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- June 08, 2017
- Markus Hornburg
- Finance & AP
E-invoicing sounds simple on the surface of it. You take a paper process and make it electronic. However, the benefits extend far beyond that. Over the past 20 years, we have come to realize that it is not an accounts payable project. It is a procure-to-pay (P2P) project. But, the benefits extend even beyond that. The true business case is creating a closed, compliant audit trail for every transaction.
Because it impacts many people inside and outside of the company, e-invoicing isn’t something you should do because it’s logical, or because finance wants it. It must be based on a detailed assessment of the current situation and clear value metrics. Are you trying to cut down on people who are opening envelopes? Increase the accuracy of inbound invoices? Improve cash management? Being able to name the reasons for electronic invoicing and quantify the benefits across the organization before you start is extremely important.
Now that we have arrived at this global view of e-invoicing, we clearly see that to succeed we must have a global process owner leading the project—someone who has the backing of executive leadership to get people all across the organization to spend time and share information. This person should have a thorough understanding of the P2P process and be able to ask all the right questions.
Why does this require a global process owner? This level of change requires a lot of justification and strong business case, one that A/P alone cannot make because they do not have a complete understanding of what it costs to process an invoice from receipt to payment.
To be fair, no company has an option not to process invoices, so most companies don’t really delve into what it costs. When considering e-invoicing, they apply the standard numbers issued by consultants in the market. According to different sources, it costs between $12 and $75 per invoice to process an invoice.
That is quite a range, so it’s important to figure out where you are in that range. But more importantly, that range typically only applies to invoices where everything goes right.
It totally ignores, for example, how much it costs when a supplier calls in to inquire about the status of an invoice, or how much it costs to find lost invoices, or resolve mistakes or disputes. It is not unusual for 20 percent or more of inbound invoices to have some issue preventing efficient, timely processing. That may even be a conservative estimate.
To really get a handle on it, you would have to study the calls that are coming in to your AP department. A few years ago, I was working with a very big global organization. They were receiving six million invoices a year, and they had calls into their AP department for about 42% of their inbound invoices. That's more than two and half million calls.
Whenever people have to get involved, when you factor their time and salaries in to the total cost, then it can easily go into three digits per invoice. That doesn’t even consider cost such as lost early pay discounts, fraud, borrowing costs due to poor cash flow management, audit costs and supplier price hikes to cover the cost of doing business with you.
All these costs live in little siloes throughout the organization, and nobody is seeing the whole picture. This is where the global process owner starts—by digging into the entire P2P process to understand all of the costs. Then you can make a much stronger business case for the value that the introduction of e-invoicing will deliver.
Reducing inbound calls
In the example above, a key value driver of that business case was to reduce the number of inbound calls to A/P. A clear measure of success would be a drastically reduced number of calls. Who should this global process owner be? Ideally a new hire with experience running shared services organizations. These are the people who I’ve seen do best in this role.
What I’ve observed is that when you get someone who's an expert in procurement or A/P, they have difficulty seeing the big picture, especially if they are internal people who have been dealing with this for many, many years. It's difficult for them to step out of that and take a fresh approach to this whole thing. That's why my recommendation is to get someone new on board who can drive this change.
Keeping it in-house
Some organizations I’ve worked with felt that it was a quick and easy win to bring in an external consultant, maybe an expert in e-invoicing or P2P on board. Unfortunately, I’ve rarely seen that work. I think the people with shared services experience do well because they are experts in process design.
I think the global process owner need to be internal because they have to work with procurement, A/P, legal and everyone involved in the business relationships that are affecting the general operations of the organization.
In order to do that effectively, the global process owner needs to be deputized by the various different heads of departments—the CEO, CFO, CPO and perhaps the chief risk officer--to go into these organizational departments to find out what they actually do and what their process infrastructure looks like today and what the costs connected them are. This can normally happen between four weeks and three months, depending on the size of your organization.
But once that is done, many more challenges lie ahead. Really, the global process owner’s work is just beginning. This is the other reason the person should be internal. The big picture understanding gained, and the relationships built making the business case, will be very valuable to the work of the global process owner, and the organization, as the process moves forward.
Markus Hornburg is vice president of global product compliance for Coupa. Prior to that, he held senior compliance roles at Tungsten Corporation and SAP.