In this blog, I want to take you on a journey to Purchase to Pay (P2P) automation, it will come in three stages: The big issues on the journey to world class performance, some of the most important learnings from this journey and the alignment between Procurement and Finance.
The Accounts Payable (AP) Automation development began as a result of companies’ desires to improve P2P efficiency, to reduce the End to End invoicing booking process and to contain operational costs. This evolved in parallel with the creation of shared services centres across the globe.
Fortunately, most organisations now understand that P2P Automation is not ‘nice to have’ but rather an essential process that should be complemented by new technologies such as Artificial Intelligence (AI) , Optical Character Recognition (OCR) and Electronic Data Interchange (EDI).
As per some strategic planning assumptions from Gartner “… by 2025, 50% of business-to-business invoices worldwide will be processed and paid without manual intervention. By 2030, 80% of business-to-business invoices worldwide will be transmitted electronically”. Therefore, if you have not started yet, you better do it soon.
What are the big issues on the journey to world class performance?
To begin with, there is a misconception that AP automation is a one-off project. On the contrary, this is a journey of a continuous improvement. Therefore, organisations need to have a strategic approach along with a long-term program that constantly seeks for new opportunities to automate and improve processes, to address new problems that may arise and, to ensure that the relevant IT team support is always available.
Merger & Acquisition and new supplier billing models
According to the latest EY Global Capital Confidence Barometer, the mergers and acquisitions (M&A) trend continues, despite geopolitical and economic concerns. In fact, in the telecommunication sector where I currently work, M&As are extremely common and they are part of every company’s long-term value creation strategy and a way to enter new markets, to reduce the cost of operation or to obtain easier access to a skilled labour force.
M&A add some complexity to the existing AP process such as:
Firstly, it is important to understand and agree the implications of the deal clearly by asking the following questions:
- Is the buyer going to carry on operating the purchase as a separate company or are they going to integrate both businesses?
- What are the correct legal names, VAT IDs, bank account details and addresses?
- Is the same approach going to be followed by all subsidiaries?
- When will the changes take effect?
- Who will be billing open POs?
- What will be the interfaces for submitting POs and receiving supplier invoices ((EDI, Push Out, e-invoicing)?
- What will be the changes to the ordering and billing models, including prices, products, distribution centres?
Secondly, when the changes are confirmed by the supplier, the internal data needs to be reviewed to ensure the vendor(s) is set-up is aligned.
- Vendor headers and supplier should be correctly set up in your ERP system.
- If they are merging into one single supplier, you might need to do the same with the existing supplier data. Ensure that all open PO/Invoices are also moved across.
- You must end the unnecessary data sites (pay site only) to ensure no additional POs are raised.
Finally, ensure that the supplier carries on using your e-invoicing service provider or will join it if they have not done so yet.
Similarly, there is an increase in the number of suppliers centralising their billing model or moving their billing from one country to another. This often caused by the implementation/update of their ERP system, tax benefits, cost reduction or the result of a restructuring process originated by M&A as described above.
Some of the challenges observed by these new billing models are:
- Suppliers not informing their customers about the changes in timely fashion.
- This is often only spotted when invoices are already overdue and an urgent action needs to be taken.
- Changes made without considering the E2E implications, especially the impact on open purchase orders (POs) and taxes. In fact, some changes may cause irrecoverable taxes that will be an additional cost that has to be assumed by the buyer and will impact negatively on the margin of those transactions.
Such invoices will fail in Tungsten since POs are loaded against the original supplier subsidiary.
Setting up unrealistic targets
Similar to many other projects, we normally set unrealistic targets or overestimate the potential benefits of the solution. If the end results are too far from the original targets, they will cause unnecessary friction among the teams and lack of confidence in the solution. This may generate a blame culture that we certainly want to avoid.
Before setting targets, KPIs, and SLAs it is wise to consider the following:
- Review those countries where an e-invoicing solution is or could be implemented, against your own geographical invoice data distribution. So that the right percentage of potential electronic invoices can be properly estimated.
- Understand what level of automation you could benefit from by getting Purchase Order (PO) and Non-PO invoices, and also a credit note.
- If you decide to include Non-PO invoices this could affect the validation rules.
- Additionally, those invoices probably have to be reviewed and most likely processed manually by the AP team, who might complain about the level of automation they get.
- Recognise the solutions offered by your e-invoicing service provider and the timeframe needed to implement it. Tungsten, for instance, offers integrated and web form solutions.
- The integrated should be offered to those suppliers who are sending the highest volume of invoices per month, since this is is the most cost-effective solution for them, and also less prone to human error, which further increases the automation and invoice quality.
- However, the implementation process of this solution takes longer (approximately six months) than of the web-form, and depends on the supplier’s IT resources availability and the time it takes to reach an initial agreement with, for example, Tungsten.
- Classify your suppliers by invoice volume in order to estimate who are more likely to use an integrated or web-form. This will help you to define the timeframe of the project. At the beginner of the project you should focus exclusively on the integrated suppliers.
Data Cleansing and PO Quality
Automation relies heavily on the quality of the data. Therefore, internal processes have to be restructured to take advantage of e-invoicing before starting automation. Companies must ensure that vendors are correctly set up and available, so that POs are correctly raised and transmitted on time to suppliers.
Productivity can be dramatically increased through using the right templates in the vendor creation process. It is important to agree with the Sourcing back office team the mandatory information required for the e-invoicing process to work properly.
A Global Data Manager with automation and data cleansing experience, who possess an analytical mindset is highly required.
Special attention should be paid to duplicate suppliers, correct VAT IDs, addresses, currencies, catalogues and bank account details.
Finally, organisations should aim at submitting their POs electronically and receiving invoices in the same manner in order to increase productivity and efficiency simultaneously.
Some additional issues:
- Some organisations measure the success of automate program solely on reducing the number of FTEs. This causes resistance to change and makes the implementation extremely difficult.
- Local tax requirements (such as the Italian e-invoicing regulation) may not consider the E2E invoicing booking process.
- Some project managers tend to confuse being Agile with not doing the right User Acceptance Testing (UAT) or bypass some controls.
