizations stating that they would focus their attention on this technology within the next 12 months. Automated workflow tools go hand-in- hand with electronic invoicing. Unless there is a mechanism to process invoices after they are received, e-invoicing delivers minimal benefits. Automating payment processing was also an important goal for 16% of organizations. A large number of organizations - especially medium and large ones - have already automated the payments process. ReadSoft - White Paper © 2011 Accounts Payable Automation Benefits Page 4 (11) AP Automation Elements for Success In the current AP world there are four elements necessary for AP success: Visibility, Collaboration, Control, and Automation: Visibility Visibility into liabilities and operating expenses is the basic requirement for most major functions within an Enterprise. It is used to give an overall view of operations and establish standards on which to base strategies for performance improvement. Research has shown1 that Best-in-Class Organizations are 43% more likely to have enterprise-level visibility for AP transactions. The rest suffer from higher transaction costs and longer cycle times. Not seeing material liabilities that are not yet entered impact the timing and accuracy when closing accounting periods. For a typical AP department, enterprise visibility remains out of reach. the exception. A high degree of visibility brings substantial advantages2, 3, including:  Low transaction costs;  Shorter processing cycle times;  Decreased financial risk;  Shorter response times - improved productivity by reducing time wasted in low-value activities;  Improved forecasting and management of near-term cash management requirements;  Greater ability to monitor billing discrepancies and overpayments, recognize unclaimed negotiated discounts, contracted payment terms, early payment discounts, and late penalty fees. Collaboration Cross-functional coordination among key stakeholders such as accounts payable, procurement, finance, treasury and suppliers creates an environment where key information flows easily between these stakeholders5. Without this, treasury can‟t make optimal capital decisions; procurement can‟t identify negotiation opportunities with key suppliers, and suppliers and internal stakeholders can‟t track invoice processing status. It will also be difficult to set up different approval and routing rules based on different types of invoices or supplier arrangements, such as PO-based, non-PO-based, preapproved and supplier maintenance. Research shows1 that Best-in-Class Organizations are 56% more likely to have established a platform for collaboration between enterprise groups and functions that are impacted by AP operations. Also 1, Organizations that have developed a collaborative framework provided by an automated integrated AP system process more than twice the number of payments electronically than all others, bringing significant savings in payment/settlement costs. Control Good audit controls help Organizations enforce corporate policies and achieve contract compliance. Audit controls ensure that AP transactions are processed in a way that complies with policies, procedures and regulations. They help ReadSoft - White Paper © 2011 Accounts Payable Automation Benefits Page 5 (11) reduce late payment fees, capture negotiated discounts and early payment discounts, eliminate duplicate invoice payments, and prevent fraudulent payments. Research2 has found the exception rates in top performing firms are 85% lower than other enterprises. Automation Automation is a critical foundation to lowering costs and streamlining each of the four AP sub-processes: invoice receipt, approval and inquiry, validation and reconciliation, and settlements. Technology solutions to manage invoices and workflow, and electronic payment methods reduce the inefficiency of manual and paper-based processes.1, 6: While 44% of Best-in-Class enterprises utilize a single e-payables solution to fully automate their entire AP process, the majority of AP departments utilize a patchwork of solutions to automate certain processes. Electronic payments have the highest penetration among all AP automation solutions (80% for „Best-in-Class‟; 60% for all other enterprises). Organizations with „on average‟ 60% payments made annually via paper-based checks have an opportunity to greatly improve. Benefits An automated AP solution5 streamlines and drastically improves performance by utilizing e-invoicing, scanning and workflow, online tracking and reporting capabilities, electronic invoice dashboards and supplier portals, supplier networks, payment services and spend analytics for all invoices. Using an automated AP solution, organizations will successfully drive transformation of their accounts payable departments to overcome the challenges of manual and paper-based processes.