Accounts Payable - Increase Productivity, Not Paper
In recent decades, companies of all shapes and sizes have focused significant effort on improving the efficiency and effectiveness of their accounts payable (A/P) organization. Yet most finance executives remain unsatisfied with the current levels of correction work, manual processing, filing and matching activities still required within their organizations. As a result, A/P is poised for a significant transformation.
Research suggests that the average organization is losing US$15m per year for every US$1bn in spend from inefficient A/P processes. Transaction costs, lost early payment discounts, and billing errors drive the savings that are possible. Figure 1 outlines the dollars that are at stake.
EIPP enables A/P organizations to capture much of these savings by leveraging and improving processes, systems, initiatives, investments and capabilities that are already in place.
EIPP is an approach to A/P that aims to create a paperless, fully automated process. With EIPP, suppliers can interact with buyers more quickly and cost effectively than ever before. Through a set of integrated capabilities, suppliers can connect with buyers and receive timely, hassle-free payments as source documents are electronically matched. Suppliers like EIPP because it isn’t a burden for them to use, facilitates rapid payment, and generates fewer error situations that are expensive to research and resolve. EIPP can also significantly reduce the cost of compliance-related efforts. To understand the types of results that are possible with EIPP, consider the case of a global telecommunications provider, who was able to capture 95% of invoices electronically after a 10 week deployment. The implementation reduced paper invoice volume by 60%, and cut error rates by over 50%, enabling the finance organization to redeploy A/P personnel (while also improving supplier satisfaction).
So how does EIPP work? Distilled to its core, EIPP comprises four specific solution elements: Capture, Match, Manage and Pay.
The Capture element of EIPP is focused on transforming the paper invoice receiving process and connecting with suppliers. Not all suppliers will want to handle the invoice creation and management process electronically. But the key to EIPP success lies in maximizing supplier participation. So, in moving to an automated process, it is important for companies to remain flexible and maintain the ability to flip a purchase order (PO), convert an invoice and upload an Excel file to accommodate suppliers with varying electronic capabilities. Continuing to accept paper and incorporating an invoice conversion component for invoice management can also fuel higher adoption rates.
The Match aspect of EIPP incorporates contract terms and automates the exception management process by enabling field level, four-way matching. Four-way matching (where an item-level match extends back to the contract) is critical to capturing discounts and reducing error rates. EIPP matching capabilities are highly flexible and configurable based on an organization’s structure and needs, down to the item level. In addition, general ledger integration and auto-reconciliation to reduce staff involvement is essential to successful automation and matching, as it enables resources to focus on pressing issues rather than managing paper.
The Manage feature of EIPP focuses on automated routing to accelerate the approval process within an organization. EIPP can dramatically reduce the time spent by A/P personnel managing suppliers by enabling suppliers to track invoice and payment status. At the same time, these types of self-service capabilities can help improve the overall sales and account management process for suppliers, inviting favorable treatment in future discussions and negotiations.
The Pay capabilities within EIPP create a predictable outflow of capital, giving financial executives exacting control over when they chose to pay suppliers. By tightly coupling with an enterprise resource planning (ERP) system and financial institution, companies can fine tune invoice payments based on business needs (e.g., reducing costs through taking advantage of early payment discounts). Payment capabilities accommodate multiple payment formats as well as supplier self-service capabilities to enable visibility throughout the process. In addition, EIPP solutions can include capabilities that allow the sourcing of discounts from suppliers in return for early payment.
Without question, EIPP can help A/P organizations take their performance and efficiency to the next level. But identifying and working with the right partner is absolutely essential to success. There is some misinformation in the market that can lead those considering an EIPP solution to make less-than-optimal business decisions. Perhaps the most widespread myth is the notion that scanning is e-invoicing. The truth is that scanning only begins to scratch the surface of invoice automation, marginally improving the review and authorization of invoices. Another EIPP fable is that matching is a cure-all. The reality is that basic exception management capability has been a part of A/P processes for over two decades, but has been limited by a lack of internal and external connectivity. This has led to severe automation limitations such as the ability to match line item level detail. But perhaps the most egregious fallacy in the market is that payment automation is the core of EIPP return on investment (ROI). In fact, some providers confuse payment automation with having a complete EIPP solution. In the market today, a handful of EIPP providers try to link ROI to concentrated dynamic discounting by connecting a few large suppliers and ignoring the rest. Unfortunately, this approach fails to address compliance and the costs of paper processing.
When these fictions are seen for what they are, the actual truths about EIPP are relatively straightforward. First, supplier enablement is difficult and complex, requiring expertise and economics of scale that few providers can deliver. Unfortunately, a number of companies have faced challenges with supplier enablement in the past and are likely to bury the challenging memories of such initiatives when it comes to EIPP. This is a mistake, and one that organizations can avoid by working with an expert provider who has a proven track record of rapid and cost-effective large-scale supplier enablement initiatives, and the economies of scale to enable low-cost supplier enablement. Second, companies must choose solutions that enable both low and high volume suppliers in order for their efforts to be worthwhile. A solution that delivers maximum payback must take into account high volume suppliers, accommodating existing one-off connections as well as lower volume suppliers through a common network. And third, EIPP must accommodate small, paper-bound suppliers. A disproportionate volume of invoice errors, disputes and costs originate from such suppliers – and every company depends on them. So any solution must address their needs, or the A/P efficiencies that EIPP brings will be severely limited.
When evaluating an EIPP solution, companies should ensure that it:
Above all, companies must look for a partner that can provide a complete solution that focuses on the entire set of business processes necessary to ensure compliance and control. Without question, an EIPP suite should go beyond simple invoice automation, and should eliminate as much paper as possible in the A/P process. This is especially critical to improving performance as paper is the root of high handling costs, error rates, and low discount capture. A solid EIPP solution must possess the ability to handle the ‘last run’ of paper-dependent suppliers (i.e., those that prefer not to do business electronically).
The right EIPP solution will be flexible, based on individual needs and circumstances. For example, it should be available in both installed and on-demand software models, and help choose the model that makes most sense.
While the right solution and partner is critical to enabling EIPP results and maximizing returns, without the commitment to prioritize such efforts, companies will continue to leave opportunity on the table.
Regardless of organizational maturity, existing A/P performance levels, or the level of technology sophistication or commitment, EIPP is a way to fundamentally improve a traditional business role – getting suppliers paid.