Aberdeen Group: Invoice Reconciliation & Payment Benchmark Report

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  • 1.The Invoice Reconciliation and Payment Benchmark Report June 2006 Sponsored by

2. The Invoice Reconciliaiton & Payment Benchmark Report Executive SummaryI nvoice Reconciliation and Payment (IR&P) is more than simply processing invoicesand paying bills. It is the foundation into gaining real-time visibility into costs andsupplier performance. In an economic environment with wild price-swings in busi-ness costs, IR&P should be providing information on spend and costs to manage theenterprise and maintain competitive position.AberdeenGroup received survey responses from approximately 150 industry executivesand managers to gain further insight on IR&P processes, strategies, processes, chal-lenges, and successes. This report identifies the current priorities, top pressures, and spe-cific strategies Best in Class enterprises are implementing to increase the business valuedelivered from IR&P activities.Key Business FindingsAberdeens 2006 Invoice Reconciliation and Payment Benchmark Report reveals thatenterprises are seeking to reduce their costs throughmaximizing liquidity and cash flow and headcount More than two-thirds, or 69%, of enter-reductions. A key area of focus is improved visibil- prises report they have limited-to-noity into spending. Gaps in the source-to-pay lifecy- visibility into spending.cle include processes where critical information isnot collected, data is poorly organized, systems arenot well integrated and information is not centrally collected for reporting, spend analy-sis, and business intelligence. This results in problems gaining real-time visibility intobusiness costs and supplier performance. Only 4% of the enterprises in this benchmarkhave real-time visibility into this critical financial information; 27% reported they hadgood visibility into spending, and 69% report they have no visibility or limited visibilityto spending. (See Figure 1)Figure 1: Visibility into Spending 80% 69% 70% 60% 50% 40% 30%27% 20% 10%4%0%Limited to No VisibilityGood VisibilityReal Time Source: AberdeenGroup, June 2006All print and electronic rights are the property of AberdeenGroup 2006.AberdeenGroup i 3. The Invoice Reconciliaiton & Payment Benchmark ReportImplications and AnalysisLack of visibility into spend is alarming given that enterprises face an environment inwhich costs have become less predictable. Staying competitive in the marketplace re-quires access and visibility to costs and programs to manage these costs.One of the challenges in gaining visibility into supplier performance is the large volumeof paper-based transactions and variety in the types of billing processed. Paper remainsstubbornly entrenched in the billing process. This benchmark reveals most billing (83%domestic and 86% for international) is received in paper format.Figure 2: Paper Invoices vs. Electronic BillingDomestic17% 83% International14% 86% 0% 20% 40% 60% 80%100%ElectronicPaper Source: AberdeenGroup, June 2006Most enterprises are not able to get the data from different systems organized and inte-grated into one repository. Nearly one-third, or 34%, of the respondents in our surveyreport that they have three or more systems to manage invoice processing, reconciliation,and payment. An additional 10% of the respondents do not know how many systems theyare using.Few enterprises have realized the potential to effectively leverage data from the IR&Pprocess. The process and data extracted from it are not well-integrated with sourcing,procurement, and ERP systems. To maintain competitiveness in an environment wheresupply costs are rapidly changing, enterprises must improve their IR&P processes to im-prove visibility into spend and drive cost reductions.Recommendations for ActionAutomate labor-intensive invoice processing.Manage payment terms and capture cash discounts.Increase use of financial institutions trade services and working capital solutions.Work toward a fully visible, integrated environment for the source-to-pay life cy- cle.Develop supplier score cards for improved cost management.All print and electronic rights are the property of AberdeenGroup 2005ii AberdeenGroup 4. The Invoice Reconciliaiton & Payment Benchmark Report Table of Contents Executive Summary .............................................................................................. iKey Business Findings ................................................................................... iImplications and Analysis................................................................................iiRecommendations for Action..........................................................................ii Chapter One: Issue at Hand.................................................................................3Pressures of the IR&P Process ..................................................................... 3Enterprises are Crushed by a Mountain of Paper Bills .................................. 4 Chapter Two: Key Business Value Findings .........................................................6IR&P Challenges ........................................................................................... 6How are Companies Responding to these Challenges?................................ 8Enterprise Approaches to Managing the IR&P Process............................... 10 Chapter Three: Implications & Analysis............................................................. 12 Chapter Four: Recommendations for Action ...................................................... 16Laggard Steps to Success........................................................................... 16Industry Average Steps to Success ............................................................. 17Best in Class Next Steps ............................................................................. 17 Featured Sponsors............................................................................................. 19 Sponsor Directory .............................................................................................. 21 Authors Profiles ................................................................................................. 22 Appendix A: Research Methodology .................................................................. 23Demographics of the Surveyed Population.................................................. 23 Appendix B: PACE Methodology ........................................................................ 24 Appendix C: Invoice Payment & Reconciliation Process.................................... 27 Appendix D: Related Aberdeen Research & Tools ............................................. 28 About AberdeenGroup ...................................................................................... 29All print and electronic rights are the property of AberdeenGroup 2006.AberdeenGroup 5. The Invoice Reconciliaiton & Payment Benchmark Report Figures Figure 1: Visibility into Spending ........................................................................... i Figure 2: Paper Invoices vs. Electronic Billing...................................................... ii Figure 3: Top Pressures of the IR&P Process ......................................................3 Figure 4: Enterprise Visibility for Pricing, Discounts & Supplier Performance ......6 Figure 5: Invoice Billing Errors .............................................................................7 Figure 6: Estimated Percent of Projected Procurement Savings Booked.............8 Figure 7: Current and Planned Use of IR&P Automation......................................9 Figure 8: IR&P Overall Is Centrally-Managed .................................................... 10 Figure 9: Outsourcing of the IR&P Process........................................................ 11 Figure 10: Systems used to Manage IR&P ........................................................ 11Tables Table 1: The Impact of Paper & Labor-Intensive Billing Processes ......................4 Table 2: IR&P PACE.............................................................................................5 Table 3: IR&P Competitive Framework............................................................... 13 Table 4: PACE (Pressures, Actions, Capabilities, Enablers)............................... 25All print and electronic rights are the property of AberdeenGroup 2006.AberdeenGroup 6. The Invoice Reconciliaiton & Payment Benchmark ReportChapter One: Issue at Hand Enterprises are seeking to maximize cash flow, lower their costs for processing invoices,and improve visibility into spending to manage their competitive position. Key Takeaways The invoice process and accounts payable function remains a highly labor-intensivefunction with too much paper and a jumble of systems with limited integration and poorvisibility into spend. These challenges provide significant opportunity to streamline processes with integratedsystems to capture new process efficiencies in the IR&P process. Gaps in the source-to-pay cycle include processes where critical information is notcollected, data is poorly organized, systems are not well integrated and informa-tion is not centrally collected for reporting, spend analysis, and business intelli-gence. This results in problems gaining real-time visibility into business costsand supplier performance. Considering that an enterprise spends nearly half of every dol-lar that it earns on external goods and services and between 60% to 80% of the cost of afinal product for manufacturers comes from external suppliers, this information is criticalto manage the enterprises competitive position and profitability.Pressures of the IR&P ProcessAberdeen research identified five market pressures that are driving enterprises to gainvisibility into their costs and properly manage their expenses. Three of the pressures citedby survey respondents are linked directly to visibility: Reduction of cycle times to post expenses More timely recognition of costs Rising supplier costs impacting the enterprise.The other two priorities are tied to the theme of cost control. Respondents indicate theyface pressures to lower IR&P processing costs and improve audits to identify billing er-rors, fraud and abuse. Automation is critical to address these challenges.Figure 3: Top Pressures of the IR&P ProcessReduce time to post expenses in internal systems 52%More timely recognition of costs45% Lower IR&P costs 44%Audit to identify billing errors, fraud & abuse 34% Rising supplier/commodity costs30%0% 10% 20%30% 40%50% 60% Source: AberdeenGroup, June 2006All print and electronic rights are the property of AberdeenGroup 2006.3 AberdeenGroup 7. The Invoice Reconciliaiton & Payment Benchmark ReportEnterprises are Crushed by a Mountain of Paper BillsIR&P is more than simply processing a few invoices that are not captured by EnterpriseResource Planning (ERP) systems. Most of the bills are coming in paper format (83%domestically and 86% overseas). Despite continued adoption of P-Cards and CorporateCards for many one-time transactions, paper remains stubbornly entrenched in mostenterprises. All of this paper must be processed, otherwise most enterprises would cometo a grinding halt.With paper, critical information is difficult to access in a timely fashion. The survey re-sponses show no visibility or limited visibility to spending is an obstacle to managing theenterprises for 69% of the respondents (Figure 1). The table below highlights key issuesand quantifies some of the costs with paper bills.Table 1: The Impact of Paper & Labor-Intensive Billing ProcessesIssueImpact on the EnterpriseCost Delays in posting expensesLong cycle time to Inability to maximize cash flow through timing payments 1% to 5% ofprocess invoices transaction to just prior to expiration of cash discounts Late payment penaltiesvalue Over payments for billing errors12%-15%No program to vali- Duplicate paymentserror ratedate billing Tax errors Source: AberdeenGroup, June 2006Pressures, Actions, Capabilities, PACE Key For a more detailedEnablers (PACE) description, see Appendix APressure to post expenses faster, recog-Aberdeen applies a methodology to benchmark re-nize expenses, and manage rising sup- search that evaluates business pressures, actions,plier/commodity costs are increasing thecapabilities, and enablers (PACE) that indicate corpo-need for enhanced visibility and control. rate behavior in specific business processes. TheseThese are the leading factors fueling the terms are defined as follows:drive for IR&P improvements among en- Pressures external forces that impact an organiza-terprises. Table 2 highlights the actions,tions market position, competitiveness, or businessinternal capabilities, and technology en- operationsablers that enterprises have prioritized to Actions the strategic approaches that an organiza-address these pressures and acceleratetion takes in response to industry pressuresimprovements in invoice processing rec- Capabilities the business process competenciesonciliation and bill payment. required to execute corporate strategyThese prioritized actions, capabilities, andEnablers the key functionality of technology solu-enablers are examined in more detail in tions required to support the organizations enablingthe next chapter. business practices All print and electronic rights are the property of AberdeenGroup 2006.4 AberdeenGroup 8. The Invoice Reconciliaiton & Payment Benchmark ReportTable 2: IR&P PACE Prioritized Prioritized PrioritizedPrioritized PressuresActionsCapabilities Enablers Automate manual Scan bills at the front Enhance visibility and Reduction of steps in IR&P proc- end of processingaccess to physical cop- cycle times to ess to reduce head- and consider Optical ies of bills or electronic post expenses count Character (OCR)facsimile More timely rec- Adopt P-cards and technology Utilize alert system to flag Corporate cards to Migrate paper bills to bills awaiting approval ognition of costs eliminate paper fromelectronic media Procure services through non-recurring trans- Automate expense ap- electronic marketplaces Lower IR&Pactions proval and routing with P.O. flip costs Use rule based work- Increase collaboration Improve visibility into bill- flow for routing of between stakeholders ing dashboards invoice approvals Leverage IR&P data to Better align finance and Improve supplier cost Rising supplier improve volume dis- procurement to allow monitoring, benchmark- costs impacting counts, sourcing, for more collaboration ing and reporting the enterpriseand capture of fluc-and sharing of data tuating costs Improve visibility andAutomated audit for Integration of processing Audit to identify auditability of proc- Elimination of duplicatesystems, pricing, and billing errors, ess paymentscontract data fraud & abuse Centralize billing into Validation of taxes Identify off contract pur- one repository Fraud detection for highchases risk transactions...