Optimizing the Three Stages of Accounts Payable, Part One: Invoice Intake

by Ted Ardelean | 4/21/14

This is the first post in a three-part series about attaining high-performance Accounts Payable.

Despite the influx of digital technology, Accounts Payable is a function that often plagues companies large and small. First, invoice intake is extremely disparate, entering the company in many paper and digital formats and going to numerous contacts and departments. Further, it is often a manual process requiring processing paper documents, obtaining approvals, correcting errors and reconciling invoice discrepancies. All of this takes time and reduces the bottom line.

Implementing best practices to streamline Accounts Payable can pay significant dividends. In fact, a recent survey by Ardent Partners revealed dramatic differences between high-performance and average AP departments, including 88 percent lower cost per invoice, 76 percent shorter invoice cycle time, 167 percent more invoices processed per full-time employee per month, 140 percent more invoices processed without human intervention and 52 percent fewer invoice discrepancies.

The accounts payable process can be broken out into three stages: invoice intake, invoice approval and discrepancy processing and invoice payment. Each carries its own set of challenges. Today, we will tackle invoice intake, which still is generally the most time-consuming stage of AP. Fortunately, advancements in imaging, data capture and data extraction technologies can transform this stage from a largely manual process to a fully automated one that can reduce labor costs significantly.

In our experience, AP departments typically spend about 75 percent of their time on data entry activities. This isn’t surprising because, according to our studies, 60-70 percent of invoices arrive in paper format. Paper invoices also complicate the invoice intake stage because of the likelihood of duplicate or incorrect invoices. Another 10-15 percent of invoices, according to our observations, typically arrive in a digital format, such as a PDF or Excel file, but require the same amount of work to be converted into ERP-formatted data.

Another challenge in the invoice intake stage is the fact that distributed receipt is common in many AP departments – a time-intensive process in which the invoice first goes to a buyer in a specific department before being routed to AP. Fortunately, there is a solution to this challenge. Companies can centralize paper invoice receipt to one or a few P.O. boxes. E-invoices (e.g. email attachments, PDF and Excel files) can be received via an email address, FTP site or, best of all, a supplier portal or e-invoice network.

Overall, there are several steps AP departments can take to significantly improve the invoice intake stage. Our first recommendation is to centralize the receipt of invoices so they arrive directly to the AP department. The Ardent Partners survey found that bypassing the buyer can reduce the cost and time required to process an invoice by 20 percent and 43 percent, respectively, and drive a 50 percent increase in both the efficiency with which invoices are processed and the number of invoices that are processed without human intervention.

Next, we recommend automating the data entry process through imaging and data capture and extraction technologies. When these technologies are used in tandem, they help drastically reduce the time and effort required to enter invoice data into the organization’s ERP system.

Invoice imaging is the crucial first step of process automation and converts paper invoices into digital images. For companies that leverage outsourcing, a flexible service provider can manage imaging activities onsite at the client’s location. Invoice imaging can be performed at the service provider’s offsite or offshore business processing centers. Data capture and extraction eliminates the need for manual data entry by using OCR (optical character recognition) and self-learning algorithms to convert the digitized invoice data into ERP-formatted data. Data capture and extraction software can also perform “checks,” such as confirming that an invoice arrived from an approved vendor and that the purchase order number is valid. 

Lastly, for AP departments that are challenged by the invoice intake stage, we recommend encouraging as many suppliers as possible to enroll in e-invoice submission. The most effective way to get suppliers on board with e-invoices is to communicate the tremendous benefits. Most importantly, the number of days required for an invoice to be processed is often dramatically reduced by e-invoice submission. It eliminates the need for manual data entry to invoice imaging. Furthermore, many suppliers experience turnover that changes the employee responsible for invoice submission, and that information is much more effectively corrected electronically than manually.

The invoice intake process continues to be a largely manual, time-intensive process at AP departments in companies of all sizes. By centralizing the receipt of invoices; utilizing imaging, data capture and data extraction technology; and encouraging suppliers to enroll in e-invoice submittal, companies can substantially reduce the time and effort required for this critical stage of the AP process.

The next article in this series will focus on optimizing the second stage of the accounts payable process: invoice approval and processing. 

Ted Ardelean is a marketing director for Canon Business Process Services, Inc., a leading provider of managed services and technology that enable organizations to improve operational efficiency while reducing risk and cost.