Streamlining Accounts: Document Processes Under the Spotlight
Accounts payable (A/P) was one of the original applications for document management and workflow, helping to improve service and strip the cost out of payment processing without losing management control. As a document management application, A/P has now moved to a new level, contributing to the increasing trend towards self-service in supply chain management.
But equal attention must also be paid to accounts receivable (A/R) departments. Sophisticated document management techniques are now being applied to A/R, as corporate debt increases across the EU. That debt has put much pressure on cash flow management and, as a consequence, the role in efficient document management in reducing the overall days-to-payment has risen rapidly up the agenda.
But, as a general rule, I believe that the value of business information and its main vehicle – documents – is still woefully underestimated across European organisations. We frequently hear about documents coming under close scrutiny in a regulatory context; companies called to account over a specific e-mail in a court case, or financial regulators demanding a document audit trail to prove compliance to Sarbanes-Oxley controls, for example. But the way that a company controls its documents not only dictates its adherence to regulation, it also has a huge impact on operational efficiency. This is especially true in the A/P and A/R functions. Breaking these concepts down, receivable and payable ultimately refer to the ebb and flow of money into and out of an organisation, and beyond that, a detailed list of monetary transactions. This then comes down to a series of document-related processes.
But frequently organisations lose sight of the intricacy of individual transactional events, which ultimately build those ‘detailed lists’ and serve to speed up or slow down cash flow. From a practical point of view, the supporting role of A/P and A/R must be the capturing, managing, delivery and secure preservation of every step in the transaction, forming the truest definition of document management and related services.
In this age of widely differing communications, the A/P and A/R functions are weighed down not only by volumes of documents, e-mails and transaction notices, but also by the various formats (paper, electronic) from countless disparate sources. These are common challenges that will ring bells with most financial departments across the country, but in our experience many key questions are not being addressed. How much time and effort does it take to justify a basic invoice? How much and what kind of backup is needed? How do you gather all the information into one place for fast, accurate and complete access by authorised personnel?
A recent study by Hackett-REL provides a topical illustration of the impact that inefficient accounts payable and receivable processes are having on European companies’ working capital management. It found that late payments by customers and suppliers that have been paid too early contribute to around €500bn in excess working capital that is untapped by the largest European firms. According to the study, any improvements in working capital management elsewhere in the business were counterbalanced by a ‘significant deterioration in accounts receivables’ performance.
Managing the supply chain from a financial perspective is a topical theme for many finance departments, and supplier ‘self-service portals’ are becoming increasingly popular. Let us briefly describe a best-practice example of a global information technology services provider, InfoTech Service. Rather than establishing an electronic A/P supplier website on its own, the company chose the outsourcing route.
By outsourcing the supplier service function, this international company was able to retain the efforts of its staff for its own core business. Simultaneously, the company was able to conserve (and continues to conserve) financial and hard assets needed for investing in its core capital projects to maintain a competitive edge in its own industry.
From a technology point-of-view, InfoTech Service appointed the third-party to set up a vendor self-servicing electronic A/P application. The execution resulted in an electronic A/P vendor website where more than 1,500 vendors and their A/P departments could access A/P reports and transaction histories, including purchase orders and invoices, at any time. By using the Internet and the existing infrastructure of the host company as well as that of its vendors, the third-party helped InfoTech Service set up a supplier service with an online, on-demand, self-service A/P site.
For companies to succeed, they must be able to focus on their core competencies. Outsourcing certain functions could be one way to reduce the administrative burden.