How Modern Companies are Automating Payables, Improving Working Capital, and Leveraging Electronic Payments.
Written by: PayStream
Underwritten in part by: Paramount WorkPlace
Q1 2018 | Featuring insights on:
- Payable Management Trends Among North American Organizations
- Features and Functionality of Payables Automation Software
- Benchmarks for Assessing Payables Current State
- Leading Payables Automation Software Provider
IntroductionAutomating the invoice-to-payment process including accounts payable (AP) and payments processing—collectively known as payables management—is one of the most important items on the agenda for organizations when it comes to improving the back office. However, automating can seem daunting for some companies.PayStream Advisors consistently hears two questions when consulting with organizations of all types, sizes, and industries: “How do we fix processes given our current state?” and “How do we know where to start?”
The Current State of North American PayablesIn order to identify payables management trends among North American organizations, PayStream surveyed over 400 back-office employees across several industries and market segments. The following data is taken from PayStream’s recent AP and payments management survey, highlighting trends in payables management from invoice receipt to payment. Invoice Receipt The way in which this first component of the payments lifecycle is managed can have a significant impact on processes down the line, such as invoice approvals or in making on-time payments. PayStream survey results show that invoices are primarily received in unstructured formats; paper is the most commonly received format, followed by email, see Figure 1. Structured forms of invoices, such as electronic invoices (EDI) and those submitted through a web portal, are received at much lower volumes.
Figure 1: Over Half of Paper and Email Invoices Are the Most Commonly Received“Please allocate 100 percentage points on how your organization receives invoices.”
Figure 2: Enterprise Organizations Are More Likely to Receive Invoices in EDI or Web- Based Format
“Please allocate 100 percentage points on how your organization receives invoices.” & “What is your organization’s annual revenue in the most recent 12-month reporting period?”
Figure 3: Manual Data Entry and Inefficient Processes is the Top Motivator for TEM Adopt
“What were the top reasons your organization ultimately decided to adopt your expense management solution??”
“What is your organization’s annual revenue in the most recent 12-month reporting period?”
Figure 4:Most Organizations Have Centralized Invoice Receipt Processes “Which statement best describes your invoice receipt and payment process?” & “What is your organization’s annual revenue in the most recent 12-month reporting period?”
Figure 5:Most Organizations Manually Enter Invoice Data in to Their Accounting Systems
“How is invoice information entered into your ERP, accounting software, or accounts payable software?”
Invoice ManagementAfter the invoice is received and submitted into the appropriate system, it must go through verification, validation, and approval workflows before the supplier is paid. Ideally, at this stage invoices are managed with an invoice workflow automation (IWA) solution. Accordingly, survey results show that companies most commonly route invoices for approval via a workflow tool, see Figure 6. Among respondents that are not using an invoice workflow tool, most companies with manual processes send invoices for approval via email.
Figure 6:Among Organizations Without IWA Software Typically Route Invoices for Approval Via Email How do you typically route invoices for approval in your organization?
Figure 7: Most Organizations Deal with Manual Data and Inefficient Processes in a Manual Invoice Workflow“What are the top three biggest pain points you experience in your workflow process? (Select top 3)”
Figure 8: Organizations Miss Discounts Because of Lengthy Invoice Approval Cycles and Missing Information on Invoices “What are the top three problems that lead to late payments and missed discounts at your organization? (Select up to 3)
PaymentsThe final step in the payables process is invoice payment. The most efficient means to make payments—the ones that belong in a fully automated payables process—are commercial cards, followed by ACH payment (via an electronic payment platform). However, research shows that the most common payment method used by today’s organizations is in fact the least efficient and most costly method— manual payments via check, see Figure 9.
Figure 9: Organizations Miss Enterprise Organizations Are the Greatest Users of Check Payments “What percentage of your supplier-related payments (number of payments, not dollar value) is processed using the following methods? (Select up to 3)” & “What is your organization’s annual revenue in the most recent 12-month reporting period?”)
Figure 10: Most Organizations Do Not Automate Because of a Belief That Current Processes are Working
“What is the primary reason your organization has not automated its expense management process?”
“Please select the standard industry description that best fits your organization.”
Payables AdoptionPayStream breaks down payables automation into five main functions: electronic payments, data capture functionality, invoice workflow automation, eInvoicing, and supplier management tools. If an organization has every one of these tools, it is considered to have a fully automated payables process. Figure 11 shows the overall adoption for each tool. Electronic payments are the most commonly adopted tool, followed by front-end imaging/ data capture solutions. PayStream attributes this to the relative ease of implementing these tools in an AP process.
Figure 11: Most Organizations Do Not Automate Because of a Belief That Current Processes are Working
“What is the primary reason your organization has not automated its expense management process?”
“Please select the standard industry description that best fits your organization.”
Figure 12: Most Organizations Report Noticeable Improvement After Implementing an AP Management Solution “Since you have implemented an AP management solution, how would you rate the change in efficiency in AP processing?”
Figure 13: Most Organizations Most Organizations List Reduction in Invoice Volume and Quicker Approval of Invoices as Their Top Benefits from AP Automation “What are the greatest improvements you have seen since implementing an AP management solution? (Select up to 3)”
Figure 14: Most Organizations Most Organizations List Increased Convenience, More Rebate Capture, and Lower Costs as Their Top Benefits from Commercial Cards “Which of the following benefits have you achieved from commercial card programs? (Check all that apply.)”
Figure 15: Most Organizations Most Organizations List a Lack of Budget as Their Top Barrier to Adoption “What do you perceive to be the greatest barrier to adopting a cloud-based AP automation solution in your organization?”
Figure 16: Adoption Barriers Vary by Role of the Respondent “What do you perceive to be the greatest barrier to adopting a cloud-based AP automation solution in your organization?” & “Which title best applies to your position in the company?”
ePayables Software Overview
Invoice ReceiptBefore a payables automation can operate successfully, invoices must be entered into the organization’s system in an efficient, timely, and accurate manner.
What is the value?Having a controlled process for submitting invoices in a variety of formats improves control over company data, which strengthens a company’s ability to meet requirements around tax compliance and other financial regulations. It improves the accuracy of data as a whole, which enhances an AP department’s ability to verify data on invoices and ensure that payments are issued to the correct supplier for the correct amount, helping reduce maverick, inefficient, and fraudulent spend. It also eliminates manual data entry and verification, which shortens the invoice-to-payment lifecycle and improves an organization’s ability to capture early payment discounts on invoices.
Who benefits?At the staff level, automated invoice receipt improves employees’ productivity by reducing the time spent on low-value tasks like manual data entry. At middle and upper management levels, it reduces the need to worry about tactical issues, as well as the need to “put out fires,” and increases the time they can spend on more strategic initiatives. For employees at the C-suite level and above, the reduction of the cost involved with processing high volumes of paper invoices with manual methods leads to improvements to the bottom line. It also greatly increases these professionals’ chance to manage finances strategically, and potentially turns a cost center into a profit center.
How does it work?There are two primary ways to electronically input invoices into the appropriate accounting systems—through the use of a scanning and Optical Character Recognition (OCR) data capture process or via an eInvoicing network.
- Traditional direct integration with the supplier’s back-end AR system, typically done via Electronic Data Interchange (EDI) of XML files.
- Online fillable forms (usually as part of a supplier portal), which ensure that a uniform invoice is submitted every time.
- A print-to-cloud solution that validates PDF elements instantly and notifies suppliers in real time if their invoice is missing necessary elements.
Invoice ManagementAn advanced invoice management solution is designed to adapt to existing business structures, diverse supplier bases, and complicated approval hierarchies. In order to meet these requirements, the software must address the entire invoice lifecycle and be highly advanced, customizable, and versatile.
What is the value?IWA solutions greatly improve approval times through intelligent invoice routing and workflows, and through approval reminders and escalations. AP managers can also easily customize business rules and approval routes to separate high-priority invoices, such as those from a special supplier, ensuring that they are pushed to the top of approval queues. From a holistic standpoint, reducing invoice-to-payment lifecycles allows a company to improve relationships with suppliers and strengthen supply chain processes. From a cost savings standpoint, reduced invoice cycle times increases an organization’s chances of early payment discount capture.
Who benefits?At the staff level, AP team members no longer spend valuable time tracking down the correct approver for each invoice, as approval workflows are configured into the invoice management tool, and the solution helps to control those workflows. Invoices are automatically routed to the correct approver and the entire history of the workflow is recorded in the solution. At middle and upper management levels, automated invoice management reduces the time necessary to oversee approvals or to double check that invoices were properly approved, as these professionals can rely on the custom controls built into the invoice workflow tool. For employees at the C-suite level and above, the cost savings resulting from reduced invoice approval times and greater early payment discount capture can lead to great improvements to the bottom line.
How does it work?Workflow solutions enable AP departments to define how different types of invoices are processed. Invoice matching and routing involves linking invoices to purchase orders and other receiving documents, then sending them through the appropriate approval chain based on terms identified within the invoice (such as PO number). PO-based invoices can be matched against PO and receipt documents automatically, while non-PO invoices are routed to the appropriate approvers.
PaymentsElectronic payments (ePayments) solutions typically consist of different payment processing tools that allow organizations to make secure local and global payments.
What is the value?Holistic electronic payments (ePayments) software streamlines the most tedious tasks of payments management. These tools enable organizations to reduce their reliance on manual methods that require heavy staff involvement and oversight, shifting much of the payment processing burden to the platform and solution provider. These solutions also speed up cycle times, improve discount capture, and produce savings through processing improvements and card-based rebates.
Who benefits?At the staff level, payments teams no longer have to deal the with many time-consuming tasks related to paper check payment processing. They can hand off the reconciliation and payment data maintenance process to experienced ePayments solution providers. Middle and upper management level staff see a great reduction in maverick spend, fraudulent payments, and security concerns that result from less controlled payment methods like checks. C-suite professionals can strategically manage payments and optimize cash flow, and see bottom-line improvements from reduced costs and higher commercial card- related rebate capture.
How does it work?In a fully automated payables process, after an invoice has been approved it is automatically sent forward to payment. Basic AP management solutions create a payment file that is sent to the ERP (which then initiates payment or sends a message to AP). Electronic payment functionality also facilitates the input of ACH information and integration with back-end AR systems.
- Traditional Purchasing Cards – Organizations provide purchasing cards (p-cards) to individual employees for the purchase of business goods and services. P-cards are ideal for purchases in which the traditional invoice approval prior to payment does not add value (e.g., low-dollar purchases). Some p-card programs are known as “One Card” programs when they also allow for T&E expenses, eliminating the need for an employee to carry two cards.
- Corporate Cards – Employees use these cards for business traveland expense (T&E) purchasing.
- Fleet/Vehicle Cards – Organizations implement this type of card to pay for fuel and vehicle maintenance. The cards allow for reporting and tracking by vehicle, providing controls specific to this expense category.
- Ghost Cards/Accounts – Traditional ghost cards function like p-cards, with reusable account numbers and spend limits that refresh each month. One common scenario is providing a ghost account number to a supplier, who retains the number and processes charges to it as employees make purchases.
- Single-Use Cards – This is a common type of Virtual Account (VA)— also called Virtual Card Accounts, Virtual Account Numbers, or ePayables. After an organization approves a supplier’s invoice(s), AP initiates the payment process. The supplier receives a one-time- use virtual account number to process the charge. The spend limit is equal to the approved invoice(s) and does not refresh.
- Other Virtual Card Programs – Like single-use cards, other Virtual Accounts programs center around an organization’s approval of supplier invoices. One VA option is a straight-through payment where a supplier receives a direct payment through the card network or issuer, rather than having to process a charge transaction. Overall, organizations tend to target Virtual Accounts for higher dollar purchases and/or complex purchases warranting invoice review prior to payment. VA cards are one of the fastest- growing tools offered today, and are offered by leading ePayments providers.
- Declining Balance Cards – These cards have a set limit and expiration date that does not refresh. Organizations may use such cards for special projects with a set budget, such as meetings or events, for relocation expenses, for infrequent travelers who do not warrant a corporate travel card, and more.
- Virtual card support
- Mobile payments support/applications
- Audit trail functionality
- Payments approval functionality
- Commercial card support
- Global ePayments support
- Vendor portal
Working Capital OptimizationSome payables solutions give organizations access to working capital management tools such as dynamic discounting and supply chain financing. Working capital optimization involves strategically optimizing cash flow by reevaluating and restructuring payment times and terms to make them more favorable for a company.
What is the value?Working capital solutions are especially valuable for companies struggling with cash flow problems that inhibit their ability to expand, improve, or even properly operate their businesses. The goal is to improve the buyer’s cash conversion cycle without hurting suppliers’ own cash flow needs. A successful working capital tool will support both the buyer and supplier, and can improve the supply chain health of both parties.
Who benefits?One of the most powerful benefits of working capital tools is their ability to save companies money, which can amount to millions of dollars each year depending on the size of the company, the number of invoices, and annual spend. Professionals at the C-suite level are able to use that improved cash flow to improve strategic management over cash and the company’s competitive positioning. Working capital optimization also improves executives’ ability to expand their operations, as the tools allow them to access outside resources at an affordable cost point to support supply chain operations.
How does it work?Working capital management tools increase companies’ savings and bottom line, either through sliding scale discounts or third-party financing. Moreover, working capital management tools benefit the supplier through faster invoice payments, thus improving business relationships.
Reporting and AnalyticsReporting and analytics tools are often built into a payables automation platform, and serve as a way to collect and analyze information gathered from the invoice-to-payment process. Reporting and analytics tools give companies the opportunity to pinpoint process trouble spots and enhance future operations—greatly increasing the long-term ROI of a payables solution.
What is the value?Much in the same way that a water wheel can turn a quiet stream into a source of energy, spend management software can turn passive transactional data into fuel for process enhancement, cost control, and savings opportunities.
Who benefits?Reporting and analytics tools are beneficial for users of all levels in an organization, but they have more value for administrative users with strategic tasks and goals. It is important for these players to understand how money is being spent and what it is being spent on so that they can adjust spend controls. They use reporting and analytics tools to support tasks like identifying employees conducting fraudulent activity or spending out of company policy, adjusting budgets, viewing approvers that take too long to approve invoices, or viewing suppliers that frequently send duplicate or incorrect invoices. By looking at this information in a holistic manner, these users can identify the spend and activity trends impacting their business, allowing them to make strategic changes that will improve efficiency and save money. The insight brought by reporting and analytics tools gives C-suite professionals the opportunity to pinpoint process trouble spots and enhance future operations.
How does it work?Most payables solutions combine process transparency with robust reporting and analytics tools, greatly improving an organization’s ability to audit, analyze, and improve procedures. Reports can be exported as spreadsheets, and can include first-pass success rates, exception rates, and open invoices for any defined period of time. Some solutions feature internal benchmarking, allowing users to review how their organization compares to other end-users of the solution. Leading solutions offer a drag-and-drop report building functionality and exceptional drilldown capabilities from within a reporting dashboard.
Supplier ManagementSupplier management tools, typically offered through a self-service supplier portal, give companies more control over supplier data, and provide suppliers with real-time visibility into invoice and payments statuses.
What is the value?One of the greatest values of a supplier management tool is the way it brings many different moving parts and types of information into one platform. It also fosters more communication and transparency among all parties.
Who benefits?Both the company and the supplier benefit from supplier management tools. The primary advantage is in the self-service controls given to the supplier, followed by the reduced need to handle supplier dispute and queries, as many of those issues come from the pains of manual processes. Automating the payables process reduces supplier disputes and improves supplier relationships, as well as supply chain operations on the whole.
How does it work?Supplier self-service portals help to speed up and streamline invoice processing. Supplier portals allow suppliers to upload invoices, check on the status of invoices, and communicate with buyers about exceptions and errors. Some solutions permit buyers to create custom business rules at the point of supplier portal invoice upload. These rules create instant error notifications and allow PO flip from within the portal. Some solutions also enable suppliers to input payment preferences and upload and verify payment information. These portals also facilitate better supplier-buyer communication and dispute resolution.
Where to Begin in Automating PayablesThis report has provided a great deal of information on a very expansive software set. While the best-case scenario for any company would be to fully automate the entire payables process using each tool covered, this is not a realistic option for many companies. For some organizations, the idea of a complete process transformation seems virtually impossible under their current budgets, structural concerns, and current state parameters. Payables automation should not be avoided because of an organization’s constraints, but should be approached with these constraints in mind. In other words, there are many different ways to automate the payables process according to the unique characteristics of any company, including their unique restrictions. A company does not have to jump into automation with a fully-featured ePayables tool, but can begin automating with one element of a software suite and scale up as needs and budgets change. With the proper preparation and discovery methods, any organization will be able to find the perfect payables tool with which to start their process transformation. One of the best ways to find a suitable automation starting point is to map out the current state and identify benchmarks against similar organizations. In order to give readers an idea of some common benchmarks, Table 1 contains several current state parameters of different company archetypes, as well as the automation and improvement goals of different archetypes.
- What is the invoice receipt current state?
- How often are temporary employees needed?
- What are the AP team’s top pain points?
- What is the costliest aspect of the current payables process?
- What are middle management’s top goals?
- What are the C-suite’s top goals?
- What is the budget for technology investment?
- What aspect of the payables process is most important to automate?
- What is tool among payables automation software most appealing to the organization?