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
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