21st Century Time Bandits of Accounts Payable

When I walk into an Accounts Payable department, it feels like I have almost stepped back in time, from the 21st Century to the 1990’s. Think about this – the 1990’s saw the dawn of ERP systems. Companies implemented these ERP Systems to handle amongst other things, the process of managing and paying invoices from suppliers.

Companies got large amounts of invoices, sent via the good old postal service. These lie on desks in huge piles, until some Payables clerk is ready to pick it up, put their head down and key it in. This process goes on endlessly, in many companies around the globe. Very little has changed in the last 20 years………it is as if, we got into a time machine and went back 20 years.

So a quick intro and a quick movie recommendation before we get into the content. First up, another favorite (and directed by an Ex-Monty Python actor), Time Bandits was a very original movie, all about, you guessed it, Time Travelling. It’s a really original and very entertaining movie. It’s an 8 and great for your kids.

Now a lot of people instantly say outsource Accounts Payable. To those people I say, outsource precisely what? I am a firm believer in using technology to automate certain areas. Freeing up those people to then add far more value to the Business in other areas of Accounts Payable. Too many people outsource business functions in a knee-jerk unimaginative reaction, effectively keeping the 90’s Business processes, whilst really they should be looking at new ways of working and transforming their organization with 21st century technology.

Now I sat in one Oracle OpenWorld session a few years back and listened as one company explained how they processed 1 million invoices a year, with a handful of staff in their Accounts Payable function. My company, if it had the same volume of invoices, would have needed a staff of well over twenty times that. So how did this company manage? Because they changed the way they did business. They didn’t blindly outsource 1990’s Accounts Payable business processes.

They were a 21st century Accounts Payable function whilst their competitors remained firmly in the 90’s.

This caused me to take a very good look at exactly what was the Accounts Payable function in my company processing. I’m going to go through a breakdown of exactly what went through our Accounts Payables subledger, throwing in a few ideas of what we did, what we automated and a few future directions. Hopefully it might trigger you to start questioning some of what you are doing in Accounts Payable.

I’ve been through a lot of Self Service applications in previous blogs and this blog continues to pursue this key technology with a view to automating business processes.

What struck me about my company was that our Payables unit was putting in all sorts of staff related invoices for payment to staff. Not only were they manually entering these but they were also checking all the accounting, figures, etc. Could we outsource? Why on earth would we outsource a function that had absolutely no business value to be done manually and actually shouldn’t exist asw a manual process?

Our company gave loans to staff. When a staff applied on paper, it went through massive approval processes, then finally hit the Accounts Payable for processing. We simply replaced this with an online application form. Staff applied, everything in terms of checking was automated, and we put an invoice through the AP Open Interface (already pre-approved with all the correct accounting) ready for Payment. One function of Accounts Payable removed, with over 2,500 invoices automated.

Our company gave Home Country Travel allowances. Same process as above. Staff applied on paper, massive approval processes, then finally hit Accounts Payable for processing. Online application form, pre-approval, automation, AP Open Interface, neeed I say more. 850 complicated invoices gone, completely automated.

Housing allowances. Same procedure again. Full automation. 850 complicated manual invoices gone, completely automated.

Staff go on a lot of travel given the nature of my company’s business. Same approach again. Online application, straight through Accounts Payable processing (pre-approved, proper accounting, etc). This removed 5,000 manual invoices per year for payment of travel allowances, going completely 100% automated.

Some of our staff have Payroll paid through Accounts Payable. (Don’t ask, it’s complicated). Linking our Oracle Payroll to Payables resulted in over 5,000 manual invoices being removed from Accounts Payable. A similar approach for Pensioners (don’t ask, it’s even more complicated than staff Payroll…….) removed 12,000 manual invoices.

The point is simple. We are a small company. Our company was processing manually over 30,000 invoices per year that it simply didn’t even need to process. Automation led to not only vastly reduced workload, but also 100% error free, paper free invoice processing and vastly faster and better service to our employees.

A short point to finish up. If your Accounts Payable function is being overloaded due to Employee “invoices”, do look at what can be automated by online application.

Another perfectly valid approach is to look at iExpenses to reduce the overall manual effort and avoid your Accounts Payable function (which is supposed to be processing supplier invoices) becoming swamped with Employee expenses. This is another good approach to streamlining your overall Employee Expense Management processes.

By looking very carefully at our business processes for handling Employee Expenses, we automated over 20% of our entire Accounts Payable function, removing completely the need for manual intervention.

And with that it’s definitely time for a movie recommendation. Back in the 80’s, a great movie (actually series of movies) covering time travel was Back to the Future. These are well worth a rent for the kids. A 7 out of 10. It’s so sad to see Michael J Fox, the star of these movies, battling a terrible disease when he was still relatively very young.

Moving on to the next area of Accounts Payable. Do you have any very large, very frequent suppliers? Depending on your business, a significant percentage of your Accounts Payable invoice processing may be down to a small number of suppliers. In our case this was certainly true. Let me go through the examples of how we transformed this area.

My company does a lot of travel. But we deal with two travel agents only, giving competition but also good control of our overall travel spend. We process around 10,000 travel invoices per year. Now these companies were not happy with us. Our Accounts Payable was failing to process invoices in a timely manner. Disputed items were confusing. Volumes were high. Invoices required vast amounts of checking. Vice versa we were not overly happy with them, as we found equally the Accounts Payable process very time consuming, confusing and seriously expensive.

Now our Travel process is fully automated, including bookings to these travel agencies. We asked the Travel agents, given everything is automated when staff travel, can you give us an electronic billing file? They were very keen indeed – this was going to save them a huge amount of time as they no longer needed to prepare vast quantities of paper invoices.

So look at our processing of Travel Invoices today. Two Travel agents give us a flat file monthly each. These two files are loaded and automatically matched to our Travel system. Can you imagine how much time that saves us just in reconciling an invoice to actual travel. 95% of the invoices sent are automatically matched by our automation programs. These invoices are then automatically imported using the Payables Open Interface and paid, with no intervention by our Accounts Payable department. Our processing times for these invoices have been drastically reduced (98%). Our time is spent dealing with the exceptions, not every single invoice. And the Travel Agents are happy because for the first time ever, they actually get paid on time. (And the 95% matching is a work in progress. It’s early days and we aim to hit 98% first time matching).

Next example. Our telecoms companies. Again we have two providers for competition. We have a huge number of staff with Blackberries. Every month, we receive bills for each staff, each with a different account number. Now that’s how the service providers work, so we need to deal with that. Each month, we would circulate these paper bills to staff, get the feedback, pay each invoice……………a truly dreadful process. Huge amounts of time and effort, bills were never paid on time. Service provider was unhappy. We were unhappy…..everyone was unhappy. Simple solution – service providers gave us consolidated billing files. These were uploaded and matched to staff, sent as notifications in Self Service and uploaded directly to Accounts Payable. A very complex, highly manual process, became highly automated, again with levels of matching approaching 100% with minimal human intervention. This removed 10,000 manual invoices from our Accounts Payable function. With the simple provision of two flat files that the suppliers were extremely happy to provide.

Final example. Our company, by the nature of it’s business, has an outsourced caterer, both for the staff canteen and for functions where food is provided. Our functions are very, very frequent, leading to a very large volume of invoices. Now our caterer used to prepare each invoice and send it to us. All paper based. These would then be circulated around our company, finally hit our Accounts Payable and finally be paid. We requested a monthly file from the supplier. This is then uploaded again very simply into Accounts Payable, with automated matching again approaching 100%. Again this supplier had never actually been paid on time, wasn’t too happy but accepted it as we put a lot of business their way. From our side the process was a nightmare. But with simple invoice files, monthly, manual invoices and manual checking completely disappeared. This removed more than 6,000 manual invoices per year.

We also do this with  a few of our other large service providers. They are usually all happy to work to a very similar template for the flat files they provide to us. We’ve taken over 30,000 manually entered invoices out of our Accounts Payable function. Our matching rates are above 98%, with very few of these invoices requiring manual intervention.

Simple approach. Look for the suppliers with the most invoices. Ask those suppliers if they want to reduce paper work, reduce burueacracy and get paid a lot easier. Most will say “Yes please”. Then automate.

Now we’ve not referred to Oracle’s EDI product – E-Commerce Gateway. But effectively that is what we are doing on a very simple, but very effective approach. Oracle does have a module that allows for large-scale electronic data interchange, including for Accounts Payable. EDI has been around a very long time (I remember implementing this in the 90’s for a very large customer). Now Oracle supports what are industry standard transactions, making it possible to link companies and their suppliers together using the same language, in terms of file formats/contents, etc. A few links can be found in the Reference Section relating to this. (Note Oracle provides EDI not just for Payables, but for other modules including Purchasing, Order Management and Receivables).

The use of EDI (either Oracle’s module or simple, effective home-grown EDI) can transform your Accounts Payable process.

And now another movie review. Actually I’m going to do something a little different and recommend a TV Series (although there have also been movies) for a change. Doctor Who is a TV show broadcast by the British Broadcasting Corporation. Now this show is done relatively cheaply, but always has original stories and is highly entertaining. It’s about a time traveller that travels through time and space, fighting evil aliens such as Cybermen, Daleks and other such monsters, whilst protecting the human race. He travels around using a blue British Police Box which is actually a time machine. His main enemy are the Daleks (shown below in a poster). These are robot monsters that move around on wheels taking over the galaxy, unless that Galaxy has too many stairs, as with wheels they cannot go up stairs…….Honestly, get a few DVD’s as the series are now all available. Kids will love it and adults too…….It’s a great British institution – been around since the sixties and I’d give it a 10 out of 10.

So the next option for transforming your Accounts Payables department. I’d say this is only for the large suppliers, but Oracle has an option called Payment on Receipt (ERS). The idea here is simple – you have large suppliers that provide you with goods. Now if your Shipping department (or whoever receives and accepts the goods) has checked the goods, accepted the goods, quality checked the goods and you have a validated Purchase Order, then exactly why do you then need a supplier to send you a paper invoice (or even electronic invoice) to your Payables department to process that invoice, check it again, etc. Why do you not just get Oracle ERP to create an invoice automatically? You remove vast amounts of bureacracy, vast amounts of unnecessary work and the reliability of this method trumps even EDI – this is a huge benefit to both you and the Supplier. Details can be found at the end of this blog.

Another interesting option is that Oracle can generate Invoices based on milestone payment in Services Procurement. A very similar concept to the ERS functionality, again further removing the need for manual invoices. If you have agreed to pay a supplier on a milestone, based on a deliverable, then once a manager has accepted that milestone has been achieved, an invoice can be automatically generated. (Hopefully as you read this blog, your also starting to see just how important a good Purchasing function is when it comes to Accounts Payable – one function cannot reach it’s full potential without the other also working highly efficiently).

The idea of companies still receiving paper invoices is a curious one for many areas of their business. One step better than you paying people in your company to enter invoices is for the company wanting paid to do the work for you.

Our company hires a lot of consultants. Those consultants work on contracts, to deliver certain tangible reports/studies/other pieces of work. The project manager signs off these deliverables and the consultant gets paid. Our approach to this is to provide a simple screen for the Consultants to enter their claim (very similar in many respects to iExpenses). With the consultant entering their own data, automatically validated against a contract, workflow notification for approval to their manager and then an invoice generated automatically for Payment (based on accepted deliverables), we will remove approximately 40,000 manual invoices from our Accounts Payable department.

Our other approach for more standard goods and services is the introduction of iSupplier. This module provides many facilities including suppliers entering/updating their details/views of Purchase Orders/updated shipping information, etc. One of the facilities is for the supplier to enter invoices, removing the need for your company to do so.

Next up………..how many calls and how much time do you waste talking between your Accounts Payable Department and your supplier? You don’t know because no-one ever actually records the time………..but I bet it’s significant. The average company spends a lot of time dealing with calls that are really unnecessary. “Did you receive my invoice” or “when will my invoice be paid” or “what was this payment actually for?” We’ve replaced a very large number of these calls, again by implementing iSupplier. This module gives the supplier a full end to end view from Procurement to Payment of all activities. It effectively gives a real time window into your company to the supplier, eliminating the need to inquire on invoices or payments. Invoice and payment information can be downloaded by the Supplier for easy reconciliation.

Interestingly, if your sending out Remittance advices, this can also be replaced either by iSupplier Portal or simply letting the Payments function automatically email the supplier with a detailed remittance advice slip. Every invoice we process generates a payment and every payment has an email remittance. That’s over 150,000 manual remittance advice slips that we no longer have to prepare, print, put in an envelope and send.

This has been a busy blog. Time for a break. Time for a movie recommendation. Probably one of the first and most famous stories of Time Travel was by H. G. Wells. Now his books have been made into countless movies and the most recent The Time Machine wasn’t a bad interpretation. Overall I’d say a 7 out of 10 and worth a rent, although probably not a buy.

Now I don’t need a time machine nor some weirdo Oracle prophet to predict the future of Accounts Payables departments. The future has actually been around for quite a few years already with products that can read, scan and workflow invoices, significantly streamlining and automating your Accounts Payable function. But the one I am now looking at is Oracle’s own Imaging and Process Management. So here’s my prediction. I believe this piece of middleware (bought by Oracle, as all the best stuff seems to be) will become a central pillar, not just of AP, but will be used everywhere in future versions of R12 and Oracle Fusion. If you want to get on the Fusion express train, this is one product you should be seriously looking at.

Irrespective of product, the future, already used by many visionary companies, is to be able to receive either paper invoices or scanned emailed invoices into a single shared service center. The technology is already smart enough to scan these invoices and identify the information in a reliable manner.It can also generate invoices and match those invoices. Further these products can then workflow the invoices to the correct recipient for approval.

So what else does the Oracle Prophet see in the future? Again it’s an easy question to answer, as the future is definitely already here. I’ve done a blog previously about Oracle Pre-Built analytics. Well one of the major functionalities of the Oracle Pre-Built Analytics is the Payables module. I watched Oracle install all the tools, database, populate the data warehouse with 7 years of corporate AP data – in seven hours (as a proof of concept). The dashboards were then ready to use and we could instantly gain insight into our Accounts Payable functions. All the KPI’s were there to see invoice aging, discounts given, invoices processed, methods to process, etc. This is another fabulous product from Oracle and rounds off nicely this 21st Century Accounts Payable blog. Imagine having a complete, instant view of the health of your entire Payables process, with the ability to drill down to any single transaction, or aggregate at any level or instantly see who your problem suppliers are.

Now my company made a mistake in early 2000 by decentralizing the Accounts Payable function. In many respects this was organized chaos. If I had been with my company I could have agreed with the person doing it, except then we’d both be wrong. What I’d like to see my company do next is to move to a shared service, 100% centralized function that is 100% decentralized…………yep I’ve totally lost you, but we’re back to the concept of total federated services at the point they are used using shared service centers where appropriate. The technology is there today to allow a shared service to receive and quickly scan invoices, doing most of the keying automatically. The shared service provides a centralized function for dealing with difficult invoices (ones that don’t match, ones that don’t automatically go into the system, etc). It provides a Governance, Control and Analytical function. along the lines of a standard Accounts Payable department. However once in the system, the invoices should be routed directly to those who need to approve payment. The line managers in all the various departments worldwide who actually received the goods or services. Hence you have a shared service center, but a totally federated approval process. The technology today is very much capable of supporting this process. Throw in the automation for straight through processing on as much of your Accounts Payable invoices as possible, a sprinkle or heavy serving of EDI depending on your taste, and using your time machine, you’ve arrived in the 21st Century for Accounts Payable processing.

So out of our 150,000 Payables transactions a year, we have automated (or will shortly automate) almost 120,000.  Now I make that a whopping 80% of all Accounts Payables transactions. Now the not so smart companies out there (and there are plenty of them) would have simply perhaps have  outsourced their 1990’s business process. We will have achieved 80% automation by 2012 and taken a 20 year leap in technology and business process, all within a couple of years of the initial idea being floated.

We do intend to keep plugging away at the last 20% looking at potentially automation of invoice scanning, etc using Oracle’s Image and Process Management. We do want to continue to review what isn’t going through as EDI transactions and why. We do want to see where spend is avoiding the standard procurement processes and understand why. It’s still a work in progress.

The benefits?

1. An 80% reduction in manual effort. That saves our company a fortune. Now if you count each manual invoice costs an average company between 20-40 US Dollars to process……go do the math.

2.  Decreased supplier phone inquiries significantly

3. Improved Invoice processing times (up to 98% in some instances)

4. Improved approval processing times (and in many cases automated matching removes approval completely)

5. Vastly reduced paper, paper handling and paper storage

6. Easier to see and take effective discounts

7. Ensures compliance with Payment terms, avoiding penalties

8. Improves your company image as a good company to do business with – always pays on time

9. Absolute visibility of all Payables activities and transactions

10. Easier to audit, easier to comply with SOX/etc – the scanned invoice is available directly from the ERP Transaction

It has to be said that not everything can be automated. Some countries still need the paper invoice as a legal requirement. Some invoices just won’t have anything to automate matching to. Sometimes your supplier won’t play ball on EDI. There are limitations. Accounts Payable is still a very important and critical function that needs staffed correctly. But really, any company could look to taking a significant percentage of their manual Accounts Payable and automating to some degree.

And finally a movie recommendation to finish up our Time Travelling 21st Century Time Bandits of Accounts Payable. It has to be Bill and Teds Excellent Adventure. A movie about a couple of college kids that go through time in a telephone box to complete a history assignment by collecting famous historical figures to do speeches at their review. Along the way they play games with Death and win…..a lot of fun and a 9 out of 10. It’s the sort of no brainer nonsense that I find intellectually very challenging. Definitely not a deep movie, but MOST EXCELLENT !!!!!

As I end the column I feel it appropriate to do it in the spirit of the movie Bill and Teds Excellent Adventure:

Bill –  “Be excellent to each other. “

Ted “Party on dudes !!!!”

Until next time, when we reveal the secrets of Harry Potter and the Wizards of ERP Change Management………

Further secret blogs and prophecies can be found at:

https://oracleprophet.wordpress.com

References

Below are some of the references collected as part of the research for this blog. As usual I appreciate the authors making this information available on the internet, for the benefit of everyone. Also enclosed are a few of the guides/manuals from Oracle that go into greater depth of the possibilities for improving your Accounts Payable process.

IExpense – Back to Basics

iExpenses – Ohio Valley OAUG

Oracle Internet Expenses

EDI and E-Business Suite

Oracle E-Commerce Gateway

Payment on Receipt

Oracle iSupplier

Oracle Purchasing

AP Invoice Automation – Bottomline Technologies

AP Invoice Automation – Readsoft

AP Invoice Automation – Basware

AP Invoice Automation – Kofax

Accounts Payable Invoice Automation

Oracle Imaging and Process Management

Oracle AP Automation IPM Solution

Wikipedia – Oracle Imaging and Process Management

Oracle Imaging and Process Management 11g

Accounts Payable Analytics

Advertisements

Tags: , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: