[Webinar] Benefits of AP Automation: Why Companies of All Sizes Should Be Taking Advantage

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©2009 Financial Operations Networks LLC

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Agenda

• Introduction

• Current State

• Automation benefits beyond cost

• Process change and Automation

• Solution Selection

• Small Business Case Study

• Summary

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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)

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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

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Only 15% of companiesare highly automated

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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

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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

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Key Concerns of AP

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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

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Key Concerns, Federal Government Policy

• 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

Regulation

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Key Concerns of AP Don’t Match CFO’s

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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

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Top Reasons for Productivity Rise

Improvements in business process

62%

Improvements in technology

50%

More hours Worked

37%

Better morale or teamwork

31%

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Productivity Rise, Process

• 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

It is the combination of the automated solutions with process change that return

the best results

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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

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Automation’s Effect on Costs

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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

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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.

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Early Payment Discount Capture Yields Lucrative Annualized Returns

Day 0 Day 10 Day 30

Example:Example: Typical 2/10 Net 30 on $100 InvoiceTypical 2/10 Net 30 on $100 Invoice

Option 1: Pay $100 on Day 30

$100 minus Interest= $99.73 @ 5%/yr Interest

20 days

20

365198100

i

3689.0i

$100

$2 Interest over 20 days implies Interest

Rate of 37%/yr!!!

Day 0 Day 10

Option 2: Pay $98 on Day 10

20 days

$98

$98 + Interest= $100

Day 30

20

3651

iPVFV

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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

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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

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Most Commonly Used Invoice Delivery Methods

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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.

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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.

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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

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The Ideal Solution

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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.

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Solution Selection, The Cloud

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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

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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

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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

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― 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

AP Purchasing

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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

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• 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.

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• 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%

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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

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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

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Thank You!

The Accounts Payable Network2100 RiverEdge Parkway, Suite 380Atlanta, GA 30328David W [email protected]

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[Webinar] Benefits of AP Automation: Why Companies of All Sizes Should Be Taking Advantage