4 steps to Invoice Automation Basware


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4 steps to Invoice Automation Basware

  1. 1. Four Steps toInvoice AutomationFrom Manual to a Fully Electronic Purchase-to-Pay Process
  2. 2. Table of Contents1 Executive summary2 Four essential steps when automating invoice processing Step 1 - Audit your current process, set the goals for improvement and start the transformation Step 2 - Selection process: Consider only solutions that support the entire P2P process Step 3 - Aim at a fully electronic AP process and understand invoice automation and invoice to order matching Step 4 - Make a plan to shift to electronic supplier collaboration3 Introducing an e-Procurement solution4 Conclusions
  3. 3. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process 1 Executive summary According to a recent survey1, 59 percent of accounts payable (AP) heads think that the AP function is becoming more strategic and that improved AP performance has a positive impactwww.basware.com on profitability. This survey approached 550 heads of AP around the world and it revealed that inefficiencies of the AP process are costly for companies. The late payment fees are a reality and early payment discounts typically cannot be leveraged. The respondents identified human error, whether by AP or the procurement department, as the biggest cause of AP errors, and invoice scanning / data entry as the most time-consuming and error-prone step in invoice processing. There is a clear need for automation of the company to the first stage on its journey to- This ebook introduces the four essential finance function’s AP processes; to bring in wards broader purchase-to-pay (P2P) ben- steps an organization will need to consider real-time visibility and control; and to re- efits. The next stage would involve both the before automating its invoice processing move both payment and accounting errors finance and procurement functions hav- and also reveals some of the real-life busi- from the business. Electronic invoices play ing a direct impact on companies’ working ness benefits that a carefully planned AP a key role. They not only move faster than capital management and cash forecasting. process transformation has delivered to paper-mailed invoices but also provide an As long as the procurement and AP depart- Basware customers around the world. We audit trail all the way from the initial pur- ments remain in their separate silos, the hope that this reading will lead to vivid chase order placed by the procurement de- invoice processing can never be fully au- discussions within finance departments partment. This drastically cuts down on the tomated and the real-time visibility to out- and would encourage them to embrace the time an AP clerk would spend on both inter- standing AP liabilities will be just a dream. comprehensive P2P vision when consider- nal and supplier inquiries before being able ing automating their AP processes. to process the invoice. And with the rapid Hundreds of customer projects have shown processing of their invoices, the suppliers Basware how crucial a comprehensive P2P are able to give the valuable early-payment approach is when a finance department discounts that still so often remain out of wishes to automate its invoice processing. the reach to companies. It doesn’t mean the whole P2P value chain has to be attacked simultaneously but to Although a streamlined AP process saves ignore AP’s role in the larger process is to both money and time, it can only take a fail to understand the exponential benefits. 1 Lost in Transaction - A Basware Research Report for Accounts Payable A complimentary copy available for download at www.basware.com/transaction
  4. 4. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process 2 Four essential steps when automating invoice processingwww.basware.com Step 1 Audit your current process, set the goals for improvement and start Annual Length of the the transformation 100,000 7,5 invoice volume working day Understanding of the current accounts pay- The results of a recent study conducted by Saved time Working days per 5 21 able process down to the root causes of the Forrester Consulting showed clearly that it (minutes per invoice) month bottlenecks is crucial for its improvement is the centralization of the AP responsibility Average salary of and standardization. Whether an organiza- that enables the process improvement and Saved time / man days 1111 $50,000 FTE/year tion is considering to centralize the AP func- not, as often believed, transplanting of low- Saved time / man tion into a shared service center (SSC) or to cost AP clerks into a shared service center 52 month launch uniform processes across its subsidi- in a low-cost country2. aries in different regions, the new process Annual Saved time / man year 4 $200,000 should be described and the goals should be Once the new P2P process has been de- savings potential set in the context of the entire purchase-to- scribed and the goals identified and ap- pay (P2P) process. It is essential to realize proved within the organization, the AP de- Table 1 early on, the AP’s dependency on the other partment should initiate the change from a Example of time and cost saved by automating the AP process. players in the bigger picture – all of the units manual to an electronic process immediate- The estimate is based on a company that is processing 100 000 invoices per year with a ve minute doing purchasing within the organization, ly, and not wait for the other units to change reduction in processing time per invoice. not only the procurement department but their processes first. According to our expe- also all of its suppliers and contract agree- rience, the AP automation often serves as a ments. catalyst that helps the other P2P stakehold- ers to carry out their own process transfor- Process centralization and standardization mation. in conjunction with automation is known to bring the maximum process efficiency. How- The Table 1 shows how saving only five min- ever, centralization can be understood in utes per invoice during the AP process can two different ways – as centralization of the improve efficiency on a monthly and yearly AP staff or as centralization of the process basis. The automation of invoice processing ownership. with order/invoice matching and an elec- tronic approval process will normally reduce 2 Finance and Procurement Work Together To Achieve AP Invoice Processing Excellence. the invoice cycle time by several days. A Forrester Consulting Thought Leadership Paper Commissioned by Basware Corporation. April 2010.
  5. 5. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process Step 2 Selection process: Consider only solutions that support the entire P2P process In a nutshell, the targeted invoice automation will enable Accounts Payable to: The solution selection process is crucial to Therefore, the integration between the the process transformation in many ways. ERPs and the new P2P solution is a pre- Eliminate all manual handling of the routine As a key rule, the selected solution should requisite when trying to build visibility and invoices and automate the recurring and PO-www.basware.com not be limited to the AP process only but control across the entire organization.* based invoices should be flexible enough to enable the en- tire P2P automation in the future – includ- Bring the ERP master data into the invoice ing elements such as electronic catalogue automation system, but also consider in- Automate the workflow and coding for and ordering, and invoice exchange with tegrating the other current and future key the suppliers. systems such as the AP system or a pos- the rest of the invoices (except handling) sible e-procurement solution. according to defined business rules and Do not try to re-invent the wheel when pur- chasing an electronic invoice processing It is essential that the solution does not approval policies system. Benefit from fast and low cost im- make the organization dependent on exter- plementation and from your peers’ experi- nal resources for the process development. ence from other companies and countries. The AP costs can be kept down if the solu- Automate the invoice processing control and Standard packaged applications are widely tion is flexible enough to allow continuous benefit from early discounts and avoid late adopted and are usually the best options, process improvement. payments as they contain the built-in best practices and the required legislative compliance. Finally, to save time and effort when set- ting up the automated solution, a company Have an extensive invoice processing audit In many companies, the ERP systems play should ensure that HR is brought into the a key role whether we are talking about the process and the established approval hier- trail and automated built-in controls available AP or the broader P2P process. Multiple archy should be followed. at all times for all users to increase the ERP systems are commonplace – Basware has encountered as many as 75 in one com- control and avoid fraud pany, making it difficult, if not impossible, to get a single consistent view over the P2P process. Deliver a new kind of visibility for cash management and forecasting as unrecorded liabilities would be realized in real-time
  6. 6. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process Step 3 Aim at a fully electronic AP process and understand invoice automation and invoice to order matching Invoices should be electronic before being validation of local suppliers’ invoices which Straigh received by AP in order to benefit from au- usually requires language skills, could be au- t-throu gh proc tomated, errorless data cleansing and entry, tomated with a multi-currency, multi-compa- essing –90www.basware.com Invoice and straight-through-processing. ny, invoice automation solution. In the event s/FTE % that the invoice matching against a contract 100 00 Invoice automation is thus more than the or purchase order fails, easy access by the 0 scan and capture of the invoice data or an requisitioner or cost center owner ensures a electronic processing workflow. True automa- quick action (approval/rejection) by the per- tion enables AP to manage the invoice pro- son who knows the topic best. Invoice cessing without any manual user interven- autom tion. As the enabler of the best data quality, Improving automation should be one key goal ation and thus, best automation, e-invoicing plays for any drive to get off paper. Automation in- Invoic es/FTE –66 an increasingly important role. In fact, the cludes many aspects of the invoice handling 30 000 FTE recent Forrester study clearly showed that process. Arguably, the starting point has to the companies integrating fully automated be invoice data entry. In a paper-based com- e-invoicing with e-procurement have the best pany, invoices are manually entered into the chances of achieving AP invoice processing system – a more modern company uses OCR Paperl excellence.3 technology to perform data capture during ess wo the scanning process. An even more forward rkflow As mentioned previously, a majority of 550 thinking company will have suppliers submit Invo ices/FT –25 % AP heads think that the invoice scanning is the most time-consuming and error-prone their invoices electronically – these come di- rectly into the system and avoid all sorts of 15 000E FTE step of their AP process. Companies should, costs, inefficiencies and errors associated in fact, put in place a clear AP strategy aiming with scanning. at e-invoice processing only and partner-up with solution providers who enable a smooth Paper- based shift from scanning to automated e-invoicing. h andling For instance, e-invoicing would make it much Invoice 0% s/FT easier for a single shared service center to support an entire organization globally. The 5 000 E FTE Continuously increasing savings (%) 3 Finance and Procurement Work Together To Achieve AP Invoice Processing Excellence. A Forrester Consulting Thought Leadership Paper Commissioned by Basware Corporation. April 2010.
  7. 7. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process The data quality of e-invoices ensures the highest possible matching rates which translate into significant efficiencies and cost savings per invoice.www.basware.com Once the invoice data is in the system, auto- That is the ideal scenario, which is called What’s more important than setting multiple mation continues with opportunities for auto- straight-through-processing (STP). Invoices checks into the system (the more checks and matching invoices to purchase orders and/or often do not match purchase orders though, controls the lower the matching rates) is the contracts. Obviously, something like invoice- and while STP should be your goal, automa- control and visibility afforded by matching at to-order matching requires orders to be in a tion can be a dramatic improvement to excep- line level rather than header level. It’s worth purchasing system somewhere and for those tion management within the invoice handling looking at the difference between the two. companies who have a high volume of its total process. invoices relating to purchase orders, the ben- The best way to achieve the additional control efits of automation are equally high. Exception management is all about discover- and visibility afforded by line-level matching ing the reason the invoice does not reconcile is through e-invoicing. The purchase order The matching process takes an invoice, tries with the purchase order and requires manual details within your ordering system will in- to associate it with an order, and after finding handling. Ideally, the system will still copy the clude line level information and e-invoices and successfully matching the data on both coding data from the PO to the invoice and come directly into the system and can then documents, copies the coding details from the forward the invoice directly to a specific per- be matched line-by-line with one or more pur- order. Since the order was already approved son depending on the reason for the failed chase orders. The data quality of e-invoices and the invoice reflects the PO’s expectations, match. ensures the highest possible matching rates the system can automatically approve the in- which translate into significant efficiencies voice to be transferred to the ERP/financial The matching process typically involves a vali- and cost savings per invoice. E-invoices are system for payment according to the payment dation check to ensure the goods have been cheaper to receive, cheaper to process, and terms contained in the Master Vendor list. received before automation sends the invoice contribute directly to the highest possible to be paid. This is called a three-way match matching rates and cost savings. (invoice – PO – goods receivals). It is equally possible for there to be additional checks such as a quality inspection or check on contract terms.
  8. 8. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process Step 4 Make a plan to shift to electronic supplier collaborationwww.basware.com Ordering and invoicing on paper – even with The biggest challenge when shifting from In addition, the selected solution pro- an electronic processing system in place paper to e-invoicing is the activation of the vider should have a flexible service of- – gives room for delivery and invoicing er- suppliers. This requires a common activation fering that would enable the suppliers rors. One of the greatest benefits of the au- plan from AP and the procurement depart- an immediate and cost-efficient shift tomated P2P solutions is that it can include ment, the owner of the supplier agreements, to e-invoicing according to their cur- the suppliers as part of the process through and the main contact persons. The actual sup- rent invoicing volumes. It should also contract-based electronic catalogs, electronic plier activation project, i.e. supplier contact- be possible to smoothly increase and ordering and electronic invoicing. ing and introducing the e-invoicing solutions automate their e-invoicing once the available, can be outsourced to a solution pro- volumes grow. For Accounts Payable, this would mean com- vider; however, the supplier prioritization and plete automation of the invoice processing the activation targets should come from AP The supplier integration is clearly a with a full audit trail all the way from the ac- based on the processed invoice volumes (i.e. mutual benefit for both Accounts Pay- tual purchase order. Through an automated the biggest invoice volumes should come in able and Procurement. Getting suppli- solution, AP can actually outsource the most as electronic first in order to gain the biggest ers to support your AP strategy and time-consuming routine tasks by offering process improvements). provide electronic invoices immedi- both the suppliers and the company’s em- ately eliminates the errors and time- ployees a self-service invoice entry, viewing In many cases, the suppliers may already consuming inquiries during the invoice and reporting. be providing e-invoices but through a differ- processing. The electronically gener- ent service provider than a company’s AP is ated invoice data, matching the ne- Additionally, the P2P automation often planning to use. Therefore, it is important to gotiated contract terms, also enables serves as a means for supplier consolidation select a solution provider who has interoper- the company’s buyers to better take and for facilitating category management. ability agreements with other e-invoicing ser- advantage of the possible on-time and For instance, one Basware customer had over vice providers, and has an open network to early payment discounts and to elimi- 1,500 marketing suppliers alone, accounting all of its own, and its partners’, AP customers nate the late payment penalties. for 25 percent of total indirect spend. By in- and suppliers. troducing the P2P automation, the customer ended up saving 20 percent of that cost.
  9. 9. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process Getting suppliers to support your AP strategy and provide electronic invoices immediately eliminates the errors and time-consumingwww.basware.com inquiries during the invoice processing.
  10. 10. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process 3 Introducing an e-Procurement solutionwww.basware.com Accounts Payable’s strategic role within the E-Procurement is the logical “next step” in the broader P2P process, especially in terms of purchase-to-pay automation process. Basware the desired real-time spend visibility, is often procurement solutions offer a reliable way to ignored. It is crucial to realize that invoice han- dling does not exist in a vacuum but is closely improve spend compliance and make cost sav- ings throughout the procurement cycle – from No sacrifice of flexibility: linked to the company’s procurement process and practices. sourcing and contract management to day-to- day purchasing and supplier connectivity. City of Helsinki – 18 000 The efficient spend management, real-time Visit us at www.basware.com/resources for ac- purchase orders per month. cash flow estimates and supplier base optimiza- cess to the number one source for guidance tion become possible only with a solution that seamlessly links together the Procurement’s on how to best integrate Finance and Procure- ment. The city can buy anything purchasing and AP’s invoice handling process- es. It is only when the cost-reduction opportu- from tigers to tubas via the nities are visible to Procurement that they can be considered when negotiating future supplier agreements. catalog-based e-procurement Additionally, it is only when the approved pur- system and has been able to chase orders are visible to Accounts Payable that they can be reported as committed liabili- reduce the capital employed by ties, and taken into account in cash flow fore- casting. EUR 2,000,000
  11. 11. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process Conclusions With a majority of survey respondents In order to have real-time visibility to The selected solution provider shouldwww.basware.com identifying human error as being the outstanding AP liabilities and for in- have a flexible service offering that biggest cause of AP errors, and invoice voice processing to be fully automated, would enable the suppliers an immedi- scanning / data entry as the most the procurement and AP departments ate and cost-efficient shift to e-invoic- time-consuming and error-prone step must work together on important ing according to their current invoicing in invoice processing, more companies steps such as supplier activation. Gain- volumes. It should also be possible to are embracing e-invoicing in order to ing suppliers’ support of the AP strate- smoothly increase and automate their streamline the AP process. The long- gy and having them provide electronic e-invoicing once the volumes grow. term benefits are too compelling to invoices immediately eliminates the ignore. Keeping in mind that although errors and time-consuming inquiries The transition from a manual P2P pro- a streamlined AP process saves both during the invoice processing. cess to a fully electronic process need money and time, it can only take a com- not be a painful and tedious process. pany to the first stage within a broader In addition, the solution selection pro- Outsourcing the shift to electronic of- purchase-to-pay maturity curve. cess is crucial to the process transfor- fers considerable benefits - One be- mation in many ways. As a key rule, the ing that at the end of the project, the It is important for a company to review selected solution should not be limited company will have a defined customer its entire purchase-to-pay process to the AP process only but should be integration process that provides a ba- first, then work towards an integrated flexible enough to enable the entire sis for a long-term and self-driven e- e-invoicing solution. It is also essential P2P automation in the future – includ- invoicing strategy. to realize early on, the AP’s depend- ing elements such as electronic cata- ency on the other players in the bigger logue and ordering, and invoice ex- picture – all of the units doing purchas- change with the suppliers. ing within the organization, not only the procurement department but also all of its suppliers and contract agree- ments.
  12. 12. Four Steps to Invoice Automation From Manual to a Fully Electronic Purchase-to-Pay Process Invoice Automation Successes “Invoice automation has actually improved Finnair’s competitive position by providing us with greater operational transparency and responsiveness. It enables a more solid connection with line-of business people across the group and strongly influences, and improves, purchasingwww.basware.com decisions.” Mervi Mäkelä Director Cash Management Finnair “The increased visibility and efficiency that invoice automation provides has made it an attractive solution not only for group countries with high labor costs, but also for those where labor costs are low, such as China and Egypt.” Pether Jonsson Group Vice President ABB “Invoice automation saves significant time and money, enables enhanced tracking and easy auditing, and provides the accuracy, efficiencies, visibility and control we need. We’re even using it to monitor suppliers and look for opportunities to consolidate invoices and capture early payment discounts.” Daniel Garuti Vice President and Accounting Supervisor Loomis, Sayles & Company, L.P.
  13. 13. Basware is the global leader in purchase-to-pay solutions with more than 1,500 customers and 1,000,000users in over 50 countries around the world. With Basware, organizations can reduce the cost of buying andpaying for goods and services, and gain visibility and control of their entire spending process by automatingmanual processes, from sourcing, contract management, purchasing and supplier collaboration to invoiceautomation.Basware solutions and services enable substantial cost reductions across businesses and deliver value byproviding compliance and control, as well as fast return on investment. The solutions are distributed andimplemented, either on site or as a service, in Europe, the US, and Asia-Pacific through an extensive networkof Basware offices and business partners.contact@basware.comwww.basware.com