This article is republished with the express written permission of (TAPN) The Accounts Payable Network.

 

Technology is changing the way accounts payable professionals do business. Automation in AP, once seen as an expensive pipedream by many skeptics, has now become the ultimate goal of most departments. As recent advances in invoice scanning, optical character recognition and electronic document management prove that workflow automation can improve efficiency, many AP departments have found themselves trying to play catch-up.

Scanning, also called imaging, originated in the world of microfilm. Companies discovered that they could save warehouse space by transferring paper documents to film. In the late 1980s, the proliferation of desktop computers in the workplace occurred and inexpensive scanners were introduced. Since that time, corporate departments of all kinds – such as warehouses that use barcodes for inventory management and mailrooms that use scanners to digitize much of what they receive – have used technology to make their jobs easier.

The productivity pursuit has reached into AP departments, which are always looking for ways to improve processes. Electronic Data Interchange (EDI) has been used by large organizations to exchange purchase orders, invoices and remittances since the late 1980s. While only large companies could afford EDI, everyone else still faced mountains of paper. When dealing with paper, the bottleneck always has been in the area between the receipt of a paper invoice in the accounts payable department and data entry and storage of its content in some electronic form.

In recent years, an increasing number of AP departments have started taking advantage of imaging technology. In 2002, Datacap, a software company that designs automated invoice data entry systems, conducted a survey of AP managers and found modest adoption rates for imaging systems. However, a similar study during summer 2006 found that adoption rates have more than doubled, although there is still plenty of room for growth.

Article contents:

• The 50/50 Split
• Paper or EDI?
• OCR Slowly Catching On
• Invoice Volume
• Cost of Processing Invoices
• Many Departments are Ready for Change
• Room to Grow

 

The 50/50 Split

Datacap surveyed 400 AP managers from companies of different sizes and industries. Their findings conclude that 49 percent of companies use document imaging to process incoming invoices while 51 percent input data manually. Comparatively, in 2002 only 23 percent of AP departments used imaging. Despite the growth, there is still a 50/50 split between companies that scan and companies that do not. According to Datacap, "the Accounts Payable world has one foot in the past and one in the future."

 

Although imaging is becoming more commonplace, it is still rare for companies to scan 100 percent of their invoices. Businesses process invoices differently depending on whether they are for purchase order items, non-PO items or travel and entertainment expenses.

 

Paper or EDI?

While scanning paper invoices into a computer system is quickly becoming commonplace, the number of companies receiving their invoices electronically through EDI has remained consistently low for years. According to the study, only between 15 percent and 20 percent of companies receive invoices electronically, representing essentially no change in EDI adoption between 2002 and 2006.

 

Most companies (83 percent of businesses that do not scan invoices and 56 percent that do) receive between 0 and 9 percent of their invoices via EDI. Even though companies that scan their invoices are more likely to use EDI, only about one-fourth choose to implement the technology. The study blames the high cost of EDI installation and the complex IT maintenance it requires for limiting its appeal. Hopes for a paperless AP office are now pinned on online invoicing, although e-invoicing has not taken off yet. For now, paper is still king. 

 

OCR Slowly Catching On

Businesses are also slow to warm up to OCR, which is technology that can interpret printed text and automatically convert it to data that can be stored on a computer system. Although the technology greatly reduces keying (or input) and indexing time on invoices and other documents - albeit with occasional inaccuracies - it has not been able to get a solid foothold in AP departments.

Datacap found that of all companies that use imaging, only 7 percent use OCR to input invoice data while 26 percent use it to index documents. These numbers represent 33 percent of all scanning AP departments and 16 percent of all AP departments surveyed.

The benefits of OCR are straightforward, though implementation can be tricky: OCR reduces tedious manual data entry, while increasing accuracy. A recent report by Strategy Partners estimates that document capture in North America has grown into a $600 million per year industry.

The primary reason why OCR has yet to fully catch on in AP departments has been the lack of uniformity between supplier invoices. Unlike document imaging in other arenas which have standard forms, the typical AP department receives invoices from hundreds of vendors, each with a unique layout, which makes attempts to interpret data type by location on the form impossible. But, with OCR technology now available that can analyze and interpret non-standard layouts and printed data characters on a variety of invoice layouts, more companies may take another look at OCR.

 

Invoice Volume

The number of invoices an AP shop handles each month plays a role in whether that business will consider adopting imaging. Currently, 62 percent of companies process less than 10,000 invoices each month. However, Datacap's survey reveals that invoice volume, paper and electronic, is on the rise.

 

In the 12 months leading up to the survey, 69 percent of companies saw their invoice volumes grow, with 23 percent citing growth of more than 10 percent. Interestingly, the volume of paper invoice documents appears to be growing faster than electronic, providing incentive for AP departments to consider imaging as an option to reduce the cost of processing large amounts of paper.

 

Cost of Processing Invoices

Just how much does it cost to process an invoice? Some businesses report invoice processing costs around $1 each while others report costs well above $100 per invoice, according to Datacap findings. Many factors contribute to this wide range of costs, including company size, invoice volume and the number of invoices received containing multiple line items.

However, the Datacap survey concludes that one of the leading causes of increased costs is inefficient, labor-intensive processes. By implementing an imaging system, businesses can bring their price-per-invoice down.

 

 

The benefit of implementing an imaging system, especially OCR, is clear. Companies who report spending $4 or less on each invoice are likelier to use OCR while companies that report spending $20 or more per invoice are more likely to have no imaging system in place at all. Although there is not a large difference between processing costs for companies with manual imaging systems versus those who do not scan, overall, the resulting data-workflow automation saves businesses 40 percent in processing costs.

Survey respondents gave several reasons for imaging invoices including that it increased efficiency, increased access to payment discounts, led to fewer late fees and fewer payments to incorrect vendors. Cost savings is one of the leading factors driving imaging, with 86 percent of companies reporting savings as their most important factor when implementing a program.

 

 

Many Departments are Ready for Change

With half of all AP departments already imaging invoices, it may not be long until the other half joins in. According to the survey data, 13 percent of companies without an imaging system plan to implement one within the next year. While businesses of all sizes plan to begin imaging to reduce the amount of paper invoices in their offices, the number of invoices they process plays a major role in the decision. Fifty-six percent of companies that plan to begin imaging process 50,000 or more invoices a month, while 16 percent that plan to implement imaging process less than 1,000 invoices each month.

Datacap's survey also shows that a majority of AP departments are looking for a change. Sixty-five percent of all AP managers questioned said they are unsatisfied with the way their companies process invoices. In addition, there is a link between whether a company is satisfied and whether they have implemented imaging.

 

Companies that use imaging, OCR especially, a far more likely to be satisfied with their invoice process than companies doing everything manually. For example, 59 percent of companies that scan invoices, then index and key them manually are satisfied, compared to only 32 percent of companies that do not scan. For companies that use OCR to index and capture invoice data, 69 percent of them are satisfied. The data suggests that implementing an imaging program could greatly improve satisfaction in AP departments.

If scanning can improve invoice-handling processes, why are half of all departments not doing it? One of the obstacles standing in the way of broader adoption of scanning is company officials not wanting to invest in automation. Many companies, especially smaller businesses with low invoice volumes, believe it is too expensive to implement scanning. Also, a large portion of AP managers (30 percent) said their companies simply do not view imaging as a priority.

The Chief Financial Officer is the decision-maker in 52 percent of AP departments, according to Datacap. AP managers wanting to implement an imaging system are most likely going to have to convince the CFO of the benefits of scanning. One way to do that is to perform benchmarking studies examining other companies who have upgraded to imaging and OCR. If bottom-line thinkers in upper-management see that workflow automation really does promote efficiency, cost savings and capture of early discounts, they will be more inclined to listen. Greatest savings/benefit comes from the electronic workflow that imaging makes possible; imaging is a means to the end of automated workflow.

 

 

Room to Grow

Although initially looked at suspiciously, many AP departments are now embracing invoice imaging as a way to increase efficiency and reduce costs. On the other hand, a large number of companies have not considered imaging or are still convinced it is too expensive or unnecessary. But, as more businesses become frustrated with their manual invoice processes, imaging is likely to continue growing at a rapid pace. The task is for AP managers to convince their superiors that imaging and electronic workflow can increase productivity and satisfaction. With imaging, as well as other automation solutions such as purchasing cards and Electronic Invoice Presentation and Payment, the vision of a paperless AP department is becoming a very real possibility.

 

The Accounts Payable Network © 2009. Republished with permission. Further distribution prohibited. For infonnation about The Accounts Payable Network, visit www.tapn.com.

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