Changing Top Priorities for Companies in Today's Economic Climate

The ambitious business plans that many companies hoped to be executing in 2009 have in most cases been set aside and a new list of priorities advanced. This article called Top Priorities for Companies Today and the Growing Need for EDI and B2B E-Commerce discusses an emerging set of priorities that are being seen in Q1 2009. Note priorities 7, 8 and 9 all have to do with e-Invoicing and accounts payable optimization.

Companies today are looking for ways to accomplish more with less. They are seeking ways to automate people intensive processes with business automation, and replace paper with electronic data exchanges. They are seeking to consolidate systems and processes into Shared Services Centers and to simplify labor intensive IT environments with more third party managed services providers.

Supply Chain Financing and EDI / B2B

This week I have been involved in a lot of discussions around Supply Chain Financing. This is a world I barely knew existed a few months back. Corporate Treasures are of course focusing on Working Capital and its components. One component DPO (days payables outstanding) is an indicator of how long a company is taking to pay its suppliers. Manufacturers and other companies are looking to find ways of extracting more cash from their supply chain, as the credit markets are clearly constrained. Companies may be looking to take longer to pay suppliers, helping suppliers remain financially stable, and at the same time negotiate early payment discounts. Some times, there may be a bank willing to provide a short term loan to the paying company so they can pay suppliers early and get an early payment discount, or to loan money to the supplier so the manufacturer can take longer to pay their bill. All great stuff, but how is EDI and B2B E-Commerce involved?

Let's discuss the processes involved in the financial supply chain. First let's look at it from the perspective of the manufacturer:

1. Send Purchase Order
2. Receive products
3. Receive an invoice
4. Perhaps dispute an invoice
5. Issue payment (and thus impact working capital)
   
6. Archive Invoice and Payment information

Let's now look at the supplier side:

1. Receive order
2. Deliver product
3. Submit invoice
4. Resolve invoice dispute
5. Receive payment (and after posting, impact working capital)
   
6. Clear receivables
   

Every time you see the words; receive, submit, send or issue there is a place for EDI and B2B e-commerce (for more on EDI and B2B issues) - the electronic exchange of business documents and data. If fact, there is a whole industry dedicated to helping large companies optimize their accounts payable processes.

In the world of Financial Supply Chain there is a lot of business information that is being exchanged in a short amount of time. The ability of a manufacturer to receive an invoice, process it and negotiate an early payment discount and make the payment all needs to take place in a few short days. The whole discussion around early and dynamic payment discounting is mute if processing the invoice takes longer than the early payment discount term allows.

To take advantage of the various Supply Chain Financing opportunities available from banks and other parties, manufacturers must have the capability to support a high level of business process automation and have advanced EDI and B2B capabilities. The manufacturer can either support the EDI/B2B requirements internally, or find a managed services provider that can support these processes and provide a tight integration with the manufacturer's ERP and accounting system.

Crossgate and BancTec are 2 of many companies that are active in this solution area. For a more comprehensive list see this directory.

EDI, B2B and Electronic Invoices are Not Always the Answer for Accounts Payable Optimization

Converting paper invoices to electronic invoices is not always the best first step to optimizing a high volume accounts payable department as this article on a blog site that covers EDI and B2B issues explains.

Why Convert Paper Invoices to Electronic Invoices in Uncertain Economic Times?

Paper invoices have been at the core of financial transactions for as long as sellers and buyers have existed. Manually preparing an invoice and mailing it to a customer is second nature to most companies and the business world has been moving along for centuries using paper invoices and account ledgers. But in the last few decades as business operations have spread out to cross geographical borders and time zones, companies have begun to realize that manual operations – particularly in regard to financial transactions – are slowing down success and growth. Here are some of the problems with using paper invoices:

1. Slow paper processing may prevent receiving early payment discounts
2. Postage costs
3. Mail room sorting and handling costs
4. Data entry of paper invoices into accounting systems costs
5. Data entry from paper invoices introduces errors that cause invoice disputes
6. Invoice disputes cause supply chain friction
7. Lack of visibility into real time accounts payable liabilities
8. Paper storage costs
9. More...

In these challenging economic times more and more companies are making the conversion of paper invoices to electronic invoices a higher priority.

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Paul Diegelman
http://www.linkedin.com/in/pauldiegelman
****************************************
Kevin Benedict
http://www.linkedin.com/in/kevinbenedict
http://b2b-bpo.blogspot.com/

Accounts Payable Visibility and AP Optimization Challenges

One of the areas where Corporate management sees value in AP process optimization centers around what’s called “visibility”. Visibility is a term that describes the finance department’s ability to know, with a high degree of confidence and accuracy, the nature and dollar value of invoices and liabilities that a company has incurred at any given point in time. Visibility helps management in many ways, including the following two examples:

1. It is far easier to calculate period-end accruals when AP knows the nature and dollar amount of all invoices received on a given date. Accrual accounting becomes “more calculation, less assumption/estimation”. Visibility reduces the cost of calculating period-end accruals and also improves balance sheet accuracy.
   
2. Finance departments always seek to forecast cash inflows (collected revenues) and cash outflows (payables, payroll, debt payments, etc) into the future. Better visibility provides improved cash management, and the opportunity to borrow at lower costs or invest excess cash at higher returns.

AP process optimization often attacks the root cause of “lost visibility” – paper invoices received in different geograhical areas, departments and divisions around the company but not yet accounted for in AP. Process optimization vendors, through central receipt, front-end image and data recognition, as well as conversion to e-Invoicing, can often assist AP management achieve dramatically improved visibility in an environment that also reduces payables unit costs .

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Accounts Payable Optimization

There is a lot of interest these days in AP optimization. Why? Companies are looking under every desk and business process for inefficiencies and cost reductions. AP optimization is a good place to look. Many companies that I have spoken with over the past few weeks are very interested in reducing paper processing and data entry costs associated with handling and managing inbound paper invoices. In addition to cost reduction, CFOs are also seeking ways to speed up the processing of inbound invoices so they can take advantage of early payment discounts with their key vendors.

It is worth noting that many companies cannot take advantage of early payment discounts because the process of managing the paper invoices takes too much time. Paper does not easily give up it's information. Somehow the information on the paper invoice must be extracted and entered into the AP software application, approved or rejected and payments made. Sometimes this takes 45 days just to process.I have worked on a number of projects over the past few weeks where CFOs were seeking to out-source the entire process of handling inbound paper vendor invoices. They want the following:

• Reduce the current costs of processing the paper (labor, IT, facilities, etc.)
• Scan/OCR the data on the inbound paper vendor invoices to quickly digitize it
• Have a human review the scanned data and fill-in any missing or unreadable data from the original paper copy
• Submit the digitized invoice into a work flow for approval or rejection
• Convert as many paper invoices to electronic EDI or B2B file transfers as possible to achieve real-time integration with SAP

I was surprised to learn this year how many CFOs were interested in out-sourcing this entire process. It seems there is little perceived value of keeping the following functions in-house:

• paper processing
• scanning/OCR
• data review and correction
• converting paper invoices to electronic invoices (expanding the use of EDI and B2B data exchanges)

The CFO's office wants the benefit of all-of-the-above, but not necessarily the internal costs of doing it. There are a number of companies now that have developed a managed services offering that combines state-of-the-art scanning technologies, low-cost labor, AP work flow, best practices and managed EDI/B2B services for AP optimization. I have read several analysts reports recently that suggest this is a rapidly growing trend. Typically the costs for these managed services are considerbly less than processing in-house.

Once the AP process is optimized, the CFO will have the flexibility to capture negotiated early payment discounts, and to start looking at things like dynamic discounting. Dynamic discounting is when the CFO or his/her team can negotiate in real-time with key large suppliers to pay earlier than agreed in exchange for additional discounts. On large invoices these numbers can be meaningful.