Today's credit environment and other market pressures continue to drive companies to look for efficiencies in all links of their supply chain. But the reality is that most logistic processes already have been optimized, leaving little room for further price reduction and efficiency improvements. As a result, many organizations are now trying to wring as much value out of their working capital as possible, using an electronic approach which reaches beyond collections and payments departments to encompass their entire financial supply chain.
Automating this entire process -- starting from when a purchase order is generated to when payment is ultimately received -- creates both new efficiencies and reduced costs by providing better visibility of all aspects of financial supply chain management.
The Real Cost of Manual Invoicing
A study by Forrester Research shows that accounting professionals across the country process more than one billion invoices each week, and 97 percent of those invoices are still being processed manually. But, simply put, manual invoice processing leads to costly inefficiencies and errors.
With studies estimating the cost of paper-based invoice handling - including processing, postage and reconciliation -- at $20 to $60 per invoice, it's easy to see how supplier transaction handling and processing can quickly drive up costs. An average organization, for example, makes 19 copies of each document, and spends $20 in labor filing each of them. Companies also spend about $120 in labor costs searching for missing or misfiled bills and other paperwork and, because businesses lose one out of every 20 documents, spend an average of 25 hours in labor obtaining a new copy of the lost document. In general, capturing invoice data, invoice approval, invoice archiving/retrieval, and missed cash discounts due to slow processing account for 72 percent of the cost to process an invoice.
But there are many other hidden costs for manual invoicing. Manual processing takes hours of labor and those hours add up to lost opportunities for many businesses. Invoice approvals, when not processed electronically can be a source of major delays and difficulties in many industries, often resulting in missed prepayment trade discounts.
Moreover, in a non-automated environment, other links in the financial supply chain are impacted as well.
For example, the Treasury Department may not be able to make fluid decisions about the relative benefits of keeping cash on hand versus taking advantage of supplier cash discounts. Procurement managers may not be able to analyze their spend patterns as easily, or spot opportunities for consolidated sourcing among vendors. And accounting professionals may be under-utilized, spending the majority of their time reconciling invoices, eradicating errors and generally chasing the invoice paper trail, instead of capturing discount opportunities and improving cash flow forecasting.
The Power of Financial Supply Chain Automation
That's why more and more businesses are embracing financial supply chain automation solutions, a process by which companies present and manage invoices through the internet and make payments to one another for goods and services (not to be confused with simply emailing invoices to customers). While just a few years ago, less than one percent of U.S. companies were transacting electronically, that number is now over 20 percent, helped in large measure by new technologies that can convert any type of file - paper, flat, or Electronic Data Interchange -- into a digital format.
There are several approaches available for e-invoicing:
• a seller-focused method where companies adjust their processes to accommodate their suppliers' invoicing capabilities;
• a buyer-focused approach, where vendors adapt to the seller's accounting process;
• a consolidator approach, where a third party accepts vendor invoices in whatever format works best for them, and provides both the customer and the vendors with an electronic portal to manage all accounts payable and accounts receivable transactions.
Whatever method a company selects, it should replace paper with digital content, and human activity with automation in as many stages of invoice processing as possible, thereby maximizing both business and green benefits.
Once in place, electronic invoicing can deliver tremendous benefits to companies of any size. The most immediate one is slashing by more than half the price-per-invoice handling cost, which can save thousands of dollars annually in staff handling, postage and filing expenses. Financial supply chain automation virtually eliminates human intervention, allowing companies to produce on average 15 percent to 30 percent more transaction volume, while holding the line on or even reducing accounting staff. With financial automation, paper chases are completely eliminated - there's no more need to make copies and file paperwork, or search for missing or misfiled documents. Invoices are readily available for review online, the approval process is streamlined and accounts are settled much faster, enabling companies to take full advantage of early pay discounts. Integrating other financial supply chain operations, such as supply management, procurement and corporate treasury functions, also can mean additional cost reduction and increased efficiency, enabling, for example:
• Procurement to better manage suppliers and make more strategic decisions
• Treasury to spot opportunities for freeing up excess cash, thus optimizing working capital and cash flow management
• Supply chain management to resolve problems before they become issues
• Spend management to capture electronic data for analyzing spending patterns
• Accounting to play more of a strategic role, instead of focusing on clerical tasks
• CEOs to feel confident that their company expenditures are compliant with Sarbanes-Oxley
A major misconception about electronic invoicing is the belief that such software is out-of-the-box and difficult to install with a company's current technology. More than half of accounting professionals say that integrating e-invoicing technology with their current system is a top barrier for adopting this software. But the reality is that paperless accounting solutions today require virtually no customization or installation, enabling businesses to begin reaping their benefits almost immediately.
Most of these solutions work seamlessly with companies' existing applicant service provider software, and can smoothly leverage existing enterprise resource planning systems. Both A/R and A/P automation reside on the same technology platform, with their data seamlessly integrated. E-invoicing providers manage all supplier hosting, providing a single point of contact.
There also are a variety of pricing options. Some involve an upfront payment, but there also are many transaction-based solutions which, in effect, convert fixed expenses such as labor, paper, postage and other costs associated with manual billing into variable costs which can more easily keep pace with a business's growth.
For virtually any company, an electronic approach to managing invoicing can result in dramatically improved efficiencies while reducing staff support and errors and increasing profitability. But perhaps just as important, e-invoicing provides unprecedented visibility into all aspects of the financial supply chain, giving financial executives and other managers the flexibility they need to operate in today's challenging economy, as well as a competitive edge when economic conditions improve.
Timely, incisive articles delivered directly to your inbox.