The AP Invoicing Exception Epidemic: Is It Really THIS Bad? (Part 1)

Here at Spend Matters, we’ve spent quite a bit of time covering the technical intersections of eProcurement and e-invoicing, not to mention the broader (and more important) topic of getting procurement and accounts payable (AP) on the same page in the first place. Yet it’s clear not enough people are reading our research and commentary (let alone that of all the other quality bloggers, analysts and journalists in the space) if the data in a recent research study conducted by Shared Services Link and OB10 is to be believed.

According to the analysis, based on a sample size of “over 200,” 31% of PO-based invoices result in an exception “requiring manual rework before they can be approved for payment.” Yes, you read that correctly. Roughly 1 in 3 invoices tied to a PO requires manual touch points before approval to pay. Now, it’s a good thing, of course, that invoices are flagged based on exceptions before payment. Yet the fact that manual intervention is required to resolve the issues is what is so surprising given how there are dozens of P2P tools and supplier network choices which individually or in tandem can lead to supplier-driven self-service resolutions (e.g., correcting a field).

The study found the top reasons for invoice exceptions were PO/price discrepancy (impacting 81% of invoices), no valid PO numbers (56%) and goods not received (56%). Of course the ultimate cost of manual involvement in fixing exceptions is not just reduced AP efficiency (the survey suggests that the average company in the survey would need 79 FTEs – which seems high to us, but we’ll let the data speak for itself – just to resolve exceptions based on a total invoice pool for $250-500K annual invoices). It’s also the dissolution of trust and collaboration between AP and procurement. In this regard, the study found that “PO exceptions are one of the biggest sources of friction between A/P and Procurement” – no surprise there.

In analyzing the survey data findings in a separate e-book on the same subject, OB10’s Danny Thompson, further observes that “surprisingly, 57% of the companies say that they do not maintain key performance indicators (KPIs) to measure straight through processing (STP) rates, i.e., invoices that are not blocked or require additional re-work before they can be approved for payment.” Translation: that’s 57% of AP departments flying blind. Imagine 57% of Fortune 500 companies saying they don’t have a strategic sourcing, spend analysis/tracking and category management program in place – that’s the AP equivalent here. And it scares us.

But perhaps there is a silver lining, if not in the data, in some of the underlying recent adoption trends in the market (which might not yet show up in actual results lowering exceptions and manual AP intervention). In the introduction to a recent Spend Matters PRO brief, Supplier Networks and E-Invoicing: Selection Strategies Emerging In 2013, we note that the solutions market targeting this area, “appears to be hitting critical mass, with a significant amount of evaluation and selection activity underway, including recently (and soon to be) signed deals in the first half of 2013 that we believe, once subsequent supplier onboarding takes place, will increase transactional volumes at a faster percentage growth rate in 2H2013 and 2014 than the market has really realized.”

Yet the challenge, as we observe, is that “growth comes with a dose of complexity. And it’s clear from our discussions that prospects not only have more options than ever – they’re also taking the time to explore all the nuances of different network approaches, from fee structures to on-boarding processes to global capabilities and enablement. Just as with eProcurment and e-invoicing tools, network selection can take time, as companies sort through all the options (and in certain cases, as BPOs work with customers to make decisions for AP/F&A/procurement outsourcing deals).”

The AP exception problem has become an epidemic. But luckily, patients are often seeking second, third and even fourth opinions on from their network and enablement doctors before diving into a specific course of treatment. Let’s hope that the survey results from this latest piece of OB10/Shared Services Link research sheds some daylight on just how rampant the underlying malady is – and perhaps the speed with which organizations should seek even interim professional assistance versus engaging in analysis paralysis at coming up with the uber-closed loop P2P nirvana solution.

In Part 2 of our analysis, we’ll examine a hybrid combination of OB10 and Spend Matters PRO recommendations for dealing with the challenge. In the meantime, we encourage our research subscribers to read the following PRO briefs:

All Spend Matters readers also have access to our public research library paper:

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