In this post, we show you how to build your own AP automation process, significantly help your suppliers by giving them digital automation tools and give your staff the runway to shine as knowledge workers.
We all know that AP personnel know a lot about suppliers, the business and risk. But if they are spending the majority of their time processing invoices, then how do they use that knowledge to delight the CFO, reduce risk and non-compliance and even combat fraud?
Here's how you can re-imagine your AP process and free up time for your brightest AP players to level up. We're going to show you how you can get started building this right now.
There's been a lot of energy spent trying to figure out how to make the AP process more efficient. That's a good thing. But we're not going to go into the details of all the available solutions. What we are going to do is help you leapfrog all of that by throwing out the entire process and start reimagining AP from scratch.
Back to basics: What do we ultimately need for a payable?
Ultimately, a 3-way match is required for an approved payable. So, how do we get a 3-way match more efficiently?
The typical way is to wait for the invoice and then match it with the delivery note and the PO. Segregation of duty amongst these three authors is an important factor here for obvious reasons. But what if there was a different way?
We propose that you can automate your supplier's invoicing process using supply chain data. Data that you already own. Let's dig in.
A supplier sends a shipment and your warehouse team receives it. Your inventory management system records the delivery note, puts the goods into inventory and you now have taken custody of the shipment.
At this point you have two important pieces of information: 1) Purchase Order (what you agreed to with the supplier), and 2) the Delivery Note (what the supplier believes they sent you).
STEP 1: Create a Billing Approval and workflow it to the supplier
Using the above, build a 'Billing Approval' document and workflow it to the supplier. The billing approval is easy to build: It's simply a combination of the Delivery Note with the PO terms for each line item and a reference the the PO number. This not only is an electronic acknowledgment of the Delivery Note but it also serves as an approval for the supplier to invoice you up to the amount approved. You can create a chat and document upload feature on the billing approval which can be used for requesting additional documentation or simply to fast track exception processing.
Options for workflow could be:
Email automation - including an approval button,
Hosting on your own supplier portal,
Hosting on an independent platform that your suppliers can use with their suppliers (what we offer)
The supplier knows the goods were received in real-time,
Since the billing approval was created 'on delivery', if there is an exception, the process gets a massive head start - making you an awesome customer to deal with,
The supplier knows that their invoice will be approved - a unique feature that makes their AR easier to manage,
If any data is mismatched on the PO between you and the supplier, it will make itself known
STEP 2: Supplier Approval
When the supplier receives notification that their shipment has been received and accepted, and that they have billing approval, they can simply cross-reference it with their invoicing system, type in the invoice number and hit 'Approve'. The billing approval should contain their remittance advice and any other terms that were on the original PO. Again, using chat and document upload features, any other changes or requests can be quickly dealt with. Once approved, the billing approval document changes into a real invoice, albeit in electronic format.
The supplier has now created an electronic invoice - something that they achieved via no investment in an IT project. Since most suppliers are small and lack budget and technological talent, this again proves that you are a great customer to do business with.
If you use an independent platform to achieve this, then the supplier can leverage the platform with their own suppliers and automate their entire AP/AR process.
Massively reduce paper and emailed invoices
Increased accuracy, quality and lower amount of exceptions
Reduces invoice processing time and materials for your suppliers
Supplier knows they will get paid
Step 3: Accept the digital invoice and create a payable
You can now take the 'billing approval' data that the supplier has signed off and auto-create a supplier invoice in your accounting or ERP system. Since this document has been created with data from the PO, Delivery Note and Invoice, it is a de facto 3-way match. You did this effectively, 'on delivery'. You can now process your payable in the normal manner.
Massively reduced data entry - frees up AP team to work on risk management and problem solving. This helps them level up and gives them greater ownership in business outcomes - making you a great employer
Reduced errors and exception processing - significantly reduced time spent managing exceptions and improvements in compliance
Significantly improve audit-ability - since auditors can now see the origin of the payable in one document, this greatly simplifies the audit process
High Level Solution Overview
Video and Process Demo
We've built a business case calculator to help you decide whether the above approach is right for you. Please feel free to use it by clicking here.
A business processing 1,000 invoices a month with 3.3 FTEs at $48,000 per year fully burdened labor cost can expect to be spending around $24 per invoice (assumptions vary)
Using the above approach (assuming 100% supplier adoption which represents the maximum potential in your supply chain), you could see a per invoice cost drop by 73%.
There are significant gains to be had by combining supply chain data you already own to make business processes more efficient. Taking the time to re-imagine how work gets done will help your employees do more meaningful work and help your suppliers to become more digital - something that benefits the entire competitiveness of your supply chain.
You can start building this today inside your organization or you can explore independent options. Please reach out to us if you would like to consider an AP/AR innovation project in your business. We'd be delighted to help.