Accounts Payable: Three Pathways to Process Efficiency

Now more than ever, companies are striving to reduce costs, improve cash flow, and streamline operations. To accomplish this, companies are automating back-office processes that require costly manual steps that impede overall process efficiencies. Of particular importance are business processes tied to financial processes, such as the accounts payable (AP) process, where the benefits of automation can immediately impact the bottom line.

Most companies have begun automating such processes by implementing an enterprise resource planning (ERP) system. Even though these systems provide functionality that helps companies realize efficiency increases, the presence of manual, paper-based tasks still impedes overall optimization. By incorporating contentmanagement technology into the process, your organization could realize increased efficiencies, streamlined operations, and reduced costs overall.

Accounts Payable Automation
Companies of all sizes typically have at least one thing in common – there is always someone that has to be paid. From toner for the copier to manufacturing parts and equipment to keeping the lights on, invoices for products and services enter organizations in many different ways (email, snail mail, fax, etc.) and in a variety of paper or electronic (EDI- or XML-based) formats.

Although electronic invoices are a more efficient and reliable format for companies to receive and process through workflows, most companies still receive the majority of their invoices in paper format. This presents significant challenges for organizations because paper invoices, when processed manually, cause inefficiencies, introduce errors, and lead to increased paper handling and storage costs. Furthermore, the average invoice receipt-to-payment time is much longer. These longer processing times can reduce discounts for early payments and complicate visibility into, and control over, the purchasing process.

Companies have traditionally looked at speeding paper-bound AP processes by adding more staff: more people to open the mail, separate the invoices by vendor, and then manually enter data and match invoice information within the company’s ERP system. In a challenging business environment, companies are resistant to increasing staff and in many cases staff size gets reduced. So, how can companies automate and improve such processes with a reduced headcount, yet still increase efficiencies and reduce costs overall?

Automating the process can be achieved with content management software including document capture, imaging, and workflow components. A document capture system converts paper invoices into electronic format and helps automate the process of applying data to the invoices, reducing document keystrokes and errors. Archiving the images within a document imaging system helps business users quickly and easily retrieve invoices to compare data between an invoice and purchase order when responding to customer inquiries and approvals.

A workflow system can also provide advanced queuing and delegation to allocate work distribution, ensuring that specific tasks are performed by the appropriate worker and routed to the next person in the work queue if someone is out of the office. Taking the level of automation even further, having real-time monitoring capabilities gives AP managers greater insight at the user, queue, and process levels, allowing them to pinpoint bottlenecks. Having the ability to run reports provides useful data on a wide variety of performance indicators, helping managers make informed decisions about process changes.

Image-enabling your AP process could make integration with a federated records management system easier and help ensure that the AP process supports corporate retention programs for archival. Benefits are gained at each level of increasing automation, but for companies just beginning the process, it is important to identify reasonable initial projects and target returns.

Levels of Accounts Payable Automation
The level of AP automation that would best benefit a company depends chiefly on a few factors. First and foremost, the average volume of invoices a company has to process in a week is a good indicator, with higher volumes typically justifying higher levels of automation. Even companies with smaller volumes, however, can make a case for a higher level of AP automation if an evaluation of benefits like vendor discounts for invoices paid early, penalties for invoices paid late avoided, and reduced paper shipping and storage costs justifies the cost and effort required. Let’s now explore the various levels of automation in more detail.

Level I: Back-End Document Capture and Archive. At this level, invoices are still processed manually, and after process completion, they are scanned and archived within a content repository. There is really no change to the AP process, as it remains paper-based. However, by integrating a document scanner and document capture system into the process, you will be able to reduce the amount of paper that gets misplaced from process completion to physical storage. Additionally, you will be able to reduce the amount of physical space needed to store the paper and the cost of that space. Probably the biggest benefit at this level is that your company will finally have a system in place that provides more immediate access to the invoices and other documents. If an audit is performed or a supplier has an inquiry, invoices can be accessed from the desktop via keywords. Moreover, such a system will be able to help enforce access control to the content, which immediately improves information security.

Level II: Front-End Document Capture and Data Entry. In a front end document capture and data-entry scenario, invoices are scanned upon receipt and routed for data entry. The biggest automation benefit at this level is that capturing the document on the front end immediately removes paper from the process and speeds data entry within the ERP system. This reduces overall invoice cycle time by expediting invoice approvals (reviewing electronic images is much faster than passing along paper). Also, metadata entered on the front end can be validated against data already existing in the ERP system or other backend application. For example, a pick-list containing all vendors can be created for the vendor index field, so that when the data entry operator focuses on that field, they can select the vendor from that list.

Level III: Front-End Document Capture and Workflow. This is truly where full automation of invoice processing – especially non-purchase-order invoices – is realized as robust workflows are built to ensure the greatest efficiencies. In this system, invoices are scanned upon receipt and archived within the content management system, triggering workflow processes. The invoiced images can be routed to the appropriate person for coding and review, accelerating overall approval processing. With workflow invoked within the process, your company will start realizing the benefits of early payment discounts and reduced late-payment fees, while gaining visibility into the process by being able to monitor specific transactions at both the individual and aggregate level.

Additional Automation Strategies 
Invoice processing can be further automated by implementing additional capture technologies on the front end. Here are some other considerations:

• Electronic Document Capture: Invoices not only enter an organization in the form of paper delivered by mail or courier; many are sent as attachments within an email or simply faxed. Companies receiving invoices via email may open the attachment, print the invoice, and scan the paper. This leads to the creation of more paper and adds another step in the process. On the other hand, faxes are simply scanned upon receipt. However, faxed invoices suffer from image degradation, which often makes it difficult for data entry operators to see pertinent data on the invoice. Capture software featuring the ability to import electronic documents can help streamline the process. For invoices sent as an attachment in an email, the software can be configured to monitor an email inbox, invoices@acmeproducts. com, for example. When an email containing an attachment reaches the inbox, the capture software is able to import the attachment, convert it to an image format (if necessary), and route it for indexing. Similarly, with a fax, the capture software can be configured to monitor a fax directory or network fax appliance. When a fax is received, the capture software is able to convert the fax from its native format to an image and route it for indexing.
• Distributed Document Capture: Distributed document capture software is typically a Web-based capture system consisting of two components – a client and a server. Remote workers use the client to scan or scan and index invoices. The images and data are then sent back to the central location for indexing or immediate archiving. Extending capture capabilities to any location where invoices may enter the workplace can eliminate the shipping of invoices via mail to processing centers, helps secure invoice information as soon as it enters the workplace, and most importantly, reduces overall invoice cycle time. 
• Intelligent Document Recognition (IDR): Document capture software featuring IDR technology can help to further reduce document keying from the invoiced images. Capture software with this technology is able to read and extract data from the invoice without manual intervention. In fact, some capture systems are smart enough to identify the invoice based on the supplier, and – based on the supplier’s invoice format – extract the necessary data off the invoice (invoice number, vendor number, line item data, amount, etc.) and immediately populate that data within the ERP system. The biggest drawback to capture systems with this functionality is price. Typically, only companies with a high volume of invoices can justify the purchase of this software. Properly deployed, however, such systems have been able to reduce data entry costs by more than half.

Enterprise Resource Planning Application Integration
As we have discussed, automating the AP process on the front end can have many benefits. However, without proper integrations between your imaging system and your ERP system, a fully automated process cannot be realized. AP clerks and their managers follow a rigid, step-bystep system to process invoices, relying on functionality provided by their ERP system. Therefore, content management components, such as a document imaging system, need to provide integration points that do not impact the integrity of the ERP system.

The imaging system should ideally appear as an extension of the ERP system rather than as a separate process. Workers should be able to retrieve the images while they are working within the familiar user interface of the ERP. This can be accomplished by invoking icons on the toolbar within the ERP software, allowing for a simple mouse click to access invoices and other supporting documents. Workers should not have to leave their ERP session to search for and retrieve images.

Moreover, at some point in the life of a company’s ERP system, the ERP software will have to be upgraded, which can jeopardize integration with the imaging system. During the ERP upgrade process, if the integration between the document imaging system and the ERP is disabled, the AP process can be disrupted and may require significant maintenance and customization to restore operation. For this reason, document imaging systems that use technologies such as service oriented architecture (SOA) to integrate with ERP systems are more robust, because their integrations are not hard-coded within the ERP application itself, and provide more stability during upgrades and greater flexibility when customization is required.

Leveraging the Content Management Foundation for Savings
Because of the immediate and numerous benefits ranging from reduced processing errors and storage costs to improved auditability and vendor relationships (discounts) that can be realized, many companies are adopting strategies to automate their AP process. This can be accomplished with document capture, imaging, and workflow components that work together to form a fully automated end-to-end invoice processing system.

Companies can start with document capture and imaging software to reduce paper handling and paper storage costs and introduce workflow to create specific business rules around invoice coding and approvals – further automating the process. However, any investment in document capture, imaging, and workflow functionality to automate the AP process should be made with the idea that those systems can be easily extended to additional enterprise processes – both within finance and across other departments such as human resources.

The content management system should not only provide the automation necessary to streamline processes and reduce costs within specific line of business areas such as AP, but also should serve as the foundation for broad-based process automation that can be leveraged throughout an organization.

Jason Lamon is a senior marketing manager at Oracle. Prior to joining the company, he was the director of marketing communications at Captovation, where for more than nine years he oversaw the company’s marketing and communications efforts for their suite of document and distributed capture products.