E Payables Aberdeen Report Aug 2010

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E-Payables 2010

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The Strategic Value of Accounts

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Payable Automation
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August 2010
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Scott Pezza, William Jan
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~ Underwritten, in Part, by ~
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E-Payables 2010: The Strategic Value of Accounts Payable Automation
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Executive Summary
For Accounts Payable (A/P), the time is ripe for redefinition. Difficult Research Benchmark
economic times have heightened the need for cost-cutting efficiencies and Aberdeen’s Research
have brought focus to the value (and current lack) of visibility into invoice Benchmarks provide an in-
and payment status. In a paper-based world, A/P’s ability to meet these depth and comprehensive look
challenges is severely hampered. As the economy continues its recovery and into process, procedure,

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business volume picks up, leading companies will be those who pursue methodologies, and
strategies to automate their back-office functions, opening up new areas for technologies with best practice
identification and actionable

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cost savings, cash management, and improved supplier relations. This study
explores how enterprises of all sizes can derive efficiency gains from recommendations
automation, and how these improvements enable them to better pursue
strategic initiatives.

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Research Methodology
Aberdeen evaluated over 310 companies between March and April of 2010, Maturity-Class Framework

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in two surveys which together spanned the full payables process from Based on Key Performance
receipt through settlement. Top performing companies achieved: Indicators (KPIs), Aberdeen
segments companies into:
• Invoice processing costs that are, on average, 76% below their
peers √ Best-in-Class: Top 20% of
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performers
• Invoice processing cycle times that are, on average, 82.5% faster
than their peers √ Industry Average: Middle
50% of performers
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Comparative Maturity Assessment √ Laggard: Bottom 30% of
Although large enterprises showed markedly higher maturity in terms of performers
current capabilities and adoption of available technologies, ultimate
performance was not so simply explained. Focusing on top-performing
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respondents, regardless of size:
• 72% of Best-in-Class companies currently have an active accounts
payable improvement initiative in place
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• 60% of Best-in-Class companies have standardized payment
processes throughout their organizations
• 59% of Best-in-Class companies have clear policies in place
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governing the invoice receipt-through-payment workflow

Required Actions
In addition to the specific recommendations presented in Chapter Three, A key starting point in
companies of all sizes should: improving accounts payable is,
“Process restructuring - taking
• Ensure that all interested stakeholders (A/P, Finance, Treasury, advantage of available
Procurement, etc.) are involved in crafting payments policies, rather technology.”
than taking a strict functional territory view
~ Margaret Anderson,
• Catalogue existing repetitive, non-value-add activities to create a list Controller, PBM Products
of potential areas for automation, centralization, or outsourcing
© 2009 Aberdeen Group. Telephone: 617 854 5200
www.aberdeen.com Fax: 617 723 7897

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Table of Contents
Executive Summary....................................................................................................... 2
Research Methodology ........................................................................................... 2
Comparative Maturity Assessment...................................................................... 2
Required Actions...................................................................................................... 2

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Chapter One: All Payments, Great and Small....................................................... 4
Business Context ..................................................................................................... 4

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Setting the Stage: Revenue-based Analysis......................................................... 5
Chapter Two: Taking a Closer Look ....................................................................11
Comparative Assessment.....................................................................................13

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Capabilities and Enablers......................................................................................14
Chapter Three: Required Actions .........................................................................20
Small Business Steps to Success..........................................................................20

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Midsize Business Steps to Success .....................................................................20
Large Enterprise Steps to Success .....................................................................21
Appendix A: Research Methodology.....................................................................23
Appendix B: Related Aberdeen Research............................................................26
Featured Underwriters..............................................................................................27
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Figures
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Figure 1: Common Pressures Driving Focus on A/P ............................................ 4
Figure 2: Avenues for Invoice Receipt by Revenue Group ................................. 6
Figure 3: Methods for Handling Incoming Invoices ............................................... 7
Figure 4: Overall Payments Mix by Revenue Group............................................. 8
Figure 5: Current Adoption of Supporting Technologies..................................17
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Tables
Table 1: Comparative Performance by Size............................................................ 5
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Table 2: Average Transaction Cost by Payment Type ......................................... 8
Table 3: A Comparative Framework......................................................................13
Table 4: Payment Methods Used by Supplier Type*...........................................19
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Table 5: Study Demographic Information .............................................................23
Table 6: The PACE Framework Key ......................................................................24
Table 7: The Competitive Framework Key ..........................................................25
Table 8: The Relationship Between PACE and the Competitive Framework
.........................................................................................................................................25


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Chapter One:
All Payments, Great and Small
Business Context
Fast Facts
Traditionally, the Accounts Payable (A/P) function has been viewed as a
purely tactical intermediary that ensures a company’s suppliers receive √ 72% of all received invoices

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payment for goods and services delivered. The root of A/P's problems can are paper-based
be traced back to its dependence on paper and the resulting lack of visibility. √ 31% of corporations have

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With over 70% of incoming invoices paper-based, the receipt and approval established electronic
processes is completely manual for nearly 60% of responding companies, payments requirements as a
and the bulk of payments made by paper checks, the average accounts standard means of

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payable department is awash in paper. It is not surprising that more than half conducting business with key
of all businesses surveyed have limited transparency into the A/P operations suppliers
that have the potential to help drive value across the enterprise. The
sections that follow present the current state of A/P functions, the cost

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impacts of inefficiency, and outline how top-performing companies are
leading the way in digitizing documents and automating processes for
enhanced corporate performance and external collaboration.
Payables Automation - Motivational Factors
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Whether focusing on the receipt or payments ends of the accounts payable
E-Payables Defined
process, companies are responding to a common set of pressures driving
their focus on A/P process improvement. For recent respondents, two Aberdeen utilizes "e-payables"
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motivating factors stand out from the rest: a directive from the C-level to as an all-encompassing term to
reduce operational costs, and the negative impact caused by a reliance on refer to the automated
paper documents (Figure 1). The latter item encompasses a lack of visibility processes associated with the
Accounts Payable (A/P)
into information residing on paper documents as well as stakeholder
function, including invoice
pushback due to the inefficiency of manually processing physical invoices. receipt and handling,
or

reconciliation and approval,
Figure 1: Common Pressures Driving Focus on A/P
disbursement scheduling,
settlement (including
Top-down Cost-reduction Mandate 55% confirmation and reporting),
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and internal and external
Difficulty of Working with service support.
51%
Information in Paper Format
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Difficulty Managing Cash 24%

Risk of Fraud 19%

Impact of Process Inefficiency 14%

0% 10% 20% 30% 40% 50% 60%
Percentage of Respondents, n = 318
Note: Respondents were asked to select the top two pressures for improving accounts
payable in two surveys: Invoice Receipt and Workflow (n=152) and Global Payments (n=166)
Source: Aberdeen Group, August 2010


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Setting the Stage: Revenue-based Analysis
Annual revenue can, at times, be a useful proxy for attributes such as “We are focusing attention on
organizational complexity, availability of resources, and maturity of process measuring DPO and finding
and technological capabilities. It can also provide a common ground upon ways to lengthen the period.”
which to analyze related groups of data which were collected separately. ~ Ronald Zilkowski, CFO,
This study will utilize the revenue groups defined in Table 1 as a basis for Cuisine Solutions
examining the potential options available to accounts payable professionals

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as they seek to improve their departmental performance and aid their
organizations in improving overall corporate results.

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Table 1: Comparative Performance by Size
Definition of

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Mean Group Performance
Revenue Group
Small Businesses: $16.63 cost to process a single invoice
Up to $50million in 17.9-day cycle time to process a single invoice

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annual revenue (receipt through payment scheduling)
Mid-size Businesses: $16.44 cost to process a single invoice
Between $50million
and $1billion in annual 15.5-day cycle time to process a single invoice
revenue (receipt through payment scheduling)
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Large Enterprises: $14.01 cost to process a single invoice
Over $1billion in 19.7-day cycle time to process a single invoice
annual revenue (receipt through payment scheduling)
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Best-in-Class
Companies: $4.84 cost to process a single invoice
The Top 20% of 3.71-day cycle time to process a single invoice
Performers in April's (receipt through payment scheduling)
Payables Study
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At first glance, these results may seem counterintuitive. Larger enterprises
are more likely to be automated, so why is there such similarity in
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performance between the groups? For larger enterprises, the overall results
mask what they achieve when processing electronic invoices: costs of $6.61
when they are PO-based, and $9.08 when non-PO. But the full story is a bit
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more complicated. For both midsize and large firms, their overall
performance is compromised by two main factors: processing times for
exceptions (which require manual intervention) between one and three days
longer than for small businesses, and higher total exception rates (an
absolute 3% higher for large, and 3.7% higher for midsize respondents). This
serves to highlight an important lesson: successful A/P automation initiatives
do not simply rely on the electronification of payables transactions to yield
the desired results - they maintain an eye on effective exception
management to ensure that the gains in one area are not dampened by
inefficiency in another.


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Paper, Paper Everywhere
As illustrated in Figure 2, for the vast majority of respondents, paper “The current process is very
invoices are a normal part of the payments process. Indeed, for these manual. We’re looking to
companies, paper-based invoices account for 72% of their total invoice reengineer process, eliminate
volume. Interestingly, large enterprises reported the lowest paper-based paper.”
volumes (64%), followed by small (75%) and midsize businesses (81%). In
~ Thomas Dadmun, Vice
addition to P-cards, EDI/XML and Supplier Portals (shown in Figure 2), large

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President, Adtran
enterprises are also outpacing their peers in adoption of alternative
invoicing methods, such as Evaluated Receipt Settlement (ERS), Electronic

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Invoice Presentment and Payment (EIPP), and supplier networks. In this
respect, larger businesses are displaying a portfolio approach to invoice
management - accommodating a greater variety of submission methods than
their peers. While this flexibility may expand the number of suppliers with

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which connections are possible, it also threatens to increase the complexity
of managing these relationships from the IT perspective (although this
prospect is outside of the scope of Aberdeen's current research effort).

Figure 2: Avenues for Invoice Receipt by Revenue Group

100% 94% 94% 93%
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Small Midsize Large
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80% 75% 77% 73%
71%
67%

60% 53% 53%
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50%

40% 31%
25% 22% 21% 22%
20% 13%
3%
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0%
Regular Mail / E-Mail Fax Purchasing Electronic Supplier
Paper Card data (XML, Portal
statements EDI)
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(P-Card)

Source: Aberdeen Group, April 2010

The Document-to-Data Spectrum
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As discussed in April's Invoicing and Workflow benchmark, the effort required
to manage the received invoice varies depending on where it falls along the
document to data spectrum. Figure 3 outlines the approaches responding
companies take when handling incoming invoices that have not been
transmitted as pure data. For the majority of all respondents, invoices
remain in physical form for the duration of the approval process. Standing
out from small and midsize companies, a substantial number of large
enterprises noted converting paper invoices to electronic form at the end of
the approval phase ("back-end document capture"), providing a digital
document that is more easily stored and located for future reference. While


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this approach does ease the burden of future inquiries, it does not enable "We are currently undertaking
valuable efficiency gains during approval processing. a review of our finance systems
to develop a road map for the
It is the front-end capture options, however, that introduce true next five to 10 years. This will
performance gains. For example, respondents who have implemented front- include identifying solutions and
end document capture (creating a scanned digital copy of a physical invoice suppliers to then bring about
to be used in the approval process) report invoice processing times 34% process change.”
faster than those of companies who process invoices manually. Moving to

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~ Teresa Warren, Senior
the pure data end of the spectrum, companies that convert scanned Finance Manager, J D
documents into usable data (through optical character recognition or similar Wetherspoon

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technologies), report a 26% faster processing time than those that work
only with document images.

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Figure 3: Methods for Handling Incoming Invoices

Manual Back-end document capture
Front-end document capture Front-end data capture

Large Enterprises 25% 35%

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15% 25%
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Midsize Businesses 50% 8% 16% 25%
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Small Businesses 63% 9% 15% 12%

0% 20% 40% 60% 80% 100%
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Source: Aberdeen Group, April 2010

After following the approval workflow - identifying the associated purchase “We are looking to get
order(s), confirming receipt of goods or services, verifying pricing, approval for funds to buy an AP
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quantities, and terms, etc. - the invoice is approved for payment. Of course, automation solution: upfront
the cycle time impact of workflow automation should not be overlooked. scanning, routing for approval
Responding companies that had automated the entire receipt through via workflow and on-line
approval and payment. We are
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workflow process were able to advance to settlement nearly seven days
also looking at supplier portal
sooner than those with incomplete or no automation (12 days vs. 18.9, a
and dynamic discounting
37% advantage). The procedures and policies governing this portion of the capabilities.”
process are discussed in more detail in Chapter Two.
~ Marie-France Poulaert,
Manager Accounts Payable,
Paying It Forward Canadian Pacific
In a pattern similar to the examination of invoice processing above, Figure 4
illustrates a more highly paper-based portfolio of payment types for small
and midsize businesses than for large enterprises. It is interesting to note
that the main areas of differentiation between small and midsize businesses
and large enterprises is in the balance between check and ACH-based


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payments. Overall usage of commercial cards, wire transfers, and other
miscellaneous payment methods is quite similar for all groups. This
distribution of payment types also brings up an important note: although
small businesses cited the growing risk of payments fraud as a top pressure
more than twice as often as those in the other revenue groups (35% vs.
16%), they also show the highest utilization rate of paper checks - the
payment type most often associated with fraud in Aberdeen's May Global

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Payments benchmark. While recognition alone will not remedy the situation,
this should highlight that the selection (or enablement) of certain payment
types can have added benefits above and beyond faster processing times.

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Figure 4: Overall Payments Mix by Revenue Group

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Checks ACH Commercial cards Wire transfer Other

Large Enterprises 30% 28% 12% 21% 8%

Midsize Businesses 42% 18%

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11% 21% 9%
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Small Businesses 46% 17% 12% 15% 10%
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0% 20% 40% 60% 80% 100%
Percentage of Total Payments

Source: Aberdeen Group, May 2010
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Building on the discussion above, the choice of payment type affects not
only fraud potential and processing time, but when combined with type-
specific transaction fees, can lead to a significant difference in total
transaction costs. As shown in Table 2, below, the high cost of processing
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paper checks is reason enough to seek a transition to electronic payment
methods. Accepting those costs while also being subject to increased fraud
risk can truly be a lose-lose situation. Of course, this does not imply that
the implementation costs of alternative methods are trivial -- but it should
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highlight the need to investigate the Return on Investment (ROI) case for
electronic payments, based on the business' total payments volume and
current processing costs.

Table 2: Average Transaction Cost by Payment Type
Payment Method Cost Per Transaction
Paper Paper Checks $7.15
ACH $4.72
Electronic Commercial Cards $3.96
Wire Transfer $9.86
Source: Aberdeen Group, May 2010

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First Things First
Where, then, should an interested accounts payable professional look?
“In my opinion, the best
Sharing the insight of Michael Puskarich, CFO of Visiting Nurse Service, Inc., starting points for improving
it is critical to focus on your internal processes. "You must have your accounts payable
processes straight first – before you can get others to adapt to you, you process are invoice scanning,
have to make sure your processes are efficient. If you ask a vendor to give approval routing, and electronic
you better terms and then your internal process delay things, you are left filing.”

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with no room to negotiate in the future. If you streamline your processes
~ James White, Accounts
first and then ask for any changes, your process changes may exaggerate the Payable Manager, Cole Hersee

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effects of the changes you just negotiated. Even if you cannot get the Company
changes you wish, your process enhancements may yield a much better
longer term effect." Chapter Two will provide a good discussion of what to
keep in mind when evaluating the current state of existing accounts payable

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policies, procedures, and processes.

Aberdeen Insight - The Proper Role of Accounts Payable

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Accounts payable is purely tactical, or so the traditional view holds. Its
job is simply to pay for purchases made by those in other departments to
support those activities that contribute to the business' top line. Were
this only a straw man argument, there would be no harm done.
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Unfortunately, just as in some executives' view, procurement can be
whittled down to the department that merely facilitates the acquisition of
goods needed by truly productive functions, so too is APs contribution
overlooked and its potential untapped. But this can change.
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How, then, should A/P be viewed in the greater enterprise? What can it
bring to the table, aside from receiving bills and printing checks? To
provide a brief summary, here is a short list of A/P goals whose impact
can be lost when looking only at entry lines on a P&L statement:
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• Paying suppliers on-time. Alongside disreputable negotiation
tactics, is there anything as damaging to supplier relationship
management efforts as delay (or complete failure) in making
payments? Lateness in one contract cycle may lead to more
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onerous terms in the next - if the relationship continues at all. To
put this in perspective: if a key supplier conducts its own
customer analysis, which side of an 80/20 decision would you like
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to end up on?
continued


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Aberdeen Insight - The Proper Role of Accounts Payable

• Keeping everyone up-to-date. Just as suppliers benefit from
timely responses to invoice and payment status inquiries, so too
with internal colleagues in Finance and Treasury who can more
intelligently make decisions based upon current and expected
cash outflows from A/P. Without adequate communication, the

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business loses its ability to control its payment schedule and to
make informed decisions regarding priority, timing, and

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alternative uses for existing funds.
• Avoiding late payment penalties. In addition to damaging
supplier relationships, late payments can also shackle the business

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with added costs. Timely processing in the A/P department can
help to mitigate delays caused elsewhere in the organization
(during approval in the procurement department, for example).
Not everything is within A/P's control, but lower task times by

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one group can add some slack to the overall process and help to
stay within negotiated timelines for payment.
• Capturing early payment discounts. This is, of course, just
the other side of the penalty-avoidance coin. In this case,
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however, adding slack is not the goal. In order to achieve the
short turnaround required to hit the discount date (10 to 15
days, in standard terms) all stages of the receipt-to-payment
process must operate efficiently. In organizations with heightened
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visibility and effective supplier communications, savings can be
further improved with the utilization of dynamic discounting,
where the buyer and supplier negotiate new payment terms mid-
cycle, instead of being tied to the existing contract.
or
tf
No


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Chapter Two:
Taking a Closer Look
The performance differences between revenue groups - and between those Fast Facts
groups and Aberdeen's Best-in-Class performers in recent studies - are the √ Paper invoices account for
result of not only those high-level attributes discussed in Chapter One, but 83% of all invoices

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also of the specific capabilities and technology choices of the individual firms.
These differences will be discussed to follow, following a brief examination √ Firms with clear policies in
place are more likely to
of one specific company that shared its own experiences implementing A/P

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achieve payment process
automation. times 42% quicker than
others
Case Study — Imaging Brings Enhanced Visibility and Increased
Financial Control to Loomis Sayles & Company

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√ 28% of corporations have a
fully automated Procure-to-
Loomis Sayles & Company LP is a financial investment company based in Pay or A/P automation
Boston, MA. Serving the investment needs of institutional and mutual

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fund clients since 1926, it is one of the oldest financial services firms with
equity and fixed income assets of more than $140 billion. The Vice
President and Accounting Supervisor of Loomis Sayles, Daniel Garuti’s
role encompasses the entire accounts payable process including Travel &
Expense (T&E), as well as cash management. Like many Accounts Payable
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(A/P) functions, Garuti faced a bottleneck of paper and coordination.
Looking to improve visibility and control, the Vice President began to
look more closely at its processes. He explains, “Part of the issue for us
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was delayed payments and accountability. Trying to figure out where the
breakdowns were. Everyone was pointing the finger at Finance. The
approval chain was archaic. Invoices were received by different divisions.
With some people in the Boston office, the manager for approval based
in San Francisco, an invoice took three or four days in transit before
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returning back to Boston, if acted on immediately. Compounding
matters, a couple of departments were delinquent in getting invoices in.
We were also looking to be a little more greener, not produce as much
paper, and thought imaging and workflow would help with that aspect.”
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With those goals in mind, Garuti evaluated several systems of automated
invoice and workflow process, “One was a partner with our ERP,
another company we knew of, and then we brought in our current
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provider because we found it to provide the only accounting system with
imaging capabilities at the time.” He asks poignantly, “Do you want an
imaging tool or financial tracking that you can do imaging?”
Loomis Sayles signed on with their technology solution provider in late
2005 and the implementation was completed in 2006. “We were
upgrading our ERP system, so they had a short window of eight weeks to
go live. They were able to send a live invoice in five days, and after some
initial testing, we were ready to go live in six weeks.”
continued


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Case Study — Imaging Brings Enhanced Visibility and Increased
Financial Control to Loomis Sayles & Company

With automation, Loomis Sayles was able to gain visibility, reign in late
payments and create further efficiencies. Garuti focused on the different
points in the invoice-to-payment process. One approach was to identify
the vendors for which billing could be consolidated to reduce the

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number of paper-based invoices into the company. Some suppliers
generated invoices daily. Loomis Sayles had them change the frequency to
weekly, and for those that were currently invoicing weekly, they

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requested to change to a monthly basis, among other adjustments. Garuti
recommends, “By breaking it down, invoice-to-scan shows what’s wrong
with your process and your vendor’s process. Look at your own process

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first, but don’t negate the fact that your vendors could be causing some
of the issues.”
The next strategy was to examine the cycle time from statement date,

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Garuti explains, “From when invoices were cut to actually scanned into
the system, there were big gaps. And from once scanned, the time from
scanned to when paid, the process was even longer. We could track the
full length of the invoice where invoices stood still for seven or more
days. For instance, we found that people were on vacation.” Now the
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system generates email notifications prompting reviewers into action and
Loomis Sayles & Company instituted back-up procedures to escalate
review and approval, cutting down the process time. According to
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Garuti, “By gauging the middle surrounding areas, we also found out who
were our ‘bad people.’ The system enabled us to validate what were
already aware of, and we started showing reports to all the departments
to bring it to their attention.”
With the imaging software, Loomis Sayles & Company was able to realize
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significant improvements, reducing its invoice-to-pay cycle from 40 days
to 15, while enhancing supplier relationships, “Our policy is invoice in,
invoice out. We want to get payments out quickly, and keep our vendors
happy. If we can pay more quickly, they will be a better partner to us.”
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Loomis Sayles & Company is also now able to capture early payment
discounts previously hampered by the manual labor-intensive processes.
The value delivered with imaging further created efficiencies and reduced
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redundancy enabling staff to focus on critical work. “I have been able to
reallocate 30% of my main A/P time to other functions. My senior A/P
person is doing fixed assets for me two days a week, 50% T&E, and the
rest of the time is spent doing reporting and special projects. We didn’t
want to reduce people, but we were looking to add somebody prior to
implementation. With an automated system one can easily double volume
and not affect staff because of the efficiency.” Automation is now enabling
the A/P staff of Loomis Sayles & Company to provide timely, reliable
information on the performance of the company, while also realizing
green benefits.


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Comparative Assessment
Aberdeen Group segmented the response base into three groups, based on “Look at manual processes to
annual revenues (as illustrated in Table 1). In addition to having common eliminate non-value added or
revenue levels, each group also shared characteristics in five key categories: duplicate tasks; automate
(1) process (the approaches they take to execute daily operations); (2) where possible.”
organization (corporate focus and collaboration among stakeholders); (3)
~ Kathy Tanner, Manager,
knowledge management (contextualizing data and exposing it to key

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Amylin Pharmaceuticals Inc.
stakeholders); (4) technology (the selection of the appropriate tools and
the effective deployment of those tools); and (5) performance

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management (the ability of the organization to measure its results to
improve its business). These characteristics (identified in Table 3) serve as a
guideline for understanding the performance achievements and ongoing

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challenges for these different classes of enterprises.

Table 3: A Comparative Framework
Best-in-

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Small Midsize Large
Class
Standardized payment processes across the organization
51% 60% 41% 60%
Process
Clear policies for invoice receipt-to-payment workflow
18% 35% 51% 59%
st
Current A/P improvement initiative in place
45% 45% 66% 72%
Centralized data capture operations
Organization
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27% 33% 48% 42%
Electronic payment requirements established as a standard
means of conducting business with key suppliers
25% 34% 39% 45%
Enterprise-level visibility into A/P (invoice receipt and
Knowledge workflow) processes
or

21% 41% 48% 48%
Payment system integration with ERP or other financial
enterprise application
25% 55% 67% 47%
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Alerts to notify managers of payments initiated above a
threshold amount that should warrant management
Technology
attention
23% 33% 49% 30%
No

System-level controls for segregation of duties for each
transaction
18% 35% 53% 54%
Ability to measure invoice receipt-to-payment cycle time
14% 30% 29% 41%
Performance Well defined metrics, incentives, and penalties applied to
payments
13% 23% 37% 31%
Sources: Aberdeen Group, Invoicing and Workflow (April 2010) and
Global Payments (May 2010)


Page 14

Capabilities and Enablers
Aberdeen's analysis of this Comparative Framework reveals that large
enterprises display greater capability across multiple areas, though their
average performance is not substantially superior to their small and mid-size
peers. The sections that follow examine these areas of difference, and offer
an additional comparison with those companies that achieved Best-in-Class
status in this year's two previous Aberdeen payables studies.

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Process

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Accounts payable is a complex function, with a host of rules (both internally
conceived and externally imposed) impacting the day-to-day conduct of
business. Owing to this complexity, there are two attributes of successful

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A/P organizations that stand out in Aberdeen's recent payables research:
clarity and standardization of A/P processes. Clarity can take the form of a Improvement of accounts
detailed and well-organized playbook, setting out the proper methods for payable must begin with,
handling incoming invoices of differing formats, procedures for matching “Centralization of data, core

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invoices with existing purchase orders (if matching is not automated by a process development,
solution), and setting out controls such as dollar value-based approval limits establishment of standards, and
enablement of users.”
and individual duties relative to vendor information management, check
printing, etc. This capability, in place in 60% of Best-in-Class firms, is not ~ James de Vries, Director, CH
st
only helpful in day-to-day operations, but can further support efforts to Robinson Worldwide
standardize processes between separate locations or business units by
providing a comprehensive reference for training purposes.
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Organization
The changes required to improve A/P performance (altering how incoming
invoices are processes, migrating to electronic payments, etc.) do not come
about by happenstance. To that end, 72% of Best-in-Class performers
or

reported having an active A/P improvement initiative in place - and half of
those companies have had such a program for two years or more. Similar to
Peter Drucker's counsel that management requires measurement, when it
comes to accounts payable, improvement necessitates involvement. This
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encompasses both a commitment by the organization as well as the support
of upper management - a trait Best-in-Class firms are 44% more likely to
possess than their lower-performing peers.
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Knowledge Management “In the near-term, we’re
Suppliers need invoice and payment status information, finance needs to focusing on electronic invoicing
know what outflows will affect the company's cash position, and A/P and automation of payments
reconciliation. The current
managers benefit from identifying bottlenecks (whether process- or people-
problem we face is overcoming
related) slowing down the payables process. Enterprise-level visibility into incorrect (or missing) payment
the A/P process is what can allow the organization to satisfy the needs of reference information
these stakeholders. Even in larger enterprises, which are on par with the preventing an automatic
Best-in-Class (48% report having this capability), there is still much room for match.”
improvement. It is no surprise that small businesses - those most likely to
~ Faye Wright, Director, VETT
manually process invoices and pay with paper checks - are also the least
Ltd.
likely to report this level of visibility (21% overall). While their transaction

Page 15

volumes may be lower, and organizational structure less complex, the
interest of internal and external parties in gaining a clear understanding of
A/P status is no less important.

Case Study — Advent of A/P Automation at Johns Manville

For Johns Manville, a Colorado-based building materials manufacturer
acquired by Berkshire Hathaway in 2001, accounts payable is an area

n
poised for improvement. With an average processing volume of 10,000
invoices per month—higher during the summer due to seasonality—

io
manual processes hindered performance.
According to Ed Ermak, Business Process Specialist for JM, their legacy
system was the culprit; “Whenever we can’t pay an invoice, either

ut
because we don’t have the PO or there is a price difference between the
receipt and invoice, our A/P people had to make a copy of the invoice
and email it off to someone else to find out what information is correct.”

rib
Successful discrepancy resolution caused large amounts of rework, and
often required multiple iterations before completion. With so many
copies already being made for exceptions, this led Ermak to ask an
important question; “If we are already making copies for the exceptions,
why not do this for the entire invoice process and reap savings by not
st
having to file any paper at all?” As an added benefit, if questions about an
invoice ever arose, there would already be a document image in the
system associated with the transaction.
Di
Already in the midst of an implementation of an ERP system that would
handle the workflow functionality, JM chose to add on an external
imaging solution which would capture invoices on the front-end and feed
into the central system. At the outset, JM’s focus was on creating
document images, rather than pursuing full digitization of invoice
or

information through OCR. They took a measured approach of utilizing
the imaging software to speed up manual keying of entries. At present,
the software picks up approximately 86% of invoice information, leaving
only 14% to be entered by clicking and selecting data on the invoice
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image (which is a bit more efficient than keying by hand). With a
centralized A/P department, JM is reaping further efficiencies.
continued
No


Page 16

Case Study — Advent of A/P Automation at Johns Manville

After an initial test, Ermak says, they found that half of their invoices
could pass through the imaging system and either post to the ERP or be
parked for workflow. The other half, representing invoices that lacked
some required information, still require intervention to remedy
omissions, such as those with missing PO numbers or PO line-items.

n
Looking ahead, they expect to boost the data capture up over 90%, and
to improve the non-exceptions to 70% to 75%. Focusing less on error-

io
handling will allow for more staff time dedicated to performance
monitoring and process improvement. A successful imaging program on
the payments side may even support future expansion of the technology
to the receivables arena, streamlining the process by intercepting

ut
customer orders and facilitating ERP integration for those volumes as
well.

rib
Technology
Previous sections have all touched on technological choices implicitly: in
discussing the various formats used for invoice submission, electronic
conversion of paper documents, automation of approval workflow, and
st
systems integration between receipt, approval, payments and underlying
financial systems. As illustrated in Figure 5, there are many other
technologies that support these processes as well. Once digitized, what
Di
becomes of the newly created invoice image? It can be forwarded as an
email attachment, associated with a transaction in the ERP system, or
otherwise stored and indexed for future use - as is done by 52% of Best-in-
Class companies.
If imaging is the starting point, and data is the goal, how do companies make
or

that leap? One example is Optical Character Recognition, which can identify
typed characters on an invoice (or other document) image and convert that
to usable data. Further still, Intelligent Character Recognition (ICR) can
extend this capability to images of hand-written documents. The specific
tf

terminology used for competing solutions may vary between vendors, but
the important point is that these types of applications provide companies
with the benefit of electronic invoices without requiring technological “We are automated, and
change on the part of their suppliers. receive electronic invoices
No

through XML. We are looking
Lastly, Best-in-Class companies make use of two technologies that bridge to Vendor Self Service to
the gap with the stakeholders in procurement: spend analytics and contract eliminate the balance of the
repositories. Especially in companies where the majority of purchase orders paper invoices.”
are paper-based, data gathered by the accounts payable group may be the ~ Robin Lee, Executive
best available window into overall spend (useful information for supplier Director, Finance and
rationalization efforts, as discussed in the end-of-chapter Insight). For the Administration, Baylor College
A/P department itself, this information can lay the foundation for identifying of Medicine
savings opportunities by altering the mix of payment methods. Contract
repositories offer an electronic means of storing and accessing the
documents governing existing business agreements. Why is this important in
accounts payable? Electronic comparison of invoiced pricing to governing

Page 17

contracts can identify inconsistencies - and help to ensure that the discounts
negotiated by those in procurement survive to aid in maximizing the
company's bottom line.

Figure 5: Current Adoption of Supporting Technologies

60% Best-in-Class Small Midsize Large

n
52%
50% 47%
42%

io
40% 35% 36% 36%

24% 29%
30% 24% 24% 23%
14% 20% 18% 21%
20% 18%

ut
13%
11% 9%
10% 7%

0%

rib
Enterprise Image Spend Analytics Contract Digital Optical
Repository (for invoices) Repository Signatures Character
Recognition
(OCR)

st
Performance
As previously mentioned, measurement is the key to management when it
Di
comes to performance. In this regard, Accounts Payable is a difficult function
to manage effectively. Only 41% of Best-in-Class companies are able to
measure the cycle time of the full A/P process, from invoice receipt through
payment. The news is not all bad, however. When the process is separated
into receipt and approval on one side, and settlement on the other, the
results are more encouraging. Ninety-one percent (91%) of responding
or

companies measure their receipt and approval time, and 94% report
measuring the payment portion of the process. Cost measures are
somewhat more difficult to come by: 18% do not measure cost during initial
tf

receipt and processing, while 13% report that their companies do not
measure the cost of settlement.
This lack of visibility into departmental performance should serve as a call to "[In the next six to 12 months
our company will focus on]
No

action for companies of all sizes. While the measures themselves do not
Assessment of processes and
need to be laboriously computed, some effort should be made to run
documentation of controls for
through, at very least, the simplest calculations: A/P overhead divided by the improvement and audit.”
number of invoices processed for cost; payment date minus stated invoice
date for cycle time (or, as an even more obtainable measure, system ~ Mark Sybouts, Business
payment entry date minus system PO-creation date). Sophistication and Manager, Neah-Kah-Nie School
precision can come later, as documents become digitized, data becomes District 56
more easily accessible, and implemented solutions handle the analysis.
Despite this future potential, what cannot be understated is the present-day
importance of taking the initial readings, to lay the groundwork for gauging
potential improvement options moving forward.


Page 18

Aberdeen Insight - Market Power and E-Payables Options

Transitioning away from paper checks is certainly a goal easier stated than
achieved. The same can be said of transitioning suppliers away from paper
invoices towards electronic methods. However, with an informed strategy for

n
supplier engagement, businesses can spend their time wisely, by selectively
approaching those business partners most likely to agree to a change. As was
previously illustrated in Table 2, sizeable gains can be made by switching from

io
paper checks to ACH (for typical PO-based purchases) or
Purchasing/Commercial Cards (for lower value items). The benefits of invoice
automation have been discussed previously as well. The next step is determining

ut
where to focus in order to achieve the greatest gain.
For the purposes of this Insight, the argument is simple: focus on those suppliers
for whom your deal size, frequency, and reliability are important. This may seem

rib
like a truism, but make note of a potential negative impact of success in a related
business area: "successful" supplier rationalization in Procurement can lead to
the usage of a lower number of suppliers, with whom volumes have been
aggregated in order to secure more favorable discounts on purchases. What is
lost in this analysis is how this consolidation affects your negotiating power with
st
your base. Moving from using two separate, mid-tier suppliers at $50k each, to
one top-tier supplier for the entire $100k spend may indeed secure a better
discount. But if your company is now a small fish in a big pond (rather than the
Di
reverse when working with smaller outfits), you may find your ability to dictate
invoice or payment methods quite constrained.
Table 4 presents the percentages of suppliers in each category with which
respondents use the stated payment types. The trends are fairly easy to identify:
midsize and large firms are better able to transition away from paper checks
or

when dealing with their major suppliers; usage of wire transfers does not appear
to be a function of supplier importance (and is possibly better equated with the
requirements of speed or international payment), and; companies of all sizes
have been successful in handling payments to non-core suppliers via commercial
tf

cards, with midsize respondents leading the way.
continued
No


Page 19

Aberdeen Insight - Market Power and E-Payables Options

Table 4: Payment Methods Used by Supplier Type*
Major Suppliers Other Suppliers
Small Midsize Large Small Midsize Large

n
Paper 72% 59% 74% 83% 77%
74%
Checks

io
ACH 32% 42% 56% 19% 31% 28%
Wire 51% 64% 44% 48% 59%
42%
Transfers

ut
Commercial 26% 15% 26% 40% 26%
16%
Cards
* These figures represent the percentage of companies that utilize each payment for the given

rib
supplier types. They do not reflect the percentage of total payments made using each type.
st Source: Aberdeen Group, May 2010
Di
or
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No


Page 20

Chapter Three:
Required Actions
Capturing efficiency gains and improving visibility through process Fast Facts
improvement and payments automation are important goals for the modern √ The Best-in-Class receive
accounts payable organization. The recommendations to follow provide electronic invoices 83%

n
potential starting points for companies of differing sizes and levels of more often
process and technological maturity.
√ Best-in-Class firms are 186%

io
more likely to employ
Small Business Steps to Success dynamic discounting to
achieve cost savings
• Craft clear policies governing the entire payables process.
Focusing on performance, companies with clear policies in place √ 44% of firms have cross-

ut
report invoice processing times 42% faster than their peers. These functional coordination of
gains extend to exception handling as well, where they reported a payments management
44% differential. Beyond performance, such clarity can ease the between procurement,

rib
process of standardization, where policies are extended to finance
additional business units. While this scenario may occur more often
in larger enterprises, these benefits are also available to small
businesses in the context of employee succession/replacement,
where the quality of documentation can facilitate effective on-
st
boarding.
• Segment your suppliers to prioritize efforts to increase
electronic invoices and electronic payments. As discussed in
Di
Chapter Two, negotiating power can be a limiting factor in what
options businesses can pursue in the payables arena. By analyzing
spend data, small businesses can identify the best candidates for
paper-to-electronic conversion and focus resources on enabling
those suppliers. The benefits can be quite impressive: for recent
or

respondents, ACH payments provided a 34% cost savings over
paper checks while P-Card transactions were 45% less costly.

Midsize Business Steps to Success
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• Implement system-level controls for segregation of duties.
Midsize businesses are lagging behind Best-in-Class companies when
it comes to internal controls, as they are 35% less likely to report
No

having this capability in place. This can breed disaster. Aberdeen's
May global payments study found that of those companies
experiencing some degree of fraud, and those without tight internal
payment controls were 39% more likely to have been victimized by
an internal party (i.e. a current or former employee). But midsize
companies should not focus only on this increased risk exposure -
for the more than one-quarter of midsize respondents that are
publicly traded (or those contemplating going public) effective
controls are governmentally mandated by the Sarbanes-Oxley Act.
• Evaluate the centralization of data capture. As volumes and
geographic dispersion grows, so too does the need to examine

Page 21

centralization of common business functions. This may be done
internally, through a shared service center, or externally via
Business Process Outsourcing (BPO). One natural A/P candidate is
data capture, which midsize companies are 26% less likely to
centralize than the Best-in-Class. This approach, gathering incoming
invoices from disparate locations into a single point of input, goes
hand-in-hand with ERP or financial systems integration. By reducing

n
the number of different sources of input, companies can also reduce
the number of systems connections necessary to integrate payables
information into related systems for handling workflow, ledger

io
updates, and status inquiries.

Large Enterprise Steps to Success

ut
• Standardize payments processes across business units and A critical element in improving
locations. As businesses grow (either organically or through accounts payable is, “Electronic
acquisition), so too can their geographic footprint. Large companies documentation and paperless

rib
in Aberdeen's April payables study reported receiving invoices at an payment processes.”
average of nearly 26 different offices or locations. However, less
~ Larry Albright, Controller,
than half of these businesses have standardized payables processes
K&L Microwave
across those locations. This can have an impact on enterprise
visibility into payables performance. Businesses with standardized
st
processes are more than twice as likely as others to report having
'good' or 'real-time' visibility into accounts payable operations and
processes (70% vs. 35%).
Di

• Focus on integration of receipt, workflow, and payments
with underlying ERP and financial applications. Enterprises
with the largest volume of invoices and payments to process also
have the ability to capture the greatest absolute gains--which lie at
the heart of a persuasive business case. The goal with complete
or

automation and integration is the ability to manage by exception,
enable straight-through processing (i.e. no manual intervention
required), and realize the full potential of the available accounts
payable technology. Those steps in the A/P process that are the
tf

most manually intensive (indexing, matching invoices to POs, and
payments to invoices) all share a common attribute: they are
information-intensive endeavors requiring comparison and
No

evaluation of numerous records - exactly the sort of rote exercise
that computers handle exponentially better than their human
counterparts.


Page 22

Accounts Payable Automation Recap

Cost savings. Cost avoidance. Supplier relationships. Financial control.
These are the avenues through which Accounts Payable can provide
value to the greater organization. Not only are they important to the
bottom line for their ability to minimize those P&L entries that degrade
profits, but they carry with them the benefits of financial flexibility and

n
positive supplier relations that can set the stage for revenue
improvements as well. What, then, is required to take advantage of the

io
opportunities that efficient accounts payable operations offer? Two
attributes are fundamental: processing speed and information visibility.
Though they may at first appear so, these necessities are not strictly

ut
within the province of technology. Well-detailed and regularly-enforced
procurement and invoicing policies are where the game begins.
Maximizing PO-based spend, and ensuring that all required information is
provided to suppliers during the purchasing phase will enable them to

rib
reciprocate - responding with invoices properly referencing purchase
orders. References facilitate comparison, and comparison allows for
managing the front-end of the payables process by exception, rather than
en masse. It is the ability to manage by exception that truly facilitates
efficient invoice processing and payment disbursement.
st
Di
or
tf
No


Page 23

Appendix A:
Research Methodology
Between March and May 2010, Aberdeen surveyed finance professionals in Study Focus
to identify their accounts payable including payments practices.
Responding finance executives
The online survey was supplemented with interviews with select survey completed an online survey

n
respondents, gathering additional information on A/P strategies, that included questions
experiences, and results. designed to determine the
following:

io
The research sample included respondents from two separate surveys that
looked at invoice receipt and workflow and payments processes with the √ The degree to which
following demographic information. automation technologies are
deployed in their accounts

ut
payable departments and the
Table 5: Study Demographic Information financial implications of the
technology
Invoice Receipt and

rib
Global Payments
Workflow √ The structure and
C-Level (35%) effectiveness of existing A/P
implementations
Managing Director /
C-Level Executive / Principle (5%) √ Current and planned use of
st
President (14%) EVP / SVP / VP /GM (2%) supporting technologies to
GM / EVP / SVP / VP Controller (19%) improve A/P activities
Job title (14%) Treasurer / Assistant √ The benefits, if any, that have
Director (20%) Treasurer (4%)
Di
been derived from A/P
Manager (31%) Director (11%) improvement initiatives
Other (21%). Manager (13%)
The study aimed to identify
Other Staff (10%) emerging best practices for A/P
1% no response automation usage, and to
provide a framework by which
or

Software (10%) Financial services (13%)
Financial services (10%) Education (9%) readers could assess their own
management capabilities.
Insurance (6%) IT consulting / services (8%)
Retail (5%) Consumer goods (6%)
tf

Industry Food and beverage (5%) Industrial product and
Government / public equipment (6%)
sector (5%) Healthcare (8%)
Health / medical / dental Software (6%)
No

services (5%) Wholesale / distribution
Automotive (4%) (5%)
Geography: North America (76%)
Company North America (72%) Europe (10%)
headquarters of Europe (18%) Asia / Pacific (9%)
responding Asia-Pacific region (7%) Middle East and Africa (4%)
companies were Middle East / Africa (3%). South / Central America and
located in Caribbean (1%).


Page 24

Invoice Receipt and
Global Payments
Workflow
42% of respondents were 35% of respondents were
from large enterprises from large enterprises
(annual revenues above (annual revenues above US
US $1 billion) $1 billion)
35% were from midsize 40% were from midsize

n
enterprises (annual enterprises (annual revenues
Company size
revenues between $50 between $50 million and $1
million and $1 billion); billion)

io
23% of respondents were 25% of respondents were
from small businesses from small businesses
(annual revenues of $50 (annual revenues of $50

ut
million or less). million or less)
41% of respondents were
64% of respondents were from large enterprises
from large enterprises (headcount greater than

rib
(headcount greater than 1,000 employees)
1,000 employees)
37% were from midsize
20% were from midsize enterprises (headcount
enterprises (headcount between 100 and 999
Headcount
between 100 and 999 employees)
st
employees)
21% of respondents were
16% of respondents were from small businesses
from small businesses (headcount between 1 and
(headcount between 1
Di
99 employees)
and 99 employees)
1% no response

Table 6: The PACE Framework Key
or

Overview
Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities,
and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as
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follows:
Pressures — external forces that impact an organization’s market position, competitiveness, or business
operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive)
Actions — the strategic approaches that an organization takes in response to industry pressures (e.g., align the
No

corporate business model to leverage industry opportunities, such as product / service strategy, target markets,
financial strategy, go-to-market, and sales strategy)
Capabilities — the business process competencies required to execute corporate strategy (e.g., skilled people,
brand, market positioning, viable products / services, ecosystem partners, financing)
Enablers — the key functionality of technology solutions required to support the organization’s enabling business
practices (e.g., development platform, applications, network connectivity, user interface, training and support,
partner interfaces, data cleansing, and management)


Page 25

Table 7: The Competitive Framework Key
Overview

The Aberdeen Competitive Framework defines enterprises In the following categories:
as falling into one of the following three levels of practices Process — What is the scope of process
and performance: standardization? What is the efficiency and

n
Best-in-Class (20%) — Practices that are the best effectiveness of this process?
currently being employed and are significantly superior to Organization — How is your company currently
the Industry Average, and result in the top industry organized to manage and optimize this particular

io
performance. process?
Industry Average (50%) — Practices that represent the Knowledge — What visibility do you have into key
average or norm, and result in average industry data and intelligence required to manage this process?

ut
performance. Technology — What level of automation have you
Laggards (30%) — Practices that are significantly behind used to support this process? How is this automation
the average of the industry, and result in below average integrated and aligned?
performance Performance — What do you measure? How

rib
frequently? What’s your actual performance?

Table 8: The Relationship Between PACE and the Competitive Framework
st
PACE and the Competitive Framework – How They Interact
Aberdeen research indicates that companies that identify the most influential pressures and take the most
transformational and effective actions are most likely to achieve superior performance. The level of competitive
Di
performance that a company achieves is strongly determined by the PACE choices that they make and how well they
execute those decisions.
or
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No


E Payables Aberdeen Report Aug 2010

E Payables Aberdeen Report Aug 2010

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