While fast e-invoicing is good, smart e-invoicing is better
In recent decades, companies have devoted significant time and resources to improving the efficiency and effectiveness of their accounts payable (AP) organization. And in the current economic environment where cash is king and companies are looking for any and all ways to free up and maximize it, many are stepping up their efforts. But what do they need to succeed?
AP has certainly become more efficient. Yet most finance executives remain dissatisfied with where things stand. Why? There’s still too much paper and manual processing, filing and matching involved to achieve the kinds of efficiencies and savings that they need to weather changing economies.
To remedy the situation, many are moving to e-invoicing and leveraging technology-based solutions that enable them to execute it. Such solutions attack the inefficiencies that exist between companies—such as sending and receiving invoices and payments—to enable more effective collaboration. Delivered in the Cloud, they can be easily shared and accessed among trading partners, allowing for common business processes in areas like billing, treasury and AP.
Yet the invoicing process remains flawed. AP teams still spend inordinate amounts of time and effort processing paper invoices. Current studies show that one in five invoices still contains an overcharge or other exception. Why? Many companies are attempting to tackle the problem through scanning & digitization alone. And it’s clear that this only leads to bad invoices being delivered faster.
So what’s the solution? Smart invoicing. With smart invoicing, e-invoices undergo an automated validation process at the point in which suppliers submit them, improving accuracy, eliminating errors and rework so that only valid and approved invoices reach AP. Companies adopting this approach are achieving upwards of 98 percent touchless invoice processing or higher as validated invoices post directly to ERP systems.
When done right, smart invoicing can deliver process efficiency gains, typically measured in terms of the number of invoices processed per full-time equivalent staff. Organizations with over 10 full-time employees dedicated to processing invoices have reported as much as 70-percent cost takeout.
Other hard-dollar savings can be generated through the capture of early payment discounts. Many companies simply cannot process their paper invoices fast enough to capture early payment discount savings, which can be significant. With smart invoicing, they not only capture these discounts, but also ensure they materialize by avoiding exceptions that delay invoice approval speeding up the invoice cycle time. Some companies using a smart invoicing approach are already capturing over $1 million in annual discount savings.
Smart invoicing initiatives also have a positive impact on working capital. With improved visibility and control, finance organizations can avoid paying invoices upon receipt and pay to term, which will stretch their payables and have a positive impact on DPO. Many companies are able to use their growing cash reserves and cash freed up from smart invoicing efficiency gains to fund discount programs. These savings are used to drive operational improvements and also helps provide much needed liquidity to supply chains that are struggling under today’s tight lending practices.
Without question, smart invoicing can help AP organizations take their performance and efficiency to the next level. But identifying the right solution is absolutely essential to success. Smart invoicing is about more than transforming paper documents into electronic ones. To drive results, a solution must:
Many companies are finding such solutions in the cloud. “A unique strength of on-demand and cloud solutions is the integration and validation at the business process level, of pulling together many disparate elements of a process—but with the proper governance along the way,” said Dana Gardner, principal analyst, Interarbor Solutions. “Managed automation across all the elements of the process makes invoicing work far better. And it leads to even further benefits up and down the supply chain.”
Drew Hofler is senior director, solutions marketing at Ariba