Why not require all vendors to submit standard invoices? If you are like me, you can immediately start thinking of reasons this will never work but it has already worked for some. For years trading partners using SAP have utilized edi to send invoices in a predetermined format.
With the continual pressure to reduce cost, many corporations are moving to electronic invoicing but paper still constitutes the majority of invoices. To reduce the cost of processing paper invoices many corporations are implementing OCR solutions such as the optional OCR included with SAP Invoice Management by Open Text. Having a standard format for invoices would significantly enhance the OCR process. Even for those entering invoice meta data manually, standard invoice format would significantly reduce the time per invoice.
With a standard format, it would be expected that the vendor logo be located in one section and header information would always be found in the same place. Typical line item details would also always be consistent in format. The standard may need to be of several variations such as one for services and another for goods. The format should also be international so as to include relevant tax information.
Changing is never easy but a onetime investment in the effort could reap continual rewards in efficiency. While it would not be realistic to expect 100% participation, even if a corporation achieved 50% standard format invoices, major improvement would result.
The continuing pressure on profitability may be just the impetus to facilitate moving an old idea into the mainstream.
See SAP EcoHub for More on AP Optimization
Thursday, January 28, 2010
Thursday, January 21, 2010
AP and Hot Topics for 2010
The following are four Accounts Payable “hot topics” I see for 2010…
1) Paper is still with us! It appears that the movement to electronic invoices continues but at a slower pace than might have been expected. Paper invoices are still the most common form of invoice receipt. The good news is that Optical Character Recognition has improved and the focus is now on accuracy in reading the line item information accurately matching to the PO line. There appears to be greater cooperation between suppliers and their customers to ensure the necessary information is available on the invoice required for proper matching. The optional OCR for SAP Invoice Management by Open Text is being adopted by many SAP centric AP departments.
2) Whether driven by the economy or the desire to increase value to the corporate stakeholders, many corporations are moving to a shared service center for Accounts Payable. The concept of moving the functions to a cheaper labor pool and calling it shared services has had mixed results. What has been exposed is that locating AP in a remote geographic location can result in communication issues. Problems go unresolved for longer periods of time. To facilitate world class shared service centers, corporations are implementing enterprise solutions such as SAP Invoice Management by Open Text to provide controlled business processing. Not only are these solutions improving the day to day transactional processing they are generating information to internal and external clients that allow for continual business improvement.
3) Fraud is nothing new to corporations but too often the focus has been on reporting that detects the fraudulent activity after it has been committed. The cost of fraud recovery can be staggering. Many corporations pay out 30% - 50% of their gross revenue back out to suppliers through Accounts Payable. The fraudulent actives around AP are well documented but until recently, prevention was dependant on a human catching the attempt. In 2010, corporations are moving to implement business rule driven solutions that test for activities such as billings from suppliers not in their system. In addition these solutions provide the metrics to highlight trends such as a single vendor continually overbilling.
4) Last but certainly not least…Accounts Payable personnel are being recognized for the Professionals they are. Organizations such as International Accounts Payable Professionals (IAPP) are providing focus on the power of an Accounts Payable Professional. As mentioned above, AP is critical in fraud prevention. In addition, the optimization and automation of the day to day processing has allowed AP to focus on cash management improvements, improvement in accuracy of financial statements through accurate liabilities and proper inventory valuation and providing thorough and timely financial information to stakeholders from Operations to the CEO. It is becoming common for corporations to require a professional certification of all Accounts Payable personnel upon realization that Accounts Payable is a key component in a world class business!
See SAP EcoHub for More on AP Optimization
1) Paper is still with us! It appears that the movement to electronic invoices continues but at a slower pace than might have been expected. Paper invoices are still the most common form of invoice receipt. The good news is that Optical Character Recognition has improved and the focus is now on accuracy in reading the line item information accurately matching to the PO line. There appears to be greater cooperation between suppliers and their customers to ensure the necessary information is available on the invoice required for proper matching. The optional OCR for SAP Invoice Management by Open Text is being adopted by many SAP centric AP departments.
2) Whether driven by the economy or the desire to increase value to the corporate stakeholders, many corporations are moving to a shared service center for Accounts Payable. The concept of moving the functions to a cheaper labor pool and calling it shared services has had mixed results. What has been exposed is that locating AP in a remote geographic location can result in communication issues. Problems go unresolved for longer periods of time. To facilitate world class shared service centers, corporations are implementing enterprise solutions such as SAP Invoice Management by Open Text to provide controlled business processing. Not only are these solutions improving the day to day transactional processing they are generating information to internal and external clients that allow for continual business improvement.
3) Fraud is nothing new to corporations but too often the focus has been on reporting that detects the fraudulent activity after it has been committed. The cost of fraud recovery can be staggering. Many corporations pay out 30% - 50% of their gross revenue back out to suppliers through Accounts Payable. The fraudulent actives around AP are well documented but until recently, prevention was dependant on a human catching the attempt. In 2010, corporations are moving to implement business rule driven solutions that test for activities such as billings from suppliers not in their system. In addition these solutions provide the metrics to highlight trends such as a single vendor continually overbilling.
4) Last but certainly not least…Accounts Payable personnel are being recognized for the Professionals they are. Organizations such as International Accounts Payable Professionals (IAPP) are providing focus on the power of an Accounts Payable Professional. As mentioned above, AP is critical in fraud prevention. In addition, the optimization and automation of the day to day processing has allowed AP to focus on cash management improvements, improvement in accuracy of financial statements through accurate liabilities and proper inventory valuation and providing thorough and timely financial information to stakeholders from Operations to the CEO. It is becoming common for corporations to require a professional certification of all Accounts Payable personnel upon realization that Accounts Payable is a key component in a world class business!
See SAP EcoHub for More on AP Optimization
Friday, November 27, 2009
Should AP Departments Consider OCR?
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
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
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
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