‘Purchase to Pay’ automation is booming in recession

27th October 2008

Faced with a downturn most businesses are concentrating on conserving cash, but there are other fruitful areas to explore in the struggle to maintain margins and liquidity. Vendors of ‘Purchase to Pay’ solutions report that they are seeing heightened interest in purchase invoice automation and workflow as businesses find that invoice automation provides a quick win in pursuit of leaner and more cost effective operations.  Gary Simon, FSN’s managing editor reports.

"We are getting a lot of attention at the minute from organisations keen to use eProcurement to drive down costs and help protect margins in difficult trading conditions where they can't rely on sales growth for their profits. It is a very effective rearguard action for businesses under fire and typically generates savings of up to 10% on influenceable spend,” says Daniel Ball, Wax Digital.

“Many companies continue to handle invoices manually, which is time-consuming, inefficient and error-prone.   Manual methods do not provide timely or centralised visibility of invoices, which are often received by multiple departments and in multiple locations throughout an enterprise.  As a result, it might take days, for example, to discover if there are discrepancies or questions for a particular invoice.  Also, because many invoices are received without purchase orders, companies are often unaware of these unrecorded liabilities, which can impact cash flow and spend management significantly.  Taken to the extreme, a huge volume of unrecorded liabilities could force a company to restate earnings, “ says Jari Tavi, chief technology officer of Basware Corp.

“By contrast, automated invoice processing systems enable AP departments to improve invoice processing, approval and routing processes, and to gain the visibility and control. These systems free up accounts payable professionals to focus on more strategic financial issues, such as spend management, cash flow and working capital management,” he adds.

One company that has seen the benefits of invoice automation is Finnish airline, Finnair. Before it automated its invoice processes, invoices were received by more than 100 employees throughout the company, and were all being handled manually. Mervi Mäkelä, director of cash management at Finnair estimated that the inefficiencies and time spent tracking down invoices cost the company 40 Euros (60 USD) per invoice or 4.6 million Euros (6.8 million USD) to handle the 115,000 invoices it received annually.

To address these problems, Finnair implemented Basware’s invoice automation solution. “According to our own calculations the Basware system has saved us over a million Euros or over 1.5 million USD per year – mainly due to the fact that we no longer need to manually check, internally distribute, locate or archive invoices,” Mäkelä said.  “Because we have removed duplication, monitoring has been improved and, above all, the system opens up the possibility of developing the process further, such as centralising our global payments process.  We also have been able to offer tools to our other profit centres that enable them to improve their performance, not just the finance department.”

Another organisation, Cambridge Assessment, Europe’s largest assessment agency, is transforming its accounts payable function, including significantly cutting costs and reducing manual data entry by up to 75%, with the implementation of Version One’s document management, imaging and authorisation systems.

These will be tightly integrated into Cambridge Assessment’s CODA Financials accounting system and will enable the electronic storage and retrieval of up to 250,000 documents each year including invoices, purchase orders and expense claim forms. Cambridge Assessment will also be able to electronically authorise its purchase invoices and automatically capture and verify the data from these invoices using optical character recognition (OCR) technology, significantly reducing manual data entry.

Martin Smiley, Group Financial Controller, from Cambridge Assessment said, “Time-consuming manual-based processes have been impacting our ability to efficiently process supplier invoices. Currently our purchase ledger clerks have to manually duplicate information from purchase invoices onto separate payment vouchers which is an inefficient use of their time. Identifying the appropriate person to send an invoice to for their approval, writing out the envelope and then placing the invoice in the internal post to one of our multiple sites causes further delays in the approval process.”

Smiley says, “We can have up to 14 staff manually filing and retrieving documents at any one time because we handle so much paper. Losing claim forms, of which over 200,000 are processed each year, is also all too common. Version One’s software will free-up document storage space, cut expensive archiving costs and make it impossible to lose documents. We will also no longer need to employ temporary staff to undertake filing and basic administrative tasks during peak summer periods, further cutting costs.”

Smiley adds,  “Version One’s OCR will reduce manual data entry by approximately 75% and significantly reduce data entry errors. This will enable staff to concentrate on more value-adding activities. In addition, being able to track exactly where invoices are in the approval chain, which is currently impossible, will streamline the approval process, allowing us to improve communications with our suppliers whilst cutting late payment penalties.”

According to Daniel Ball, of Wax Digital purchase invoice automation isn’t only about cost cutting.  He says it also provides opportunities on the upside for profitable growth.

"Etailers are using eProcurement to aid massive growth - enabling them to manage millions of product lines and tread the line between having sufficient stock to meet demand without over-stocking and so hurting margins by having to discount excess inventory” he says.

"Our on-demand eProcurement system integrates tightly with the etailers' e-commerce sites and warehouse management systems, so we can closely track current demand and stock levels. Every day it provides each buyer with a tailored 'buy sheet' that forecasts demand in their product category, taking into account factors such as seasonality, sales history, and lead times. Individual buyers can therefore control purchasing across a large product portfolio, allowing for rapid growth without the need to scale up the buying team."

We're obviously very pleased to be able to help some of the world's leading companies deal with the pressures of the downturn by streamlining processes and cutting costs, but it's a treat to be able to help businesses use the same toolset to really power their expansion too," he added.

Wax Digital, whose online retail customers include ebuyer.com and play.com provide eProcurement solutions which cover the whole source-to-pay cycle from building requisitions and getting them approved, through budget management and placing orders on suppliers, goods receipting and invoice matching.

Basware’s Jari Tavi advises companies to focus on automation, not just workflow. “While workflow typically takes existing manual processes and supplements or replaces them with computerised ones, automation applies technology to design rules-driven processes that deliver more effective and efficient operations.  If an organisation has poor processes, computerised workflow just speeds up the rate that problems occur.  On the other hand, automation allows companies to work smarter and better, as well as faster.  Look for robust solutions that offer a whole new level of invoice automation, and that enable you to improve and innovate your processes,” he says.

 Another tip is to strive for continuous improvement. “Look for ways to continuously improve your Purchase to Pay processes.  Measure current performance, set goals and institute key performance indicators (KPIs) to help you measure and improve processes.  Look for KPI tools that enable you to drill down to root causes so you can see where there are roadblocks, areas for improvement and opportunities to innovate.  Implement change incrementally to avoid time-consuming re-engineering projects.  Not only will you be able to realise benefits right away, but you also will start gathering insights into your spend to determine how you can save money,” says Tavi.

Once accounts payable and purchasing professionals are liberated from transactional tasks, and there is visibility across the organization, then businesses are empowered to look more strategically at spend, for example; Where they can easily make savings that will not impact quality?  Are there volume discounts available? Is it possible to negotiate better contracts with certain suppliers?

“It’s critical, to avoid merely focusing on savings.  Treat spending in strategic areas differently than areas of lesser value.  For example, you may want to invest – rather than cut costs – in strategic areas such as R&D, and focus on suppliers in that area who provide the best value to your organisation rather than those who only provide the best price”, says Tavi.

The key to successful financial management during a recession is to manage wisely.  That requires knowing where your money is going, having control over purchases and payments and being able to manage costs appropriately.  By establishing integrated Purchase-to-Pay processes and achieving visibility throughout the financial value chain, all organisations should be able to effectively forecast and manage cash flow, leverage buying power, and cultivate the best suppliers. “It’s a winning formula for all economic climates,” says Tavi

Related FSN articles

FSN White Paper - Purchase Invoice Automation

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