Accounting with the lights out

How can you help businesses cut the paper chase in their accounts departments and gain control of the payment cycle? Bob Goodwin, director of specialist Digital Vision explains how automating the accounts payable function pays off.

Accounts payable (AP) would be easy if it wasnt for all the paper, as anyone who works in the area will tell you. Paper-based, manual accounting systems have been the bugbear of corporate AP departments for decades.

Even the most rigorously organised AP system has plenty of opportunities for problems, including lost or misplaced invoices; incorrect manual data entry; time lost sorting and filing paper, or trying to locate matching purchase orders. All of which leads to slow processing, which can impact directly on the organisations financial reputation with partners and suppliers.

Whats more, manual AP systems make it almost impossible to meet the regulatory and compliance demands of Sarbanes Oxley, IFRS and others for complete document traceability and auditability. All in all, its a recipe for a fruitless paper chase.

Throwing manpower at the problem isnt a viable solution. More people means more invoices processedbut employment and labour costs are significant for such skilled staff, which limits expansion in the AP function. On average, a full time AP employee can process around 8500 invoices per year using manual processes. Yet world-class companies can process upward of 80,000 invoices per person per yeara quantum leap in efficiency.

Flicking the switch
So how is a ten-fold boost in productivity possible? Its simply a question of automating as many aspects of the AP function as possible.

The real costs involved in AP are the man-hours involved in manual tasks, including: finding purchase orders and good received notes; checking and matching these; manual data entry into core business systems such as ERP (enterprise resource planning); manual validation; processing complex invoices which may involve checking against service level agreements, and more. Even more costs are incurred in tasks such as long-term filing and storage of documents, staff turnover and teaching systems to new staff.

If these tasks can be automated, then accounting staff can be redeployed in more strategic roles such as data analysis, and not be involved in time-consuming paper trails.

The ultimate aim is sometimes referred to as lights-out accountingin other words, switching off the lights while the work proceeds automatically. And although its not yet possible to flick off the light switch all the time, the latest-generation invoice data capture and processing solutions really do deliver gains in productivity of up to 1000 per cent, helping to turn AP into a profit centre, not a cost centre.

Lets take a close look at exactly how this can be achieved, using a real-life example of the AP department of a large business in the licensed trade.

Raising a glass to automation
DrinkCo is a UK-based business that owns several well-known pub chains. As one of the largest pub operators in the UK, the company processes 600,000 invoices per year. As a Peoplesoft (now Oracle) Accounts user, DrinkCo wanted to deploy an invoice capture solution to bring key financial data directly into the Peoplesoft solution and accelerate processing.

With ROI being a key factor in the decision to deploy, DrinkCo undertook a proof-of-concept exercise with Digital Vision that demonstrated that ROI was possible within months, rather than years.

This was based around an invoice capture solution from Paradatec, integrated with data extracts from the Peoplesoft system so that invoices can be matched with purchase orders and goods received notes. The pilot showed that close to 100 per cent accurate data capture was possible, and that the invoice capture engine could easily be adapted to handle different invoice layouts.

On completing the proof of concept, the detailed specification for DrinkCos solutions included integrating the Paradatec capture solution, SpeedKey validation and Contempus invoice processing with Peoplesoft Accounts, with invoice images stored in an IBM Content Manager repository.

Going live
When the green light was given to proceed with the automation project, additional pressures reared their head. One of DrinkCos offices was to be closed and the work transferred to its Midlands HQ. This also meant redundancies amongst AP staffwhich applied additional pressure to get the automated invoice processing system live as quickly as possible. As staff were leaving, a backlog of invoices was building up.

The solution was deployed in just eight weeks. The backlog of 4500 invoices was dealt with by just four staff, who validated and corrected the backlog in less than three days. Under its previous system, clearing a similar-sized backlog would have taken 12 staff over 10 daysclearly demonstrating the savings in time and manpower possible with the automated solution, and immediately delivering ROI. The AP team continues with four validation staff, and the project achieved full return on the original investment in just eight months.

Planning for lights-out accounting
The process followed by DrinkCo is an excellent example of how you can help businesses plan their move toward lights-out accounting.

First, help them evaluate the invoice capture solution. Conduct a pilot to ensure that invoices can be captured ready for processing with near-100 per cent accuracy and with high levels of automation. This builds the funnel for automated processing and helps in defining subsequent workflow paths.

Second, work with the customer to integrate capture with core business systems to automate invoice matching with supporting documentation such as purchase orders, and to highlight any exceptions (for example, invoices without orders) which need to be escalated to an authorised member of staff.

This workflow should be governed by customised, business-specific rules, to enable AP staff to manage invoice processing by exception rather than hands-onfreeing staff to perform more strategic tasks.

Third, use an invoice automation system that ensures that every transaction, amendment and movement of data is fully audit trailed, providing irrefutable evidence of any non-sanctioned processes. The log should be stored with the electronic version of the invoice to give complete visibility of the invoices path through the organisation. This evidence eases audit pressures that, in turn, can be converted to reduced audit costs.

Given the compelling evidence of ROI from AP automation, its not a case of if customer will ever turn the lights out, but whether they can afford not to.