Finance and Procurement: Let’s Talk Savings From E-Invoicing, Supplier Performance and Vendor Intelligence

e-invoicing

Also see the first and second installment of this series.

One of the best ways to insure savings is to install an electronic invoicing system that can match invoices to goods receipts and to purchase orders or contract rate tables. Then, when an invoice comes in, the system can automatically verify that the goods have been delivered and have been billed at an appropriate rate.

If this is the case, the invoice can be automatically approved for payment. If not, then it can be bounced back to the supplier for correction, verification and resubmission. Only when an invoice comes back wrong for the second time does a procurement or accounts payable (A/P) clerk need to get involved and investigate.

At the end of the day, instead of needing to manually process 100% of invoices, a two-stage system that catches the erroneous invoices, sends them back and only requires manual intervention when they come back seemingly erroneous for a second time might reduce the number of invoices that need to be manually processed to 3% of electronically submitted invoices, including whatever invoices still come in on paper and can't be reliably sent through an OCR program, which is typically 5% or less. The key here is picking the right technology that doesn’t just automate but helps improve and failsafe the process to improve a first-pass match rate and on-time payment rate.

Supplier Performance

Now let's talk about supplier performance and operations. Billing accuracy, shipment accuracy and reject and return ratios are all relevant performance metrics. Some of this data comes in on the invoice. Some from the goods receipt from the warehouse. And some from point of sale systems. Yet all of this data needs to get into whatever system is being used to manage suppliers and track relationship history and data. In fact, a perfect order metric placed on a supplier actually requires a perfect invoice — accurate, timely invoice information submitted in the right way like described before.

Finance Alignment

Finally, let's address the intelligence finance needs to build alignment. Finance needs to know when an invoice was received and what the payment terms are under the contract. Is it the industry average 60 days? Was a shorter payment timeframe guaranteed for a lower price? If a payment is late, what is the penalty? And if a payment is early, is there an early payment discount?

All of this data needs to get in the financial planning and treasury management system so that cash flow can be optimized and available cash can be properly invested into opportunities that will help the organization reduce cost, such as through the acquisition of new systems, or add value, such as through the acquisition of temporary or permanent talent with new expertise. Finance needs to plan cash flows with similar rigor as the supply chain teams work to plan physical product flows.

If you guessed that people are the enemy of efficiency and visibility, you’d be right. Through building alignment and automating the invoicing and operations process, Northgate Information Systems was able to reduce its support staff from 15 to 5 people while also reducing daily inquiries by 92% (source: Taulia/Northgate webinar).

As our investigation continues, we will examine the importance of process alignment — and how to build on the system foundation.

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