Automating AP Delivers Major Benefits

Agenda

• Introduction
• Current State
• Automation benefits beyond cost
• Process change and Automation
• Solution Selection
• Small Business Case Study
• Summary
Slide 2

Introduction

“Over the past 40 years, the greatest contributions
in innovation have come in the area of information
technology.” But companies will take time to learn
how to use them, so it will probably be many
decades before their full impact is felt.”
(The Economist Jan 12th 2013)

Slide 3

Introduction (Continued)

• AP has struggled to keep pace

― For many companies automation was beyond their
reach
― Increased legislation in the post Enron 9/11 world has
increased the pressure on AP
― The difficult world wide economy has increased the
pressure on operational cost and efficiency

Slide 4

Only 15% of companies
are highly automated

Slide 5

The Problem

• Many companies have automated only a few processes,
such as e-invoicing
• Scanning is often still a back end process
• The approval process is still manual with an image used
instead of paper
• Little or no use of automated workflow or matching
• Small to medium sized companies often find it difficult to
justify automation on cost savings alone

Slide 6

Top-performing firms gain major
benefits in five key ways:

1. Procurement advantage, through better cost analysis
and contract management

2. Cash management advantage, through better
forecasting and working capital management

3. Discount and rebate advantage, plus penalty avoidance

4. Compliance with SOX and other government
regulations

5. Cost advantage

Slide 7

Key Concerns of AP

Slide 8

Key Concerns of the CFO

• About the economy
― Consumer demand
― Federal government policies
― Price pressure

• About their own companies
― Ability to maintain margins
― Ability to forecast results
― Working Capital Management

Slide 9

Key Concerns,
Federal Government Policy
Regulation
• Sarbanes-Oxley Act
― Results in increased control over financial operations,
Corporations are required to document processes to
assure compliance with sound business practices.
― CFO (and CEO) has to “Sign off” on accuracy of
financial documents.
• OFAC
― Companies are required to comply with all aspects of
the Patriot Act as regards to who they do business
with, i.e. vendors.
• FCPA (Foreign Corrupt Practices Act)
― Applies to a companies to customers and vendors

Slide 10

Key Concerns of AP Don’t Match CFO’s

Slide 11

Combining the Goals

• Both sets of goals can be met using:
― Process change
• i.e. Centralizing AP

― Automation
• Improved visibility
• Margin maintenance through spend analysis
• Manual processes replaced
• On time payments

Slide 12

Top Reasons for Productivity Rise

Improvements in
62%
business process

Improvements in
50%
technology

37%
More hours Worked

Better morale or 31%
teamwork

Slide 13

Productivity Rise, Process

It is the combination of the automated
solutions with process change that return
the best results
• AP and Purchasing work to improve the complete
purchase to Pay Cycle
• Centralization of AP into a shared service
environment
• PO distribution, front end Scanning, e-invoicing,
workflow and payments integrated into a
complete solution
Slide 14

Process Change, Automation

• Utilize machine to machine e-invoicing
― XML, EDI or HTML preferred, although XML etc. can
be used

• Use a portal to allow small players to create
invoices on line, or “flip” purchase orders.
• Use workflow for internal matching and resolution
• Move to e-payments

Slide 15

Automation’s Effect on Costs

Slide 16

Automation Benefits, Visibility

• Automation allows for the data to be visible from
the moment of entry.
― Accruals can be accurately made
― Invoices can be tracked by AP, purchasing and
Vendors from entry through to payment
• The auditors of one failing UK company found 50,000 invoices
that had not been entered or accrued.

― Finance can accurately forecast cash requirements
― Management can track progress against goals

Slide 17

Benefits beyond Cost, Discount Capture

Companies with the best cycle times can target
discount capture.
• Discounts
― 2 /10 net 30 can return over 35%. One major
corporate estimated a $200 million addition to the
bottom line from discounts
• Offer discounts as an alternative to extended terms. One
company offered 1.5 / 15 or 60 days.

Slide 18

Early Payment Discount Capture
Yields Lucrative Annualized Returns
Example: Typical 2/10 Net 30 on $100 Invoice

Option 1: Pay $100 on Day 30 Option 2: Pay $98 on Day 10
$100 minus Interest $98 + Interest
= $99.73 @ 5%/yr Interest = $100

$100 $98
20 days 20 days

20
 i 
FV = PV 1 + 
Day 0 Day 10 Day 30 Day 0 Day 10  365  Day 30
20
 i 
100 = 981 + 
 365 
i = 0.3689

$2 Interest over 20
days implies Interest
Rate of 37%/yr!!!

Slide 19

Better Vendor Pricing

• Spend analysis
― Aberdeen consulting estimate that US business leave $260
billion on the table by not taking advantage of discounts and
contract negotiation
• Companies are often buying the same product from the same
vendors at different prices
― Reduce the Number of Vendors
― Supply Standardization
• For Example buying less expensive pens, paper etc.

Let’s look at an example

Slide 20

Benefit Example

• Our sample company has:
― Sales Of $250 million
― Profit before tax $25 million
― Cost of Goods purchased, 45% of revenue

• Many companies achieve a 10% reduction in
price paid for goods and services.
― In this example if 10% reduction is on only 50% of
spend the return to the bottom line is $5.6 million

Slide 21

Most Commonly Used
Invoice Delivery Methods

Slide 22

Workflow

• Workflow
― Routing of Invoiced for approval
• Use negative or assumed approval
― Add accounting codes to the invoice automatically
from the PO
• One company study showed 50% error rates on invoices
where buyer/requestor added the account info.

Slide 23

Portal

• Self Service
― All information can be distributed directly to end users
• PO.s, RAs, Tax and legal agreements etc.
• Invoices can be generated, or uploaded to the site
– PO flip can be used.

• Client Service
― Virtually eliminates the need for phone based
customer service.

Slide 24

Solution Selection

• Key Considerations.
― Build for today and tomorrow
― Scalability, do you have monthly or seasonal
fluctuations to consider, are you allowing for M and A
activity.
― Consider short term options as part of the long term
solution
• E.g.Use scanning while automating invoice or payment
processing

Slide 25

The Ideal Solution

Slide 26

Solution Selection

• In house license
― Most common Practice, gives the company complete
control over system.

• Utilize Software As A Service (SAAS)
― For smaller companies this can be a complete
solution, for larger companies can be utilized as a
component, i.e. payments or e-invoicing.
― Can be an interim solution while staging a full
automation program.

Slide 27

Solution Selection, The Cloud

Slide 28

The Cloud, Additional Benefits

• Back up and recovery
― Off site storage and back up

• Automatic updates to software and applications
• Secure accessibility from any location
• Flexible Pricing

Slide 29

Solution Selection

• Key Considerations in selecting a software
partner.
― Select one who handles;
• the largest range of document types, and input methods.
• Has a large client base, with experience in your industry
• Has multi-country reach and experience

Slide 30

Case Study, Small Business

• Business involved in Training, Service and Retail
― 50% of revenue from retail and government contracts

• Old POS system
• POS and Spread sheets used for accounting
system
• No scanning, e-invoicing or payment systems
used

Slide 31


AP Purchasing
― Multiple suppliers / lines carried
― Paying “list price” for all orders
― Margins between 35% 40%
― Unable to compete on government bids
― Web merchants offering lower prices

Slide 32

Case Study, First Steps

• Analyzed spend over a six month period by
supplier and SKU
• Compared suppliers as to range of products
carried, customer service, delivery etc.
• Looked at requirements for volume pricing

Slide 33


• Reduced key suppliers to 3
― One “high end”
― One “Medium Priced”
― One slightly below “Medium Priced”

• Signed annual spend commitments with these
three suppliers.
― Commitments ranged from $6,000 to $20,000
― Increased margins to 50%-75%
― Allowed us to price more competitively with web
― Lower COGS allowed us to more aggressive, and win
government bids.
Slide 34


• Sample, Supplier Program

Part # Tier 1 Tier 2 Tier 3 Core + Retail

55.26 $27.00 $24.00 $21.50 $19.00 $59.95

Margin 54.96% 59.97% 64.14% 68.31% Spread 13.34%

30.1 $240.00 $225.00 $225.00 $218.00 $474.95

Margin 49.47% 52.63% 52.63% 54.10% Spread 4.63%

Slide 35

Next Steps

• Move to a cloud based solution
― Back up in place

• Reasons for this Move
― Allow access from remote locations, i.e. off site
bookkeeper
― Disaster recovery,
• Server lost after major storm. Data was backed up but new
system software was not compatible with (old) operating
systems

Slide 36

Summary

• By implementing process change and automation
companies can meet both AP and CFO’s goals
― For AP
• Improve Process and reduce errors
• Automate manual Process
• Improving Productivity

― For the CFO
• Maintain (or improve) margins
• Forecast results Accurately
• Improve Working Capital management

Slide 37

Thank You!

For further information on this topic, contact:
The Accounts Payable Network
2100 RiverEdge Parkway, Suite 380
Atlanta, GA 30328
David W Hay
dhay@finopsnet.com
866-827-6389
770-984-1184
www.TAPN.com

Slide 38

Automating AP Delivers Major Benefits

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