Cornerstone Communications
Accounts Payable
CFO's Need To Know the Fallacies Behind "Business as Usual"
Vol. 4 – Accounts Payable (AP) Invoices

"CFO's Need To Know the Fallacies Behind ‘Business as Usual'" is an installment of white papers focusing on Business Process Improvement. The goal of this white paper is to alert CFOs to the fact that "business as usual" is not always efficient business.

This installment highlights:
  • Enormous hidden costs associated with the Accounts Payable (AP) Invoicing process
  • Substantial savings that can be gained by processing AP invoices efficiently
  • Proven real world solutions that eliminate these skyrocketing costs and provide a more efficient way to do business

"US companies spend as much as $150 to process each AP Invoice."
The Operation and Technology Council

Business As Usual

The fundamentals of business are buying and selling, with each transaction requiring an invoice. The high cost of paper-based AP invoice transactions is associated with transcribing, moving, finding, and applying the data they hold. In addition to the costs generated by manual workflow and excessive paper, the time it takes to process these invoices manually must also be accounted for. Industry studies show that as much as 70 percent of all invoice-processing costs are wrapped up in document handling, data entry processes, and related manual workflows. Manual workflows and excessive paper costs inhibit businesses from taking advantage of discounts, resulting in lost opportunities for savings.

Account Payable Document Solutions

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Each time you make a purchase from a supplier without paying for it at the time of the purchase, you create an account payable for your business. This payable is the amount you owe to your suppliers sometime within the near future — usually 30 to 90 days. Without payables and trade credit you would have to pay for all goods and services at the time of purchase.

"More than 95 percent of all business-to-business transactions are still settled with paper invoices and checks." Gartner Group

The Traditional, Slow Paper Process

Frequently, vendors will give incentives to customers in exchange for early payment. To capture these discounts, invoices must be processed and approved quickly. Few AP organizations, however, can receive a paper invoice through the mail, approve it, resolve exceptions, process the check, and mail payment to the supplier within a 10-day discount period. As any AP manager will attest, paper is the problem and the process is complex. A quick look at the steps involved in processing paper invoices shows why process takes so long, and why payables automation is long overdue

First, not all invoices are alike. They typically fall into two categories: those that originated with a Purchase Order (PO) and those that don't. By definition, spending for PO related invoices was pre-approved, but the line items on the PO and the resulting invoices don't always agree. These discrepancies (e.g., price, quantity, or other variables) are seldom identified until the paper invoice arrives, gets keyed into the AP system and is matched line-by-line against the PO. By this point, the opportunity to capture a discount is lost.

Purchases made without POs present other challenges since they undergo a time consuming approval process. These invoices arrive in a field or division office, or may be sent directly to corporate AP. An invoice sent to a field office is seldom approved and forwarded to AP in a timely manner, and AP doesn't even know the invoice exists until it arrives in the inbox.

Approximately 50% of invoices arrived at AP after they're due.

An invoice that goes directly to AP must be routed to the field office for approval and then returned to AP. When routing a non-PO invoice through regular or inter-office mail, it's not unusual for as many as eight people to handle it during the approval process.

Even then, not every invoice that arrives in AP is correct. Up to 20% of all invoices require resolution for exceptions and disputes, which typically extends settlement time well beyond 60 days. Resolving problem invoices involves collecting back-up information from the supplier and internal departments, and inevitable back-forth communication challenges with the supplier. This generates more paper to process, and can double the cost and time to process an invoice. Many companies have fulltime staff dedicated to resolving disputes or fielding payment status calls from suppliers.

Without effective invoice automation, buyers in the best of circumstances can't process invoices fast enough to meet the contract terms for early payment discounts. Too often, AP doesn't know which suppliers offer discounts or what discount terms were negotiated, because Purchasing and AP don't communicate effectively.

Manual Steps for Accounts Payable Processing

  1. Invoice is received in mailroom
  2. Invoice is manually distributed to AP
  3. Invoice is manually associated to PO
  4. Invoice is manually reconciled with PO
  5. Invoice is manually distributed for approval
  6. Invoice is manually distributed back to AP for payment
  7. Invoice is entered in ERP application
  8. Invoice is selected for payment
  9. Check stock is manually loaded into printer
  10. Check is printed
  11. Check is manually retrieved from printer
  12. Check is manually copied
  13. Check is manually distributed to vendor
  14. Check copy is manually associated to Invoice/PO
  15. Check, Invoice and PO are manually stored

"The way we manage documents says a lot about how we manage business."Kevin Craine As necessary as POs are to a business, the costs associated with generating them are not.

Running a More Efficient, Electronic Business

Electronic processes have already been proven superior to paper processes in many environments. Cost savings are achieved by eliminating direct costs associated with paper processes by reducing the time it takes to prepare an invoice for approval. The high overhead and delays traditionally related to payables are often part of "business as usual", but these costs can be eliminated. By making the document cycle electronic, the following benefits will be seen:
  • Reduce costs
  • Speed up the month end close
  • Improve vendor relationships
  • Avoid late fees
  • Decrease service interruptions
  • Allow Companies to take advantage of discounts
  • Increase bottom line profitability
Ideally, Accounts Payable invoices would be sent to a single location, but approval procedures would still be extended to a local level using a single, consolidated payables process that is accessible anywhere, anytime, by anyone in the organization.

Electronic Steps of Accounts Payable Processing

  1. Invoice is received in mailroom and scanned into an electronic format
  2. Invoice is electronically and automatically distributed to AP with associated PO
  3. Invoice is manually reconciled with PO
  4. Invoice is electronically and automatically distributed to for approval and distributed back to AP for payment
  5. Invoice is entered in ERP application
  6. Invoice is selected for payment, checks are printed with an electronic form including MICR
  7. Check is electronically and automatically associated to Invoice and PO and stored

Benefits of Automated Accounts Payable Processing

  1. Enable your AP team to effectively handle invoice approvals and resolve invoice exceptions before the ERP system creates the voucher
  2. Streamline AP processes to handle even the most complex business rules, and decrease invoice-processing time while providing audit ability
  3. Minimize the deployment and maintenance costs of your AP exception handling system
  4. Streamline document transport and retrieval procedures
  5. Process invoices more quickly and accurately
  6. Ensure timely payments are made to obtain cash discounts
  7. Reduce liability to vendors with enhanced invoice monitoring
  8. Eliminate manual data entry, reduce human errors

What Are You Waiting For?

As you can see, fallacies behind the phrase "business as usual" are not immediately apparent. When companies take the time to look for ways to improve business, these problems are discovered, especially when it comes to POs.

Implementing a Document Management Solution will make your business run more efficiently. Moving from a manual process to an electronic process leads to a better managed, more efficient, more profitable business. What are you waiting for? Let us help you uncover your hidden document costs.

What Next?

Cornerstone Communications has helped over 800 CFOs streamline their document processes. We do not know your specific situation or if we can help you. Contact us today to explore how document management might affect your company's PO process.

Call: 888.427.5663
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About Us:

Cornerstone Communications specializes in document management and cost reduction strategies. We help our clients reduce the costs of creating, distributing, and storing business documents. We can typically reduce document related costs 60%-96%. As a result, our clients are more profitable and more efficient.

Click here for specific details about how Cornerstone's Business Process Development systems can place your company ahead of the competition.

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