Over the past few years Optical Character Recognition (OCR) has always been a topic of discussion with AP Departments looking for process improvement. Over the last year it has become a “hot” topic! Every single client I talk with has decided on implementing OCR or is strongly considering implementing OCR.
Why the recent change?
Corporations are looking to not only automate functionality but as I have stated in past blogs, they are very focused on process optimization by elimination of as many touch points as possible. With high volume invoice processing, data entry has always been not only a bottleneck but also a point of input errors that result in rework. To post paper invoices immediately after scan without human intervention is not possible without OCR.
Another contributing factor is the significant improvement in the accuracy of the invoice capture. A few years prior, unless invoices fit a set of specific patterns or templates, departments spent too much time manually adjusting OCR invoices. Some of the early adopters found the successful hit rate at the invoice level so low the resulting value was marginal or less…resulting in some abandoning the use of their OCR solutions. Today, OCR solutions such as the Optional Optical Character Recognition option for SAP Invoice Management utilize advance capture logic that is much more accurate than templates alone.
The resulting accuracy improvement capturing both header and line item invoice meta data and the corresponding reduction in data entry now make OCR a solution very much worthy of consideration.
See SAP EcoHub for More on AP Optimization
Friday, November 27, 2009
Monday, October 19, 2009
AP Fraud Follow Up
n a prior blog I made a few comments about the growing problem of fraud. I took part in a webinar sponsored by SAP through IAPP a couple of weeks back and I learned a lot from my co presenters. The focus was on AP Fraud and how SAP Invoice Management by Open Text helps eliminate fraud before it happens. I encourage you to check out the webinar on IAPP and download the associated white paper.
One interesting question during the Q&A session was “has the control mandated by SOX reduced the occurrence of fraud”. The answer was … no! A case can be made that economic pressures may be driving individuals to seek ways to cope with personal financial problems. My observation is that many companies have focused on the control of the individual transaction as opposed the process. SOX section 404 talks about “process control” and not transactional control. I feel it is essential to remove as many non valuing adding human touch points as possible not only to streamline the process but to also remove temptation. For those touch points that remain, utilizing a rule based solution such as SAP Invoice Management by Open Text to involve the right person at the right time with the right information provides the opportunity to tighten controls and ensure compliance.
Another importance aspect of the overall process control is to immediately secure the original invoice source document and access the image during controlled processing. It is not only costly to route around the original or copies of the invoice, it also opens the door for manipulation of the document. Paper invoices should be digitized immediately upon controlled receipt. Immediate scanning secures the source document while reducing the cost to copy and distribute the invoice.
See SAP EcoHub for More on AP Optimization
One interesting question during the Q&A session was “has the control mandated by SOX reduced the occurrence of fraud”. The answer was … no! A case can be made that economic pressures may be driving individuals to seek ways to cope with personal financial problems. My observation is that many companies have focused on the control of the individual transaction as opposed the process. SOX section 404 talks about “process control” and not transactional control. I feel it is essential to remove as many non valuing adding human touch points as possible not only to streamline the process but to also remove temptation. For those touch points that remain, utilizing a rule based solution such as SAP Invoice Management by Open Text to involve the right person at the right time with the right information provides the opportunity to tighten controls and ensure compliance.
Another importance aspect of the overall process control is to immediately secure the original invoice source document and access the image during controlled processing. It is not only costly to route around the original or copies of the invoice, it also opens the door for manipulation of the document. Paper invoices should be digitized immediately upon controlled receipt. Immediate scanning secures the source document while reducing the cost to copy and distribute the invoice.
See SAP EcoHub for More on AP Optimization
Saturday, September 12, 2009
PO Based Invoice are a Best Practice but are they Most Practical
Many in the P2P world agree that best practice is to create a purchase order before procuring goods and services…but…is that always the most practical?
If purchase orders are a best practice why do so many corporations pay invoices without purchase orders? It is not uncommon for major international corporations utilizing a strong ERP like SAP to have 50% or more non PO invoices. SAP provides an excellent tool set for the creation and approval of purchase orders. All of the benefits you would expect from a world class solution are there for the taking. So why not demand all invoices be PO based?
From a practical view, there is a point of diminishing return where the cost to create, approve and issue a purchase order is more than the cost of the goods being purchased. You may not want to create a PO to purchase a $5 book but at the same time, why would you purchase $5,000 in services without a purchase order?
In some companies, the purchase order is created only after the services have been rendered and the invoice received. The reason often given is that they don’t know the actual hours until the invoice is received. This scenario seems to only capture the budget reporting benefit of purchase orders. It is not considered practical to create the purchase order up front.
While processing 50% non po invoices is uncommon, I have worked with some companies where there is a corporate mandate that only selected invoices will be paid without a purchase. Tax payment, contributions and legal invoices are some that fit within the non po realm. In some companies as few as 5% of invoices are paid without a purchase order.
Is the acceptance of invoices without a purchase order always more practical or just easier? Most of us have “hated” filling out a purchase request at some point in our jobs. If ordering the $5 book without a purchase order is quick and easy, we tend to make larger purchases without a PO also. This can quickly become the norm. As companies tighten their budgets there seems to be a new commitment in P2P world to fully embrace the best practice of utilizing purchase orders. Is your company demanding the use of purchase orders…if not…should they?
For more on Accounts Payable Automation and Optimization see the SAP EcoHub for SAP Invoice Management by Open Text.
If purchase orders are a best practice why do so many corporations pay invoices without purchase orders? It is not uncommon for major international corporations utilizing a strong ERP like SAP to have 50% or more non PO invoices. SAP provides an excellent tool set for the creation and approval of purchase orders. All of the benefits you would expect from a world class solution are there for the taking. So why not demand all invoices be PO based?
From a practical view, there is a point of diminishing return where the cost to create, approve and issue a purchase order is more than the cost of the goods being purchased. You may not want to create a PO to purchase a $5 book but at the same time, why would you purchase $5,000 in services without a purchase order?
In some companies, the purchase order is created only after the services have been rendered and the invoice received. The reason often given is that they don’t know the actual hours until the invoice is received. This scenario seems to only capture the budget reporting benefit of purchase orders. It is not considered practical to create the purchase order up front.
While processing 50% non po invoices is uncommon, I have worked with some companies where there is a corporate mandate that only selected invoices will be paid without a purchase. Tax payment, contributions and legal invoices are some that fit within the non po realm. In some companies as few as 5% of invoices are paid without a purchase order.
Is the acceptance of invoices without a purchase order always more practical or just easier? Most of us have “hated” filling out a purchase request at some point in our jobs. If ordering the $5 book without a purchase order is quick and easy, we tend to make larger purchases without a PO also. This can quickly become the norm. As companies tighten their budgets there seems to be a new commitment in P2P world to fully embrace the best practice of utilizing purchase orders. Is your company demanding the use of purchase orders…if not…should they?
For more on Accounts Payable Automation and Optimization see the SAP EcoHub for SAP Invoice Management by Open Text.
Tuesday, August 11, 2009
When Is An Invoice Approval NOT an Approval?
Possibly when the approval is ALWAYS “approved”.
As part of the implementation of SAP Invoice Management by Open Text, we conduct a blue print session to ensure all business requirements are met rather than just automating the current process. During the blue print sessions, the subject of non purchase order invoice approval is often an interesting discussion. Companies that have implemented SAP find that utilization of purchase orders and the associated release strategy has required them to implement a rule driven approval process. They often take advantage to simplify the rules at this point.
But for invoices without a purchase order, it is common to have a complex approval matrix that has developed over time. The matrix is often kept in spreadsheets and with manual interpretation by the Accounts Payable department. The matrix design evolves with input from various sources to fulfill various needs...some of which are not approvals at all.
The use of purchase orders helps with managing budgets, conversely purchasing without a PO can lead to unfavorable departmental budget variances. Departments forget what they have spent only to be surprised when cost reports and budgets are reviewed. One very common method to overcome this loss of visibility is to require all non PO invoices to be approved by departmental management. In this scenario, the invoice is almost always approved. The reality is they are not approving the invoice, rather it serves as an early notification of their spend.
A case can be made that these “always approve” approvals should be eliminated from the approval matrix. Should the Accounts Payable process be slowed for these non approvals…assuming without a pressing reason to be timely in approvals they often sit in the queue of the approver for long periods of time.
Obviously, these individuals need to be aware of their spend to effectively manage their departments but I suggest this information be passed in the form of a report and not an approval.
So next time someone request they be added to the approval…ask the simple question…would you ever not approve?
See SAP EcoHub for More on AP Optimization
Possibly when the approval is ALWAYS “approved”.
As part of the implementation of SAP Invoice Management by Open Text, we conduct a blue print session to ensure all business requirements are met rather than just automating the current process. During the blue print sessions, the subject of non purchase order invoice approval is often an interesting discussion. Companies that have implemented SAP find that utilization of purchase orders and the associated release strategy has required them to implement a rule driven approval process. They often take advantage to simplify the rules at this point.
But for invoices without a purchase order, it is common to have a complex approval matrix that has developed over time. The matrix is often kept in spreadsheets and with manual interpretation by the Accounts Payable department. The matrix design evolves with input from various sources to fulfill various needs...some of which are not approvals at all.
The use of purchase orders helps with managing budgets, conversely purchasing without a PO can lead to unfavorable departmental budget variances. Departments forget what they have spent only to be surprised when cost reports and budgets are reviewed. One very common method to overcome this loss of visibility is to require all non PO invoices to be approved by departmental management. In this scenario, the invoice is almost always approved. The reality is they are not approving the invoice, rather it serves as an early notification of their spend.
A case can be made that these “always approve” approvals should be eliminated from the approval matrix. Should the Accounts Payable process be slowed for these non approvals…assuming without a pressing reason to be timely in approvals they often sit in the queue of the approver for long periods of time.
Obviously, these individuals need to be aware of their spend to effectively manage their departments but I suggest this information be passed in the form of a report and not an approval.
So next time someone request they be added to the approval…ask the simple question…would you ever not approve?
See SAP EcoHub for More on AP Optimization
Tuesday, July 14, 2009
Accounts Payable and Economic Stimulus
It is difficult to go a day without seeing or hearing something about stimulating the economy. The basic tenet of the effort is to get more money flowing in the economy.
Most often this is thought of related to spending, i.e. “buying” or “procuring.” Too often, we do not consider the second part of the procure-to-pay (P2P) equation and that is “paying”. It is well documented that in many situations it is advantageous for a company to extend the Days Payable Outstanding (DPO) in order to increase working capital. While in the short run that is completely logical, one must consider the full economic supply chain.
Late payments to one supplier compounds into late payments to downstream suppliers. In order to compensate, the suppliers must raise prices, eliminate discounts or go out of business in many cases. This narrowing of the available selection of suppliers inevitably causes a trend toward higher prices from the remaining suppliers… hence the law of supply and demand.
Fiscal responsibility to the corporate stakeholders goes beyond the current economic crisis. Corporations and Government that realize the importance of their Accounts Payable (AP) departments have invested in the necessary tools to optimize and automate the payment process.
One example where commitment to AP process optimization has been realized can be found in the England. Government officials pledged to pay suppliers within 10 days. While the typical AP issues have prevented this from becoming the norm, it does demonstrate the governments understanding of how AP impacts the economy.
SAP provides the granularity of information required to fully manage complete P2P transactions. Implementation of SAP Invoice Management brings the power of the individual transactions into a tightly controlled process while providing a comprehensive view into the process from invoice receipt whether electronic or paper (via optical character recognition (OCR)) through to exception resolution.
As companies and government order goods and services, it is essential that payment for these goods and services be managed as a process to keep the stimulus flowing, rather than coming to a stop with the first purchase. Financial management must provide immediate and full visibility and control of the AP process to fully participate in the stimulus so that it ultimately provides the benefit we expect.
So…is AP an undeniable significant component of economic stimulus initiatives around the world? I for one say YES!
See SAP EcoHub for More on AP Optimization
Thursday, June 11, 2009
Fraud Prevention in the Accounts Payable Process
The following statement is taken from the 2008 ACFE Report to the Nation…”According to research conducted by the Association of Certified Fraud Examiners (ACFE), U.S. organizations lose an estimated 7 percent of annual revenues to fraud. Based on the projected U.S. Gross Domestic Product for 2008, this percentage indicates a staggering estimate of losses around $994 billion among organizations, despite increased emphasis on anti-fraud controls and recent legislation to combat fraud.”
The study states that approximately 23% of the fraud cases they reviewed were related to invoices with a medium loss of $100,000 per case. Billing (invoice) was the most common type of fraud.
It is interesting that in their findings; the most common way of detecting fraud was receiving a “tip” (46%) where as internal control only accounted for 23%.
One could conclude that as economic times become more difficult, fraud might increase. Even it this were not true the current trend in fraud, cries out for increases in internal controls, especially related to invoicing. It is not enough to assume the Accounts Payable Analyst just know that it is ok to pay an invoice. Automated business rules must provide the continual detection mechanism and automated workflow must ensure the proper personnel are involved in resolution. For invoices without a purchase order with internal control ensures that the proper personnel are involved in approval and their spend limits are automatically verified. Removal of human touch points removes both the temptation for fraud as well as removing the unknowing participation such as approval of an invoice without having the benefit of the invoice image to review.
One would only need to ask the prior employees of corporations driven to bankruptcy through fraud if it is better to have process control that prevents fraud as compared to having someone finally tipping off the authorities after the fraud has occurred.
See SAP EcoHub for More on AP Optimization
The study states that approximately 23% of the fraud cases they reviewed were related to invoices with a medium loss of $100,000 per case. Billing (invoice) was the most common type of fraud.
It is interesting that in their findings; the most common way of detecting fraud was receiving a “tip” (46%) where as internal control only accounted for 23%.
One could conclude that as economic times become more difficult, fraud might increase. Even it this were not true the current trend in fraud, cries out for increases in internal controls, especially related to invoicing. It is not enough to assume the Accounts Payable Analyst just know that it is ok to pay an invoice. Automated business rules must provide the continual detection mechanism and automated workflow must ensure the proper personnel are involved in resolution. For invoices without a purchase order with internal control ensures that the proper personnel are involved in approval and their spend limits are automatically verified. Removal of human touch points removes both the temptation for fraud as well as removing the unknowing participation such as approval of an invoice without having the benefit of the invoice image to review.
One would only need to ask the prior employees of corporations driven to bankruptcy through fraud if it is better to have process control that prevents fraud as compared to having someone finally tipping off the authorities after the fraud has occurred.
See SAP EcoHub for More on AP Optimization
Monday, June 1, 2009
AP Multitasking
One significant advantage of SAP Invoice Management by Open Text automation is that it reduces or eliminates calls from vendors inquiring about when invoices will be paid. In a manual process, the AP Analyst often receives several calls per day while they are entering and posting invoices.
In reading a recent article on multitasking I was reminded that being interrupted during a routine task such as entering and posting invoices results in significant time loss and leads to errors.
The article point out that workplace studies found it can take up to 15 minutes to return to a deep state of concentration after a distraction. It also mentioned that when our working memory is presented with a new problem, within 15 seconds it will become difficult to recall the prior issue. This is not unlike the stories we hear about how using a cell phone is a major distraction from driving our cars.
If you apply this logic to the world of an Accounts Payable Analyst, you can quickly see how receiving one “where is my money” phone call from a vendor can have a dramatic impact on the number of invoices normally processed around the time of the call.
By ensuring the vendors are paid timely and accurately, the distracting phone calls are reduced if not eliminated. Fewer distractions results in more efficient processing of invoices
See SAP EcoHub for more on AP Optimization
In reading a recent article on multitasking I was reminded that being interrupted during a routine task such as entering and posting invoices results in significant time loss and leads to errors.
The article point out that workplace studies found it can take up to 15 minutes to return to a deep state of concentration after a distraction. It also mentioned that when our working memory is presented with a new problem, within 15 seconds it will become difficult to recall the prior issue. This is not unlike the stories we hear about how using a cell phone is a major distraction from driving our cars.
If you apply this logic to the world of an Accounts Payable Analyst, you can quickly see how receiving one “where is my money” phone call from a vendor can have a dramatic impact on the number of invoices normally processed around the time of the call.
By ensuring the vendors are paid timely and accurately, the distracting phone calls are reduced if not eliminated. Fewer distractions results in more efficient processing of invoices
See SAP EcoHub for more on AP Optimization
Tuesday, April 28, 2009
Cost of Saving Paper Invoices
In a typical business scenario without utilization of document archiving, the original paper invoice is filed for safe keeping. The invoice is subject to retrieval several times over its life span. Since almost every corporate policy will not allow the original invoice to leave the safe confines of Accounting, a copy is made when required. One problem is that often the person requesting the copy then files the copy for their direct access. They may be retrieving the copy on behalf of one or more persons and they may also make and store their personal copy. If you ask each person why they are keeping copies they will tell you they want quick access.
Some of the more common request includes:
o Operations – there may be specifications or details on the invoice that they need related to how to handle, use or store what was purchased. It may be for services and they want a record of when and what vendor performed the services.
o Purchasing – if there was a problem with the invoice, they may want a copy so they can write comments and then keep with paper copy of purchase order.
o Cost Accounting – they may need information related to inventory balance, inventory valuation or to support accruals.
o Tax Department – they often retain copies to support sales tax calculations or to aid in disputes on what is taxable.
o Internal Audit Department – they require invoices for numerous audits.
o External Auditors – as with the Internal Audit Department, external auditors require supporting documentation related to specific audits.
It is not uncommon that in addition to the original, one invoice may be stored 5 – 10 times. If the invoice is multiple pages the time and space required for storage increases significantly.
Any of these copies may be accessed several times during its life span.
To summarize…we have the cost of the actual storage space, the cost of reproduction equipment, the labor cost to file and retrieve. This cost is now compounded when you consider the cost of ensuring proper record retention. When the original invoice is destroyed proper retention management must ensure all of these copies are destroyed.
As the economy drives corporations to search for all possible means to improve bottom line profitability, they have found Accounts Payable a significant area for opportunity. One of the many values derived from optimizing and automating Accounts Payable is that digitizing the invoice through scanning and document management removes the need to make copy on copy. All references by all groups will be through the SAP solution linked to the applicable invoice image.
See SAP EcoHub for more on AP Optimization:
Some of the more common request includes:
o Operations – there may be specifications or details on the invoice that they need related to how to handle, use or store what was purchased. It may be for services and they want a record of when and what vendor performed the services.
o Purchasing – if there was a problem with the invoice, they may want a copy so they can write comments and then keep with paper copy of purchase order.
o Cost Accounting – they may need information related to inventory balance, inventory valuation or to support accruals.
o Tax Department – they often retain copies to support sales tax calculations or to aid in disputes on what is taxable.
o Internal Audit Department – they require invoices for numerous audits.
o External Auditors – as with the Internal Audit Department, external auditors require supporting documentation related to specific audits.
It is not uncommon that in addition to the original, one invoice may be stored 5 – 10 times. If the invoice is multiple pages the time and space required for storage increases significantly.
Any of these copies may be accessed several times during its life span.
To summarize…we have the cost of the actual storage space, the cost of reproduction equipment, the labor cost to file and retrieve. This cost is now compounded when you consider the cost of ensuring proper record retention. When the original invoice is destroyed proper retention management must ensure all of these copies are destroyed.
As the economy drives corporations to search for all possible means to improve bottom line profitability, they have found Accounts Payable a significant area for opportunity. One of the many values derived from optimizing and automating Accounts Payable is that digitizing the invoice through scanning and document management removes the need to make copy on copy. All references by all groups will be through the SAP solution linked to the applicable invoice image.
See SAP EcoHub for more on AP Optimization:
Sunday, April 5, 2009
Best Practice for Invoice Receipt
Question: To ensure best practice invoice processing, should we expect to receive EDI, E Invoice Networks or Paper Invoices?
Answer: YES
For most large corporations, a best practice scenario includes the ability to receive invoices from all sources.
EDI is a common form of invoice receipt for major suppliers delivering high number of invoices for selected goods and / or services. While this technology has been in place for several years it is a proven technology.
E Invoicing Networks or Electronic Invoice Presentment and Payment (EIPP) has been around for several years with some success but recent economic downturn has driven a renewed interest in this as a cost reduction effort. The critical success factor of getting suppliers to subscribe to the networks has significantly improved.
Paper still remains as the primary source for invoice receipt. The utilization of OCR to extract the meta data from the paper invoices has shown dramatic increases as corporations strive for straight through processing similar to that provide by EDI. Most large corporations are have either upgrading their imaging solutions or for those that have not implemented image many ore planning on implementing within the next year.
One important consideration, regardless of the source, invoice meta data often contains exceptions. Where practical, images of the invoice should be linked to the SAP invoice process to facilitate best practice resolution.
With SAP Invoice Management, varying source meta data is not an issue. Visibility of the image during processing and linkage to the invoice document is standard.
So…what is the best source of meta data…ALL!
See SAP EcoHub for more on SAP AP Optimization:
Answer: YES
For most large corporations, a best practice scenario includes the ability to receive invoices from all sources.
EDI is a common form of invoice receipt for major suppliers delivering high number of invoices for selected goods and / or services. While this technology has been in place for several years it is a proven technology.
E Invoicing Networks or Electronic Invoice Presentment and Payment (EIPP) has been around for several years with some success but recent economic downturn has driven a renewed interest in this as a cost reduction effort. The critical success factor of getting suppliers to subscribe to the networks has significantly improved.
Paper still remains as the primary source for invoice receipt. The utilization of OCR to extract the meta data from the paper invoices has shown dramatic increases as corporations strive for straight through processing similar to that provide by EDI. Most large corporations are have either upgrading their imaging solutions or for those that have not implemented image many ore planning on implementing within the next year.
One important consideration, regardless of the source, invoice meta data often contains exceptions. Where practical, images of the invoice should be linked to the SAP invoice process to facilitate best practice resolution.
With SAP Invoice Management, varying source meta data is not an issue. Visibility of the image during processing and linkage to the invoice document is standard.
So…what is the best source of meta data…ALL!
See SAP EcoHub for more on SAP AP Optimization:
Friday, March 27, 2009
Cash is King!
More than any time in recent history has the statement “cash is king” more certain! Every day we read of corporations that can’t meet payrolls or pay bills. Even the state of California recently informed their vendors they will be paying late. The inability to pay the bills rolls through out the business chain.
Corporations determine the price for their goods and services based on a model that ensures they have sufficient cash to meet payrolls, replenish inventories and grow their business. In order to shorten the conversion to cash cycle they often offer a discount to customers if they pay early, often 10 days or less.
When payments are rendered at the latest date possible, this generates the least flexibility in the vendor business model. Worse yet, if the payment is at the last moment or even later and the early payment discount is still taken, then the vendor cash flow model is jeopardized.
Given the critical importance to generate adequate cash flow, corporations are now looking beyond the traditional avenues of increasing sales or decreasing cost. Many companies are seeing declines in sales and have already initiated labor reductions.
Companies have found improvements in the non labor spend process to be one of if not the most rewarding scenario.
While it is common to focus on labor reductions in the Accounts Payable process through automation, management of payment terms often generates the greatest reward.
Assume the following scenario:
Sales of $5,000,000,000 with 30% of revenue going to pay for non labor goods and services. If the automation is tempered with process optimization, payment within payment terms is now consistent. The corporation is now enabled to negotiate discounts they previously did not request since they knew meeting short payment cycles were impossible. The payment term to request is typically based on cash management principals that ensure the terms are sufficient so they more than offset interest rates incurred for short term financing. Following this scenario, if this corporation can negotiate 2% payment terms for an additional 5% of the $1,500,000,000 spend they can reduce cash paid to vendors by $1,500,000 per year. This goes straight to the bottom line profit as an increase. Assuming a 10% profit margin on sales, this would in turn offset a decline in sales of $15,000,000. When the economy does turn around these significant savings don’t vanish such as savings from labor reductions. With labor reductions, once business improves, rehires eliminate the prior labor reductions.
The above scenario is based on $5B sales revenue. It is an easy reach to estimate that Open Text current clients would elevate this number 100 times generating profit in excess of $150,000,000 just related to capture of payment terms. Add to this additional savings derived from implementation of optimal automated Accounts Payable processing related to capture not of new discounts but capture of 100% of current payment term discounts, the elimination of duplicate payments and the traditional labor savings…cash really does become KING!
See SAP EcoHub for more on SAP AP Optimization:
Corporations determine the price for their goods and services based on a model that ensures they have sufficient cash to meet payrolls, replenish inventories and grow their business. In order to shorten the conversion to cash cycle they often offer a discount to customers if they pay early, often 10 days or less.
When payments are rendered at the latest date possible, this generates the least flexibility in the vendor business model. Worse yet, if the payment is at the last moment or even later and the early payment discount is still taken, then the vendor cash flow model is jeopardized.
Given the critical importance to generate adequate cash flow, corporations are now looking beyond the traditional avenues of increasing sales or decreasing cost. Many companies are seeing declines in sales and have already initiated labor reductions.
Companies have found improvements in the non labor spend process to be one of if not the most rewarding scenario.
While it is common to focus on labor reductions in the Accounts Payable process through automation, management of payment terms often generates the greatest reward.
Assume the following scenario:
Sales of $5,000,000,000 with 30% of revenue going to pay for non labor goods and services. If the automation is tempered with process optimization, payment within payment terms is now consistent. The corporation is now enabled to negotiate discounts they previously did not request since they knew meeting short payment cycles were impossible. The payment term to request is typically based on cash management principals that ensure the terms are sufficient so they more than offset interest rates incurred for short term financing. Following this scenario, if this corporation can negotiate 2% payment terms for an additional 5% of the $1,500,000,000 spend they can reduce cash paid to vendors by $1,500,000 per year. This goes straight to the bottom line profit as an increase. Assuming a 10% profit margin on sales, this would in turn offset a decline in sales of $15,000,000. When the economy does turn around these significant savings don’t vanish such as savings from labor reductions. With labor reductions, once business improves, rehires eliminate the prior labor reductions.
The above scenario is based on $5B sales revenue. It is an easy reach to estimate that Open Text current clients would elevate this number 100 times generating profit in excess of $150,000,000 just related to capture of payment terms. Add to this additional savings derived from implementation of optimal automated Accounts Payable processing related to capture not of new discounts but capture of 100% of current payment term discounts, the elimination of duplicate payments and the traditional labor savings…cash really does become KING!
See SAP EcoHub for more on SAP AP Optimization:
Does Procurement Care if Invoices are Paid Late?
Every day it seems some supplier is going out of business. One obvious reason is due to sales decrease. The decrease coupled with customers paying late result in insufficient cash to pay their payrolls and bills. Another way of looking at this is the cash conversion cycle is too long to sustain day to day operations.
If their cash conversion cycle increases due to late payments, they must find other ways to generate cash in the short term. Internal cost reduction efforts may impact the quality of the goods resulting in problem resolutions for the customer Procurement Department. Another method to generate cash is to raise prices. They may also either lower discounts or shorten payment timing. Once again, this presents Procurement with time consuming negotiations.
Late payments can also result in suppliers withholding shipment of critical goods or services. Since most purchase orders are based on delivery dates required by customer business processes, disruptions in these are normally routed to Procurement for resolution. Following this complete story can also be a laborious task with no favorable resolution to the customer.
In a worse case scenario, the supplier is forced to go out of business. Now Procurement must go through the entire sourcing exercise to find a new supplier. The new supplier may be more expensive, may be in a location that increases delivery cost or may not offer any terms. If the customer becomes know for late payment, the new supplier may demand cash up front before delivery or immediately upon delivery. If this was a single source supplier, entire business process can be impacted until Procurement finds an alternative.
Does Procurement care if invoices are paid late…I think so…what are your thoughts?
See SAP EcoHub for more on SAP AP Optimization:
If their cash conversion cycle increases due to late payments, they must find other ways to generate cash in the short term. Internal cost reduction efforts may impact the quality of the goods resulting in problem resolutions for the customer Procurement Department. Another method to generate cash is to raise prices. They may also either lower discounts or shorten payment timing. Once again, this presents Procurement with time consuming negotiations.
Late payments can also result in suppliers withholding shipment of critical goods or services. Since most purchase orders are based on delivery dates required by customer business processes, disruptions in these are normally routed to Procurement for resolution. Following this complete story can also be a laborious task with no favorable resolution to the customer.
In a worse case scenario, the supplier is forced to go out of business. Now Procurement must go through the entire sourcing exercise to find a new supplier. The new supplier may be more expensive, may be in a location that increases delivery cost or may not offer any terms. If the customer becomes know for late payment, the new supplier may demand cash up front before delivery or immediately upon delivery. If this was a single source supplier, entire business process can be impacted until Procurement finds an alternative.
Does Procurement care if invoices are paid late…I think so…what are your thoughts?
See SAP EcoHub for more on SAP AP Optimization:
If You Don't Keep Score Then You Are Only Practicing (SAP Invoice Management)
Keeping score is a fundamental business requirement. What you chose to monitor will often determine your success. One common pitfall is only measuring secondary key process indicators (KPIs) and not measuring primary KPIs. In baseball, is it more beneficial to know how the secondary KPI of times at bat or to know the primary results of the times at bat such as singles, doubles, triples, home runs, foul balls, strike outs and walks.
If you have implemented or you are considering implementation of the SAP Invoice Management by Open Text solution, you should be aware that this solution will dramatically improve the typical secondary KPIs but also the primary KPI of profit.
For example, measurements utilized in invoice to receipt payment process traditionally include (but not limited to) invoices processed per Accounts Payable processor, cost per invoice and invoices paid on time. While these are very important and should be measured, a case can be maid that they only tell part of the story.
One primary measure of corporate success is profit therefore what is the primary driver behind each of the measure mentioned above. The invoices per processor impacts profit by enabling of cost reduction due to labor savings therefore for every labor dollar saved, the profit increases.
Cost per invoice most often is based on the cost of the Accounting Department labor therefore much of the primary improvement would already be reflected by increasing invoices per processor. In addition to the direct labor savings there are other opportunities to improve the primary profit KPI. Implementation of a fully automated solution that includes OCR, e invoicing and workflow will also increase profit by enabling lower cost of invoice.
Measuring the percent of invoices paid on time impacts the primary profit KPI in several forms. The first is to ensure payment term discounts are captured as determined by cash management. Another impact is the ability to negotiate payment terms that were considered unattainable in the past since invoices could not be process in time to meet payment terms. Another consideration is how paying on time reduces the time spent talking with vendors about why they have not been paid. It is not uncommon for a corporation to have one or two persons with the primary responsibility to answer phones and emails from vendors.
Aside from the direct and significant impact on profit, paying late also impacts another very important area of primary interest, the corporate credit rating.
In summary...while it is very important to know how many times the Accounts Payable comes up to bat…it is even more important to know the results of the “at bat”!
See SAP EcoHub for more on SAP AP Optimization:
If you have implemented or you are considering implementation of the SAP Invoice Management by Open Text solution, you should be aware that this solution will dramatically improve the typical secondary KPIs but also the primary KPI of profit.
For example, measurements utilized in invoice to receipt payment process traditionally include (but not limited to) invoices processed per Accounts Payable processor, cost per invoice and invoices paid on time. While these are very important and should be measured, a case can be maid that they only tell part of the story.
One primary measure of corporate success is profit therefore what is the primary driver behind each of the measure mentioned above. The invoices per processor impacts profit by enabling of cost reduction due to labor savings therefore for every labor dollar saved, the profit increases.
Cost per invoice most often is based on the cost of the Accounting Department labor therefore much of the primary improvement would already be reflected by increasing invoices per processor. In addition to the direct labor savings there are other opportunities to improve the primary profit KPI. Implementation of a fully automated solution that includes OCR, e invoicing and workflow will also increase profit by enabling lower cost of invoice.
Measuring the percent of invoices paid on time impacts the primary profit KPI in several forms. The first is to ensure payment term discounts are captured as determined by cash management. Another impact is the ability to negotiate payment terms that were considered unattainable in the past since invoices could not be process in time to meet payment terms. Another consideration is how paying on time reduces the time spent talking with vendors about why they have not been paid. It is not uncommon for a corporation to have one or two persons with the primary responsibility to answer phones and emails from vendors.
Aside from the direct and significant impact on profit, paying late also impacts another very important area of primary interest, the corporate credit rating.
In summary...while it is very important to know how many times the Accounts Payable comes up to bat…it is even more important to know the results of the “at bat”!
See SAP EcoHub for more on SAP AP Optimization:
Welcome to the AP Optimization Blog
We all have visions of accounts payable as a bunch guys sitting in a back room somewhere with arms bands and green eyeshades pushing paper around. The point being that AP does it thing and what it does has little impact on the rest of the company. It time to let go of that perspective and take a much broader view of the truly strategic that AP plays in a company's success and profitability.
In this blog, I will be examing the evolving role of AP, particularly in the current economy where companies need to pay close attention to cash outflow and to look for ways to boost profits and lower costs. Here you will read my thoughts and perspective on ways companys can streamline AP operations and make AP a strategic asset and even a competitve advantage.
I have been involved with AP operations in various capacities for longer than I care to admit (read my bio for the full picture), but I am still learning new things every day. That a big reason for this blog. I want your comments and input. We're all in this together.
In this blog, I will be examing the evolving role of AP, particularly in the current economy where companies need to pay close attention to cash outflow and to look for ways to boost profits and lower costs. Here you will read my thoughts and perspective on ways companys can streamline AP operations and make AP a strategic asset and even a competitve advantage.
I have been involved with AP operations in various capacities for longer than I care to admit (read my bio for the full picture), but I am still learning new things every day. That a big reason for this blog. I want your comments and input. We're all in this together.
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