The Growing Importance of EIPP16 May 2007 Michael J Arenth
Mike Arenth of Ariba advises how companies can best maintain visibility and control of the accounts payable process.
Ask any CEO what the one thing is that makes a company successful, most of them will tell you 'happy customers'. Ask them to be more specific and they will say 'happy customers that pay you on time'. It's the shrewd CEO that understands that without cash flow, there is no business.
But how easy are you making it for your customers to pay your bills? Is it as easy as buying your products or services? As many companies are finding out, giving you money is often the most difficult thing for your customers to do. The Sarbanes-Oxley regulation compliance checks are probably already causing a number of businesses a late night headache.
THE A/P FUNCTION
In recent years, the majority of businesses have focused significant effort on improving the efficiency and effectiveness of their accounts payable (A/P) organisation. A bridge between finance and procurement organisation, the A/P function is one that nearly all companies have invested significantly in from a people, process and systems perspective.
But significant change is coming to A/P, which is happening sooner and faster than many might think. This evolution is occurring because A/P has reached a plateau of productivity.
Electronic invoice presentment and payment (EIPP) is a growing technology that dramatically simplifies how customers access and pay invoices and removes many of the inefficiencies that exist in today's manual invoice processing.
It is becoming a minimum requirement for business, because with EIPP, paying becomes simple – as customers have self-service access to invoices at any time and can import them directly into their A/P systems for processing and payment. The resulting benefits of operational improvement are increased customer satisfaction, increased margins and increased cash flow. However, electronic invoicing and payment still seems to be an area that companies are slow to adopt for no good reason.
Despite the many investments in A/P over the last few years, most finance executives will still quietly claim that they are not satisfied with several A/P components such as current level of correction work, manual processing, filing and matching activities.
While ERP systems and EDI have made A/P more efficient, they have not done enough to help companies improve performance by reducing paper handling, eliminating errors at the source and enabling low-cost, external connectivity with all suppliers.
Sarbanes-Oxley and other, new compliance requirements post-date prior process and performance benchmarking and require a new level of accountability and visibility into the entire A/P process.
This is critical because while compliance costs and activities are often separate from A/P benchmarks, they are still error-prone because of the high degree of human intervention they require. Most importantly, compliance can create a bottomless pit of A/P costs just to attain the goal of 'becoming complaint' without fundamentally improving the function through new business processes and systems.
Offshoring and outsourcing (BPO) can often address the labour cost side of the equation and can bring some degree of efficiency through enhanced processes and systems, such efforts fall short of fundamentally improving the A/P business function itself. In addition, few companies openly discuss the added costs of outsourcing or offshoring.
The move to offshore or to a global third party also creates new risks, especially on the currency front, where a single large swing could wipe out a significant portion of the savings. It also creates a new type of supply risk potentially delaying payments to suppliers. But moving the A/P function to another distant party does not help a controller or CFO sleep any easier at night.
A NEW A/P APPROACH
Existing technology, outsourcing and offshoring, and shared services approaches can help organisations get more out of their A/P efforts. But taken alone, embracing these solutions and processes will limit the potential to transform the A/P function.
Organisations need a new A/P approach and capability to achieve a new level of performance. This new wave of A/P principles should embrace four key concepts:
- Targeting quality at the source
- Achieving an entirely new level of compliance and savings
- Enhancing visibility
- Connecting with your extended supplier community – not just your top suppliers
EIPP systems complement A/P solutions while addressing so many of the deficiencies found in current solutions. The benefits of EIPP, along with a fast, straightforward implementation are compelling for many companies. Identifying and working with the right partner is essential to maximising EIPP success.
Companies should look for a partner that can provide a complete solution that focuses on the entire set of businesses processes necessary to ensure compliance and control.
An EIPP suite should go beyond simple invoice automation and should eliminate as much paper as possible in the A/P process. The right partner can deliver not only the most complete solution, but the best guidance as well. The partner should also be flexible based on individual needs and circumstances. For example, the right partner should be able to offer both installed and on-demand software model and help walk through which model makes the most sense.
Automating the accounts payable process can generate immediate and measurable savings and ease productivity and efficiency gains can be made. By using EIPP technology, companies can enable the people and processes needed to take their accounts payable organisations to the next level and drive compliance and operational excellence.