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Arun Rao

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Benefits of Automated Invoice Processing

Last year, during the height of the Great Recession, when sales revenues were down significantly and credit was difficult to come by, many companies that stayed afloat did so by aggressively cutting costs. When cash preservation is critical for maintaining competitive advantage (or in many cases, for simply staying afloat), every business process that costs money to maintain needs to be reviewed thoroughly and streamlined where possible.
One such process that is common to all companies is the AP (Accounts Payable) process.
  • The International Accounts Payable Professionals estimates that every paper invoice costs approximately $8 to process, assuming there are no errors along the way.
  • If errors occur, this number can to between $20 and $60 (according to Forrester Research study summarized in a blog here).
  • In a report published in May 2009, Aberdeen Research estimated that 75% of enterprises process payables manually, through paper-based invoices.
For EMS and OEM companies that manage complex supply chains and large number of suppliers, the cost of manual processing can be significant; and even converting a small (but high-volume) suppliers to EDI invoicing can provide great dividends: a combination of selective outsourcing and EDI can cut down invoice processing costs to less than $2 per invoice (and even lower in some cases).

There are other process improvements that result from automation:
  1. Reducing manual intervention eliminates errors introduced by incorrect data entry
  2. Improves speed of processing invoices and late payments; which leads to better credit rating
  3. Reduces overall cost by improving workforce productivity
Improvements in process can translate into savings of millions in operating costs, but as with every implementation, changing the process and automation needs a careful, considered approach.
So, how do you do it?

The very first step in the process of implementing such an intrusive change in process requires executive buy-in; and a very thorough understanding of the existing process (or processes). That understanding can be translated into cost per invoice and return on investment (ROI) once the project is completed. 

This planning is very important because it helps the organization decide the level of investment needed - and the phases in which to invest it in (e.g. first phase could be very aggressive if the cost reduction goal is immediate and easy to achieve). 

Second is the strategy phase, which includes selection of the team (internal and external) and selection of strategy (fully outsourced, in-house or a hybrid approach). These days, there are many software applications in the market which help an organization achieve this goal. And then there are outsourced service providers who provide complete solution (application + service) for invoice processing in the Cloud. 

Finally, we get into the execution phase - which I cannot generalize here, but it includes streamlining the overall process, setting milestones - and meeting them on-time and on-budget. This phase is the longest of the 3-step process, and can take up lot of time and resources, and can help reduce the cost of processing one invoice from an average of $15 to $2 or less.

When carefully executed, invoice automation can yield great dividends, but companies will have to dedicate resources and be prepared to make significant changes in the way they handle and process invoices to get there.

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Arun Rao is a seasoned technology executive based in the SF Bay Area.