Electronic Invoicing is Good, Smart Invoicing is Better
Over several decades, companies have devoted significant time and resources to improving the efficiency and effectiveness of their accounts payable (A/P) organisation. In the current economic environment, where cash is king and companies are looking for any and all ways to free up and maximise it, many are stepping up their efforts. But what do they need to succeed?
With large-scale implementations of enterprise resource planning (ERP) and electronic data interchange (EDI) systems, A/P has certainly become more efficient. Yet most finance executives remain dissatisfied with the way things stand. There is still too much paper and manual processing, filing and matching involved to achieve the kinds of efficiencies and savings that are needed to weather changing economies.
To remedy the situation, many corporate treasuries are moving to electronic invoicing (e-invoicing) and leveraging technology-based solutions that enable them to execute it. Such solutions attack the inefficiencies that exist between companies, such as sending and receiving invoices and payments, to enable more effective collaboration. Delivered in the cloud, they can be easily shared and accessed among trading partners, allowing for common business processes in areas such as billing, treasury, and A/P.
Yet the invoicing process remains flawed. A/P teams still spend inordinate amounts of time and effort in processing paper invoices. Current studies show that one in five invoices still contain an overcharge or other exception, because many companies are attempting to tackle the problem through digitisation alone. Yet it’s clear that this only leads to bad invoices being delivered faster.
Smart Invoicing
The solution is smart invoicing. With smart invoicing, e-invoices undergo an automated validation process at the point in which suppliers submit them; improving accuracy, eliminating errors and rework so that only valid and approved invoices reach A/P. Companies adopting this approach are achieving upwards of 98% touchless invoice processing or higher, as validated invoices post directly to ERP systems.
When done right, smart invoicing can deliver process efficiency gains, typically measured in terms of the number of invoices processed per full time equivalent staff member. Organisations with more than10 full-time employees (FTEs) dedicated to processing invoices have reported as much as 70% cost reduction.
Other hard dollar savings can be generated through the capture of early payment discounts. Many companies simply cannot process their paper invoices fast enough to capture early payment discount savings, which can be significant. With smart invoicing, treasurers can not only capture these discounts, but ensure they materialise by avoiding exceptions that delay invoice approval, effectively speeding up the invoice cycle time. Some companies using a smart invoicing approach are already capturing over US$1 million in annual discount savings.
Smart invoicing initiatives also have a positive impact on working capital. With improved visibility and control, finance organisations can avoid paying invoices upon receipt and pay to term, which will stretch their payables and have a positive impact on days payable outstanding (DPO). Many companies are able to use the growing cash reserves and cash that is freed up from smart invoicing efficiency gains to fund discount programmes. These savings are used to drive operational improvements and also help to provide much needed liquidity to supply chains that are struggling under today’s tight lending practices.
Without question, smart invoicing can help A/P organisations take their performance and efficiency to the next level. But identifying the right solution is absolutely essential to success. Smart invoicing is about more than transforming paper documents into electronic ones. To drive results, a solution must:
Many companies are finding such solutions in the cloud. “A unique strength of on-demand and cloud solutions is the integration and validation at the business process level, of pulling together many disparate elements of a process, but with the proper governance along the way,” says Dana Gardner, principal analyst for Interarbor Solutions. “Managed automation across all the elements of the process makes invoicing work far better. And it leads to even further benefits up and down the supply chain.”
Al Barbee, director, North America core business services for GlaxoSmithKline (GSK), agrees. He says that smart invoicing “eliminated the manual steps from our process and reduces the chance of things going wrong. You should introduce it sooner rather than later.”
Smart invoicing will increasingly be the solution of choice for any finance and shared service organisation looking to drive out cost and advance real transformational change.