How document management can revolutionise the ‘purchase-to-pay’ cycle

20th August 2006

Managing the daily volume of suppliers' invoices can be a thankless task. Unlike sales invoices and statements, inbound purchase invoices arrive in all manner of shapes, sizes and conditions and it is the receiving organisation that shoulders the responsibility for sorting, batching and distributing copies of them internally at the start of a long and arduous approval process. It's also a surprisingly expensive process which some experts estimate can cost as much as £50 per transaction. So it is not difficult to understand why interest in document management, workflow and storage of digital images is at an all-time high.

Not everyone wants or needs to take the full plunge straight away. Enormous benefits can flow from the simple expedient of scanning inbound documents and storing them electronically. Butcher's Pet Care Limited, a privately owned company that manufactures pet food for the UK and European market, is a case in point. It processes over 600 purchase invoices a week, which are bar-coded, batch scanned, automatically indexed and stored as images on the system. Jeff Martins, Financial Controller at the company told FSN, "A small modification to our ERP system means that we can retrieve and view supplier invoices from anywhere in the company over the web. There is no paper flying around the company anymore."

It's also allowed Butcher's to accommodate growth without taking on extra staff. "We had reached the point where we needed temporary cover but now we can cope with the people we have and have even removed a part time person," adds Martins.

Similar business considerations have caused Helen Sharratt, Financial Director from Coolair plc, a supplier and installer of air conditioning systems, to extend the use of document management systems from just sales invoicing to the 'purchase-to-pay' cycle. Presently, the company uses specialised forms software from Version One to generate sales invoices and statements using plain A4 paper in laser printers rather than expensive and cumbersome multi-part stationery. Coolair sends most of its business documents automatically by email and fax using Version One's electronic document delivery systems. "It's a huge benefit in the construction industry which is always asking for copy invoices in support of retentions," Sharratt told FSN. "As they are electronic documents they can be sent by email or fax," she added.

But now Sharratt has turned her attention to the 3,000 supplier invoices that have to be processed every month and in co-operation with The Systems Practice, a Sage and Microsoft Navision reseller, she is rolling out Version One software to manage purchase invoice scanning and workflow, for approval and payment authorisation. "We have a very lean head office accounting function with very little floor space to store documents. We want to be able to cope with growth without taking on extra staff," she says.

"The Systems Practice will integrate our Version One document management system with our Sage Line 500 accounting software. It means that purchase invoice processing will work more smoothly, documents will not get lost between our offices and the cheque run will not be held up," she adds.

In common with many resellers, Steve Crum, managing director of The Systems Practice, says his role has changed from just selling software and services to helping companies use information technology to improve their processes and business performance. Coolair is fairly typical of most of the companies that he deals with. "Handling paper is the most inefficient and time consuming thing that businesses do," he says.

On the other hand, Johnston Press plc, who was introduced to Version One's products by its Sage reseller, BDE Group, has got rid of paper all together in its purchase-to-pay cycle by utilising Version One's very latest document and image management systems. With over15,300 suppliers to the group and 175,000 purchase invoices to process annually, the incentives to reduce paper are very high. Michelle Jeffrey, IT Manager for Johnston Publishing Limited, the centralised Accounting Centre for Johnston Press plc, has successfully automated the entire purchase-to-pay cycle, eliminating the need to hold paper versions of purchase invoices once they have been successfully scanned into the system.

The intelligent OCR (optical character recognition) scanning system identifies the supplier on a purchase invoice by correlating a static piece of information such as a VAT number with the information held on the Sage Line 500 system. Having automatically identified the supplier, the system 'knows' the physical characteristics of the invoice and, knows exactly where to look for the transaction information required by the accounting system when the invoice is eventually posted. (New suppliers have to go through a simple one-off set up process "rubber banding" that defines the physical layout of scanned images for the first time so that the system knows how to process invoices from the same supplier in the future). Despite the wide variety of supplier invoices, 80 % of them can be processed automatically, leaving mainly hand-written and spoiled documents to be processed manually. Once batch controls have been passed to ensure that every page has been scanned, the image is checked for legibility and the accounting information has been captured successfully, the invoices are security sealed and sent for incineration!

Cleverly, workflow in Johnson Press is driven by a combination of company code, publication, department and cost centre code rather than the more usual approach of sending invoices by email to named invoice approvers and authorisers. The first thing that happens once an invoice is successfully scanned on the system is that it is routed via the company code to the appropriate person for nominal coding. It is then available to the next person in the approval chain based on the combination of nominal code elements above. Once coded, the invoice is 'registered' on the accounts system. Invoices can be accepted, rejected, accepted with changes, or held pending queries in the normal way, but what is particularly smart about Johnson Press' process is that the purchase-to-pay cycle is not reliant on the email system. If the email system fails, the business can still carry on processing invoices because approvers and authorisers all have access to their personal list of outstanding invoices by logging directly into the system. It also means that invoice approvers are not burdened by hundreds of emails throughout the day requesting approval – they simply log onto the system when convenient to approve their invoices and send them for a final check by the accounts department before payment.

Another major benefit of the approach is that not only are images of invoices retrievable from the purchase ledger but they are also viewable from a nominal ledger account. "Our Sage system provided very little space for a description against nominal ledger entries which is a real handicap for the accountants preparing monthly management accounts. But using the tight integration between the nominal ledger and the image database, our accountants can look back at an image of the original invoice if they need to," Jeffrey explained. Effectively, the document management system is leveraging and extending the usefulness of the Sage accounting system as well as providing benefits in its own right.

Steve Crum who has had over eight years experience of integrating document management software from Version One with accounting systems from Sage goes even further and dismisses the notion that document management is merely a way of leveraging an existing accounting system. Commenting to FSN he said, "Generally it is not appreciated how easy it is to emulate the example of Amazon. All of the communication once you place an order is electronic and automated. People need to see document management in this light. It's about elevating accounting processes to a completely new level and every business can do it."