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Top 10 signs that your payables group is running late to the digital economy

Managing accounts payable transactions at the speed of the Internet offers advantages today that span many dimensions. You can compress your invoice processing cycle time, lower invoice processing costs, virtually eliminate invoice errors, and better manage cash and working capital, to name a few.

In a digital economy, business performance from a payables perspective can be measured by how effectively you interact with your suppliers. This requires a shift in focus, from manual processing to networked payables. A key enabler is the business network, which allows you to connect and collaborate with suppliers in ways that go far beyond what you can achieve with paper payables.

Are you on the fast track to networked payables?  Here are five obstacles to networked payables that may prevent your accounts payable organization from thriving in a digital economy and five warning signs that AP is running late to the digital economy.

Obstacles:

  1. Your go-to commerce tools remain a fax machine, telephone and mail delivery.  Low productivity and higher costs are the two most obvious limitations from these tools, but even larger problems result from poor management of cash and working capital, and difficulties with matching invoices to purchase orders or contracts.
  1. Your procurement and accounts payable organizations aren’t on speaking terms. Processing an invoice isn’t an isolated activity, but part of a larger procure-to-pay (or source-to-settle) process. The ability to link invoices to purchase orders, contracts and service entry sheets, and enable suppliers to invoice against these key transaction documents, deliver new processing potential that can dramatically impact business performance. To make this happen, you need a close working relationship between procurement and AP.
  1. Lengthy invoice processing cycle. Research data shows that poor performers can take weeks to approve a paper invoice. When the process includes mailing an invoice to a remote location before it gets to accounts payable, that cycle time can be longer, and increase the chances of lost invoices and processing duplicates.
  1. Double-digit invoice exception rates. Invoices with errors and exceptions are the most costly invoices to process. Ballpark estimates range from 2X to 10X the cost of a clean invoice. Focusing AP staff on exception management leaves little time for driving suppliers to a networked payables process, where validation rules in the network can handle invoice exceptions for you. A networked payable processthat helps suppliers submit clean invoices frees up more time in AP for high-value tasks, such as working with procurement to enforce compliance and identifying early payment discount opportunities.
  1. Your business network is designed for processing invoices only. That ignores the opportunity to improve processing of other key documents such as purchase orders, order confirmations, advance ship notices, and payment remittance.  The better option is to align with a business networkthat handles a broad set of transaction documents, not just the invoice.

Warning Signs:

  1. Your only collaboration option is a supplier portal. This is often a first step to networked payables, but not a last stop. While most business networks feature a supplier portal, supplier portals don’t come with a business network; and it’s the network that enables the many-to-many connections to help you thrive in a digital economy. In addition, the ability to match your suppliers with suppliers already connected to a business network will accelerate your transition to networked payables.
  1. Low percentage of early payment discount capture. Related to the drawn out invoice processing cycles of paper payables is the inability to capture early payment discounts. Networked payables helps you capture all available early payment discounts, and introduces discount opportunities to new suppliers connected to the network. Dynamic discounting adds another dimension—the opportunity to capture sliding-scale discounts, up to the invoice due date.
  1. Too many calls from suppliers about payment status. A supplier portal by itself won’t solve this problem, as many calls are due to the lack of detailed remittance to apply the payment. New electronic payment methods for business such as AribaPayaddress this problem, eliminating this tedious activity in accounts payable.
  1. Invoices approved for payment but not at contracted rates. This may be responsible for the largest hidden cost of a paper payables process.  The ability of networked payables to fill this gap can save Fortune 500 companies potentially tens to hundreds of millions of dollars annually.
  1. Can’t close the loop in the source-to-settle process. Without proper controls in place, decentralized buying means some locations will pay a higher price for the same goods and services as other locations.  Networked payables address this problem by enabling the capture of detailed invoice data and feeding it back to the sourcing team for analysis and better spend management.

How many of these distress signals plague your organization? If the list is long, a good place to start is getting alignment between accounts payable and procurement. That can be a catalyst for transforming your payables operation into a center of innovation.

By Christopher Rauen, Ariba


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