Accounts Payable Automation Pays Dividends

By David Furth

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JULY 2005 - Labor-intensive manual accounting systems and paper-based invoices have been plaguing accounts payable departments for decades. Departments relying on manual systems are finding that adding staff does not solve the inherent problems of unrecorded liabilities; duplicate, inaccurate, or unauthorized payments; and misappropriated cost allocations. These departments are struggling to meet their organizations’ basic need for visible, timely, and accurate financial reporting and control. And compounding the problem, their manual systems make it difficult, if not impossible, to address the critical issues at the heart of compliance with the Sarbanes-Oxley Act (SOA).

Faced with pressure to reduce costs, comply with strict process controls, and provide accurate and timely financial reports, best-in-class organizations have streamlined the invoice capture, review, coding, and approval process. They have also leveraged effective technology solutions that not only support process improvement but also deliver detailed analysis and reporting.

When they automate invoice processing, companies realize many benefits throughout the accounts payable and finance department, including the following:

  • Significant cost savings driven by more-efficient processes;
  • Compliance with the latest regulatory requirements mandating visibility, timeliness, and accuracy of financial reports, due to the implementation of proper controls;
  • Increased visibility throughout the process, due to robust reporting capabilities;
  • Improved supplier relationships by effectively managing the payables process;
  • Better cash control and management; and
  • Ability to track the unrecorded liabilities typically associated with non–purchase order–based purchases.

Driving Cost Savings/Validating Compliance

In a study by the Aberdeen Group, organizations reported between 40% and 60% savings by implementing the right invoice automation solution. Although results can vary based upon the package, in many cases the investment pays for itself in a matter of months.

Companies concerned about the ongoing costs of SOA compliance recognize that automation is a cost-effective way of accomplishing their goals, enabling them to document internal controls and compliance processes. The absence of documentation for internal controls has become a major issue for many companies, as is evidenced by audit results. Using technology, companies can review and streamline processes, and build the rules into the system to ensure that they are maintained.

Considerations in Implementing an Automated System

While technology can provide substantial benefits, it’s important for companies to accurately assess what they need before they automate. Evaluate the processes that are currently in place. Are there better or more-efficient ways to accomplish tasks? Are there other systems, such as enterprise resource planning systems, that should be integrated with the invoice-processing solution?

Companies interested in improving invoice processes through automation should evaluate three main functions:

  • Capture: How does the information get into the system? Can it handle both paper-based and electronic invoices?
  • Business process: How is the process supported and controlled? How much effort is involved in supporting the company’s requirements?
  • Reporting: How can the information be accessed, and by whom? Do reports need to be built for each query?

The goal of the capture function is to eliminate as much manual data entry as possible. Organizations need to pull information not only from invoices, but also from the ERP/financial system’s vendor master file. Invoice capture can be handled through a combination of imaging/OCR technology and electronic invoice integration.

Once invoice data have been captured and confirmed, invoices must be routed for review, approval, and coding. Coding information should be validated against the general ledger chart of accounts, and each person should be shown only the codes that she can access. To control the approval process, the automated solution should allow invoice routing only to those with the authority to approve invoices.

An automated solution should also provide access to all invoice-related information so activities can be monitored and data can be analyzed. Where necessary, users should be able to see the original invoice in question. It is important to know when actions were taken, and by whom. This will allow organizations to troubleshoot issues and allow auditors to verify that policies and procedures are followed.

Reporting raises awareness about current performance and facilitates proactive planning and decision-making. For example, to more effectively manage finances, companies should be able to monitor productivity levels, quantify unrecorded liabilities, and accurately forecast cash flow requirements. Reporting enables better visibility, and will reduce customer service time with vendors. Because vendors will be able to answer many of their own questions, AP staff will have more time to address the exceptions and focus on value-added activities.

When considering an out-of-the-box application, make sure it automates the full scope of accounts payable tasks. Some other types of solutions require extensive customization, which is costly and time-consuming.

Automation enables organizations to streamline and improve sometimes archaic processes. To keep up with financial pressures and regulatory requirements, savvy organizations are implementing fully automated technology solutions and reaping the benefits.


David Furth is general manager, North America, for BasWare, Inc., a leading provider of software solutions that automate the purchase-to-pay process. He can be reached at 203.487.7910 or david.furth@basware.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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