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EDITOR’S NOTE
Making the Most of New
Accounts Payable Technology
It might not be as cool as accounts receivable, but accounts payable is
an equally important part of the AP/AR pairing. And with new success
with automation and mobile development, change is coming.
SAVE MONEY, GO GREEN
WITH AP AUTOMATION
3
OUTSOURCING:
A VALUE-ADDING ADVANTAGE
4
MOBILE CONVENIENCE
A NECESSARY RISK
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Accounts Payable Automation a No-Brainer
Accounts payable might not be the
cooler sibling in the AP/AR pairing, but it
should be taken just as seriously. Sure, accounts receivable takes the money in. And sure,
it’s an asset that can be borrowed against and
can contribute to the positive side of the ledger. But AP is where the greatest gains from automation lie, where old-fashioned, paper-based
processes retain a strong grip in companies and
can most benefit from digitization.
Fundamentally, AP automation is a classic
computerization story. One where paper—typically invoices—gets replaced, and the opportunity for human error is reduced or eliminated
and trees are spared the lumberjack’s ax. And
once invoices enter an electronic workflow,
they are available for more than simple efficiency. AP automation helps companies find
additional gains from more finely grained control of their cash flows, which allows them to
avoid mishandled payments.
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AP automation means many things, however,
and its two main varieties—digitization of paper invoices, versus payment systems that are
electronic from beginning to end—present major choices. This handbook explains the risks
and benefits of each option.
Mary Driscoll of APQC shares her organization’s figures on the most common culprits of
AP inefficiency and explains just how much
can be saved by converting them to electronic
workflows. Next, Henry Ijams of PayStream
Advisors explains why turning the whole process over to an AP outsourcing company can
save even more money. Finally, we report on a
mobile AP vendor’s smartphone application
and why one analyst thinks widespread adoption will be slow to come. n
David Essex,
Executive Editor
SearchFinancialApplications.com
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Save Money, Go Green With AP Automation
According to APQC’s Open Standards
Benchmarking database, the average large company’s accounts payable function is drowning
in paper. About 80% of invoices from suppliers
arrive in paper form. This mountain of paper
is typically processed by hand—documents are
fed into a scanner and data is organized by a
software program, or information is manually
keyed into an AP system.
All told, paper-based accounts payable (AP)
is costly and exposes companies to errors and
internal control failures. This has been the
status quo for some time, although many organizations have increased their productivity by
adopting shared services or outsourcing. The
good news is that change is in the air.
AP AUTOMATION GAINING SPEED
Just more than 50% of respondents to a recent
APQC survey said they were targeting core
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transaction processes, including AP, for a major overhaul. That could include a substantial
process redesign, process automation, organizational restructuring, systems change or
outsourcing.
When it comes to AP, more organizations are
now considering an array of newer technologies and third-party services that digitize paper
invoices and move the resulting “e-invoices”
through proper channels. These tools include
automated data capture software such as optical character recognition or intelligent document recognition, which captures hand-printed
information as well as machine-generated data.
Also gaining appeal are electronic workflow
systems, which are used to speed and track the
routing of invoice data for approval by authorized personnel before payment can be made.
The software reminds any approvers who might
lag behind.
Electronic payment systems now on the
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market promise efficient communication, reliable audit trails and faster and smoother data
processing between internal departments and
external suppliers. The systems offer various
levels of transparency, approvals and monitoring from procurement to payment. However,
the common theme is less paper and less manual keying of data.
By eliminating manual circulation of paper, a company can boost the speed, efficiency
and visibility of invoice processing. But why
would a company want to speed up its payments? Isn’t the norm to pay vendors as late
as possible? APQC research shows that most
companies that are not strapped for cash want
to maintain good relationships with their suppliers by paying bills promptly, in line with the
terms negotiated, especially when key vendors
are involved. In addition, many companies want
to capture as many early payment discounts as
possible.
Many find that capturing early payment discounts can put a big dent in the annual cost
of goods sold, so it becomes a strategic goal.
But consider that the typical large organization needs 11 days to route an invoice through
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the proper approval channels and then prepare
for payment transmittal. Slower processes take
more than 15 days. Given that standard terms
allow for a discount when payment is made in
10 days or even 15 days, the problem is obvious.
BEEN A LONG TIME COMING
People started talking about electronic purchase orders (POs), invoices and payments
more than 30 years ago. The focus then was on
electronic data interchange (EDI), which made
sense for giant companies capable of undertaking large-scale, customized IT initiatives that
were expensive to build and maintain. With
EDI, a buyer’s ERP system sends a PO to the
supplier’s ERP system, which in turn spits back
a mirror image as an invoice. When the invoice
matches the PO, and when electronic data from
the receiving docks proves the right items were
delivered at the right price, the invoice can be
automatically processed, recorded on the books
and a payment can be scheduled—all without
human intervention. When there is a quantity
or price mismatch, the system sends the invoice to an appropriate AP staffer, and issues
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are worked out with the supplier via phone or
email. These “dirty invoices” send process costs
soaring.
AP optimization aims to achieve three
things: lower costs, increased control and better visibility into where a given PO, invoice or
payment resides at any point in the procure- to-pay process.
Mostly, though, companies want to reduce
the amount of human intervention in payables
processing. Labor tends to consume 60% of the
total cost of financial management operations.
Unsurprisingly, APQC benchmarks show a
strong correlation between the level of automation and relative cost-efficiency.
Clearly, there is a compelling case for increased use of digitization and workflow automation in AP. It’s a strategy for reducing labor
cost, which is a hefty chunk of the total process
cost. But APQC research also suggests that
CFOs want more than just labor cost savings.
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They like the promise of greater visibility into
the flow of invoices, which can translate into
greater accuracy in cash flow forecasting and
more effective cash management.
CFOs like the promise of greater
visibility into the flow of invoices,
which can translate into greater
accuracy in cash flow forecasting.
CFOs are drawn to the idea that workflow automation—which, among other things, tracks
who signs off on any invoices for payment—
makes life easier for external auditors and,
hence, keeps a lid on audit hours and audit costs.
In all, the level of automation and sophistication can vary widely. Whatever it is, it’s a step
in the right direction. —Mary Driscoll
3
EVALUATION
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Outsourcing: A Value-Adding Advantage
As companies search for ways to improve
performance and create added value, outsourcing noncore business processes, such as
low-value functions in the accounts payable
process, is a perfect place to start. The market
for AP outsourcing has seen many changes in
recent years, and what was once an emerging
trend is now becoming a normal part of corporate services. Organizations are exploring AP
outsourcing services that can turn a cost burden into a comprehensive advantage that has
significant potential to reduce AP costs, make
use of capabilities and deliver sustainable business value.
While outsourcing the entire AP process may
not be practical for most organizations, more
companies are choosing to outsource certain
functions while keeping full control of other,
more strategic AP functions in-house. This
modular approach to outsourcing is gaining
momentum in the market.
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BEYOND COST REDUCTION
Companies are looking for ways to harness
value from consolidation and automation that
goes beyond cost reduction to include accessing and building capability, scalability and flexibility that support the core business strategy.
In fact, more companies are incorporating outsourcing as a strategy in their business planning. It’s a strategy that lets the company focus
on improving client service—producing better
products—and do a better job overall, in a more
cost-effective way.
NONCRITICAL AP FUNCTIONS
While every function in the AP process is important, outsourcing the front end makes sense
for two reasons. First, prepping and scanning
invoices and entering data into an enterprise
resource planning or accounting system does
not add value to the approval and payment
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process. Second, even if an organization decides
to use automated data capture to extract data
from paper documents instead of relying on
manual data entry, such tools need continuous
monitoring and are often cost-prohibitive for
small companies. The low value of the process,
coupled with the complexity of advanced tools,
makes it appealing to leverage the expertise of
an outsourcer. Outsourcing companies can provide service-level agreements that guarantee a
99%-plus accuracy rate in data extraction and
quick turnaround times.
REAPING THE OUTSOURCING REWARDS
The multitude of benefits achieved through AP
outsourcing goes far beyond cost containment
and includes the ability to do the following:
■■ Reduce
up-front costs. In-house technology
options, especially licensed software, have an up-front investment followed by ongoing
maintenance expenses. In contrast, outsourcing providers usually charge per transaction based on transaction volume, payable over
the period of the contract. In this way, out- 7 M A K I N G T H E M O S T O F N E W AC C O U N T S PAYA B L E T E C H N O L O G Y
sourcing not only enables companies to convert the fixed costs into variable costs but also
allows them to defer the costs over a longer
period, freeing up capital for other purposes.
■■ Deploy
systems sooner. As a service delivered via a Web browser, outsourced AP automation can be deployed more rapidly and
less expensively than software that requires
extensive integration with enterprise and
legacy systems. These Software as a Service
(SaaS) models eliminate the need to purchase
hardware and software, an important consideration for buyers who are eager to bring the
benefits of automation into their organizations as quickly and painlessly as possible.
Another compelling advantage of outsourced
AP is the buyer is not burdened with the
periodic expense and effort of upgrading to
new versions of the software and paying annual maintenance fees. SaaS systems are automatically updated without the need for IT
resources or new software.
■■ Go
live quickly. Even after implementation,
it can take considerable time to go live on
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technology projects because the system needs
to be tested and users need to be trained. Depending on the complexity of the system
and the technical savvy of the end users, this process can take anywhere from a few
days to many months. However, outsourcing projects can go live almost immediately
because most of the staff used on the project are trained employees of the outsourcing service provider who are already familiar
with the technology and only need minimal
training on the client’s specific business
processes.
■■ Increase
efficiencies. The rationale for outsourcing is that it is usually better for an expert service provider to perform nonstrategic
activities than to manage these repetitive,
low-value tasks in-house. Using an outsourcing provider enables companies to do more
with fewer internal resources. Under the
outsourcing model, organizations use a thirdparty provider’s technology and expertise to
offload transactional functions and gain the
ability to focus more sharply on higher value
and analytical activities. An outsourcer’s
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economies of scale and cost structure can
deliver a valuable competitive advantage to
companies, particularly in low-margin vertical industries.
■■ Decrease
labor costs. Companies that have
high employee turnover or seasonal or cyclical spikes in invoice volume and need to
bring in temporary employees understand
that hiring and training is an expensive and
time-consuming task. Furthermore, temporary employees may not always live up to
expectations. Even companies that do not fall
under these categories have limited capital,
human and technical resources that need to
be allocated appropriately. Such companies
would find outsourcing appealing because
it allows them to maintain internal staff at
steady levels.
■■ Minimize
risk. Every technology investment carries the risk of not functioning as
expected or being more expensive to maintain than planned. Changes in organizations’
business environments and government
regulations, as well as technological advances,
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increase the risk involved in implementing
automation in-house. With outsourcing, the
third-party provider assumes and manages
the technology risk.
■■ Manage
provider relations. One of the biggest barriers that hinder AP automation
initiatives, especially for electronic invoicing and payments, has been supplier adoption. Persuading suppliers to change their
processes to align with buyers’ needs can be
costly and time-consuming, and success depends largely on the buyers’ ability to present
a compelling value proposition to suppliers.
Many buyers fail to effectively communicate the value of AP automation initiatives
to their suppliers and, as a result, struggle to
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generate the expected results. Outsourcing
supplier onboarding and enablement allows
buying organizations to apply the best practices and expertise of the provider. In addition, it provides the necessary resources to
communicate to your suppliers while letting
you focus on daily tasks.
SIMPLY SMART BUSINESS
By outsourcing the low-value functions of AP,
businesses have more time to focus on their
core business strategy. This is simply smart
business. To learn more about AP outsourcing,
download a complimentary copy of PayStream
Advisors’ recent accounts payable report. —Henry Ijams
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MOBILE IMAGING
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Mobile Convenience a Necessary Risk
With smartphones already doubling
as pocket-sized scanners for bar codes and
checks, business process management software
vendor Kofax sees an opportunity in bringing
mobile imaging to accounts payable software.
But one expert said mainstream adoption is
still a few years away.
Amy Fong, purchase-to-pay program leader
and senior procurement adviser at The Hackett Group, based in Miami, said a company that hasn’t automated its accounts payable (AP) process won’t derive much value from
adding mobile capabilities that simply extend
automated AP. But for those that have, mobile AP can have significant advantages.
Fong enumerated the technology’s potential
benefits and risks and offered implementa- tion tips.
A RISKY CONVENIENCE
Kofax, headquartered in Irvine, Calif., announced the release of MarkView for Accounts Payable 8.0 in January 2013. The release lets users
transfer pictures of invoices taken with Apple
iOS or Google Android smartphones and tablets into an organization’s AP system and also
features mobile review and approval.
Fong said the software’s ability to capture
invoices on the go can be helpful for users who
are working remotely. “We’re all used to using
our tablets and smartphones working on the
road, at suppliers’ sites or vendors’ sites,” she
explained. “So now, you’re not only able to access the system, but also capture invoices and
route [them] through the appropriate workflow
process.”
Companies with multiple locations—such as
The software’s ability to capture invoices on the go can
be helpful for users who are working remotely.
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fast food chains—may not have scanners or the
same inputting technology as the main office
installed at every location, Fong said. Having
the ability to enter an invoice into the system
via mobile devices can save time and ensure
delivery.
Both Fong and Allen Carney, vice president
of product marketing at Kofax, mentioned mobile accounts payable software’s potential timesaving benefits for travel and expense (T&E)
reports. Fong said other mobile T&E capabilities have seen a fair amount of adoption, and
mobile AP could further streamline the process
by making it easier for executives to review and
approve invoices while traveling.
However, like all mobile technologies, mobile
accounts payable software carries its share of
risks.
“With mobile, there’s always the risk of security,” Fong said. “If you were to just have anybody taking pictures of receipts and emailing
them in, there could be security [issues] there.”
Image quality is another potential snag. “If
you have a scan that’s partially incomplete, it
[might] require manual invention down the
road,” Fong said.
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When developing mobile functions for
MarkView, Kofax did not turn a blind eye to
the risks, Carney said. In addition to offering top-notch capture quality, he claimed that
MarkView for AP 8.0 is more secure than competing mobile accounts payable products that
rely on email-based approvals.
He said that if an invoice awaiting approval
is routed to a manager’s inbox, it could be tampered with if the mobile device is misplaced
or stolen. The new release of MarkView uses a
browser-based approach, so users must first log
in to the system before they can review and approve invoices. Pictures of invoices are deleted
from mobile devices once they are uploaded to
the system.
Carney said MarkView also offers realtime integration with SAP ERP and Oracle
ERP, which could help to assuage the pain of
integration.
MOBILE ON THE MIND
Fong estimated that adoption of mobile accounts payable software is approximately three
years away. “Over the next couple years we will
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see companies doing more to automate their
AP process [through] invoice automation, electronic invoicing, imaging—various ways to
get off paper,” she said. “As companies adopt
those solutions, and many have, I expect they’ll
“Over the past couple years,
mobile has been the number one
thing we’ve been asked for.”
–allen carney, vice president of product
marketing, Kofax
consider whether to use the additional mobile
[functions].”
But Carney said there’s no doubt customers want mobile accounts payable software.
“Over the past couple years, mobile has been
the number one thing we’ve been asked for,”
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he said. “We don’t see it as necessarily driving
purchase decisions, but we do see a strong desire [for it].”
When launching a new AP technology initiative, be it AP automation or adding mobile capabilities, Fong said managers should examine
the process first and consider which software
option makes sense.
“Look at users and use cases within your
business. Some businesses have quite a bit of
their supply base that is never going to send
them an electronic invoice, and therefore they
need a solution for capture from paper,” she
said. “It’s also important to think about your
employees: From a T&E perspective, what fits
in with your current systems and processes?
Think about whether you have executives in
your approval process that travel [a lot], where
a mobile solution could add value.” —Emma Snider
ABOUT
THE
AUTHORS
MARY DRISCOLL is senior research fellow at APQC, a
Houston-based nonprofit that provides business benchmarking and process improvement services. Formerly a
senior editor at CFO Magazine, she is the author of Cash
Management: Corporate Strategies for Profit. Email
her at mdriscoll@apqc.org.
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HENRY IJAMS is
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managing director and founder of PayStream Advisors Inc., a research firm in Charlotte, N.C.
Ijams held positions with Citibank and Manufacturers
Hanover Trust and was a manager of Ernst & Young’s
financial services consulting practice. Email him
at henry.ijams@paystreamadvisors.com.
Making the Most of New Accounts Payable Technology is a SearchFinancialApplications.com e-publication.
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