Where are the bottlenecks in your business? In these days of ultra-lean, automated processes, they’re unlikely to be in manufacturing, or in product packaging or distribution. Increasingly, the bottlenecks are found in paper-based processes within finance and accounting departments.
Order entry and management plays a key role in a company’s relationship with its customers, determining the time needed to deliver and invoice correctly for goods. It is an uncomfortable thought that the ability to fulfil an urgent customer order could be stymied by inability to process the purchase order quickly enough. But that’s precisely what can happen, due to the time and costs involved in processing paper-based financial documents.
The manufacturer, for example, might receive the purchase order by post or fax. Finance employees must then manually enter the details it contains into the financial system. The order may also be circulated to production managers or sales staff in paper format for authorisation. A copy of the order must also be kept on file to generate the invoicing details on completion of the job. This process can easily take the best part of a working day.
In turn, this gives plenty of opportunities for problems to occur, including:
- Lost and misplaced orders.
- Incorrect manual data entry.
- Lost time from sorting and filing orders.
- Slow invoice processing, which will affect the manufacturer’s cash flow.
Add to these issues the regulatory and compliance demands for complete document traceability and auditability, and you have a recipe for a fruitless paper chase.
Time is Money
It is no surprise that research by the Gartner Group suggests that processing a single paper order or invoice typically costs an organisation US$14 – a cost that multiplies rapidly, considering a larger company may process hundreds of thousands of invoices per year.
What’s more, the paper chase costs businesses time and cashflow. A May 2005 survey from Experian found that pharmaceutical organisations now take on average 62 days to pay their bills – two days more than the average across all business sectors, and an increase of two days since May 2004. How much of this is due to inefficient processing?
With these figures, it is easy to see the potential returns on investment to be had from digitising financial documents, including purchase orders and invoices – not just in reduced costs, but also in the ability to handle customer orders more efficiently, and in shortening the order-to-cash cycle.
If the data from key financial documents can be taken from the paper-based information silo of financial departments into a form that is usable in core ERP and management systems, it is possible to make efficiency gains. It is no surprise that ERP vendors such as SAP, JD Edwards, Oracle and PeopleSoft are increasingly incorporating financial document processing capabilities into their enterprise applications suites.
Extending Automation to Finance
Let’s look at a hypothetical example of a pharmaceutical manufacturing company which is an SAP R/3 user, processing orders and invoice documents from a range of suppliers, and examine the benefits it can gain from handling these documents electronically.
Nat-Rx is a tablet manufacturer that prepares products under licence for a number of customers. An SAP R/3 user, its accounts department handles over 300,000 orders, invoices and remittance advices per year from its customers and suppliers. Nat-Rx’s previous financial processing system was paper-based. When a customer sent in their order – typically by fax or post – it would be sorted along with all other paper-based documents received that day. Once sorted, orders would be passed through to sales for actioning, at which point the salesperson would coordinate with management in production, packaging and shipping to ensure materials and capacity were available, and prepare the order for processing.
The problem was that with around 1,000 financial documents arriving each working day, sorting orders from invoices from remittance advisories was taking the team of clerks a lot of time.
What’s more, there was no clear method of sorting urgent orders from other documents received, which introduced possible delays at the order stage. At the other end of the processing cycle, with so many paper documents, matching an electronic customer payment to the remittance advice would mean a manual search through all outstanding remittances – a lengthy and inefficient process.
Nat-Rx wanted to address these areas and enhance its order, invoice and remittance processing with electronic storage, eliminating the need for paper-based remittances, and automating search and retrieval functions.
The company deployed scanning and document processing within its accounts department to address the handling and processing of incoming financial documents.
Linking to Business Processes
When an incoming order is received by fax or post, it is scanned, the image is processed and data captured from it including customer name, account details, order value, customer address, invoice details and payment details. The document processing system can also extract further data from the scanned document, flagging-up key words on the order, such as ‘urgent’ or ‘express’, etc., to assist in identifying orders requiring special processing.
Linking software is also deployed, between Nat-Rx’s SAP ERP system and the document processing system. This gives enhanced functionality, including importing into ERP for order management.
To ensure the integrity of the body information captured, the invoice number will be checked and verified against all outstanding documentation for the given customer from the SAP database. If the order, invoice or remittance number does not produce a match, staff are automatically presented with a list of all outstanding documents for that customer, saving on manual search time. However, if an invoice number and amount from the remittance advice matches an outstanding purchase order, no manual intervention is necessary.
Customer bank account and sort code details are resolved automatically by a look-up into Nat-Rx’s SAP database – also saving time per document processed. Once validated, the indexed payment information is automatically uploaded into the ERP system.
The overall benefits are a reduced need for manual data input and intervention, improved accuracy and a shorter processing time. It helps to identify priority orders, and enables financial staff to focus on analysis rather than time-consuming paperwork.
Driving Benefits
The illustrative example of Nat-Rx is mirrored in the real world. ERP users deploying automated invoice processing solutions have found a positive return on investment in less than a year by breaking down the paper-bound data silos in their accounts departments, digitising inbound paper orders, invoices and remittance advices, automatically extracting critical data, comparing invoices with supplier, order or receipt information with the ERP database and automatically uploading the data.
A key example is PSA Peugeot Citroen’s group finance, audit and performance management department. According to Christian Cardot, director of finance and management systems, the company’s main objective was to streamline supplier invoices. “This software makes it possible for all incoming invoices to be fed into the business workflow within two days of receipt,” he said. Cardot reports that administration costs, linked to invoice processing, had been halved due to major gains in productivity, with matching rates for orders, delivery slips and invoice increased because of improved data quality. Furthermore, the rate of legal action with suppliers has also declined 20%. Accounting staff can concentrate on data analysis as time-consuming tasks have also been eliminated, according to the company.
The bottom line, then, is clear. By scanning and digitising financial documents, manufacturers can extend the reach of their ERP systems into the finance department. This helps free the paper jams that inhibit their responsiveness, and can lead to a healthier sales outlook and cashflow.