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AP Optimization

Building a World-Class Accounts Payable Operation

By Brian Rosenberg – June 8th, 2007

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Components of AP Optimization

• Reducing the Workload

• Leveraging Advanced Technologies

• Improving Customer Satisfaction

• Improve Invoice Matching Success

• Audit-Proof your Department

• Improve Financial Results

• Continuous Improvement

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• Patient Refunds– Process through cash ledger– Bypass AP– Keep the vendor file size in-check

• Employee Expenses– Best practice: Process through payroll

• EDI– Expand use of EDI for PO vendors– Consider GHX or other solution to expedite EDI

expansion

Reducing the Workload

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• Purchasing Cards– Reduced transaction volume– Faster payment– Obtaining Executive acceptance– The importance of good controls

• Don’t believe the sales pitch– Its not about rebates

Reducing the Workload

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• Imaging– Document Imaging is vital technology to an AP

operation• Paperless department• Tool to manage resource workloads• Eliminate “lost” invoices

– New technologies have long promised to eliminate paper – have they?

– Front-end vs. back-end scanning

Leveraging Technology

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• Imaging (cont.)

– Benefits of Automated invoice approval• Faster turnaround of approvals

• Eliminate finger pointing!

• Throw away the often ignored signature books

• Reports can track approval times

• Use metrics to track requisition to check timeline

Leveraging Technology

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Was the invoice coded with the department

number?

Invoice scanned and routed to

department for approval

Invoice Entered into AP20

Yes

Invoice is rejected and mailed back to

the vendor for proper coding

No

Invoice approved?

Additional level of approval necessary?

Continues through approval levels

until finished

Yes Approvals Completed

Invoice Received in mail/sorted/

scanned

Invoice routed to entry queue for

processing

No

Yes

Overview of Invoice Approval Process

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• Imaging (cont.)

– Other uses of imaging within Accounts Payable• Statements

• W-9 Forms

• Recurring payments

• Packing Lists

Leveraging Technology

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• OCR– Secrets of OCR

• Most use the same technology

• It’s not magic

– Explore with realistic expectations• High volume vendors should be on EDI, not OCR

– See it in action– Don’t fire anyone just yet

Leveraging Technology

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• E-payables– Realities of E-payables– Who really pays?

• Online Forms– Vendor request– Capital request– Employee Expenses

Leveraging Technology

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• Establish a customer service desk– Customer service is a responsibility, not an

interruption– Encourage emails over phone calls – don’t

accept faxes– Use generic email address– Track calls, but keep it simple– Provide basic customer service/email writing

skills to all staff

Improving Customer Satisfaction

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• Statement review is the most proactive task AP can perform!

• Typically statements are:– Ignored– Thrown away

• A good statement review process will:– Prevent credit holds– Reduce phone calls– Prevent late fees (if you pay them)– Make your department look good!

Improving Customer Satisfaction

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• Example of statement review process

Improving Customer Satisfaction

Statement is reviewed by the

Customer Service Rep

Statement is stamped “Reviewed” and

routed to the Reviewed

Statements Queue

Are there invoices on the statement >

60 days old?

Invoice is researched

Is the invoice in the system?

Yes

No

Vendor is contacted with payment

information or reason for late payment

Review Imaging Unapproved

queues for invoiceNo

E-mail delinquent approver for immediate

approval/denial of the invoice

Is the invoice found in a queue?

Yes

Contact Vendor and request copy

of the invoiceNo

Contact buyer to resolve buyer

message

Is there a buyer message for the

invoice?

Yes

No Yes

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• Review tolerances– Understand how much money falls within tolerance

– Spend time on the right problems

– Tweak tolerances for best balances of time and money

• Research your discrepancies for patterns– Same item many times

– Same vendors billing incorrectly

Improve Invoice Matching

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• Open lines of communication with Materials– Establish plan to proactively address data issues

– Use exception-based reporting to identify problem areas

– Create clear roles and responsibilities

• Create visibility to invoice matching issues– Track and post metrics (RNI over 30 days, INR over 30

days, % of lines with discrepancies)

Improve Invoice Matching

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• Division of Labor– Vendor file controls– Invoice/check division

• Duplicate Payments– Common causes of duplicate payments

• Duplicate vendors

• Keying errors/laziness

Audit-Proof your Department

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• Save 30% - audit the data yourself– Catch it early – quarterly audits– Get the money back – create a clear plan to

retrieve identified duplicates– Report the results – show your boss how you

saved the company money.

Audit-Proof your Department

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• Duplicate Vendors– Leading cause of duplicate payments– Create clear vendor naming conventions– Limit access to vendor file– Quarterly audits/review– Written plan for how to eliminate duplicates

• PO Vendors

• Non-PO Vendors

Audit-Proof your Department

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• Discounts– Should you take an available discount? – Always YES

– Monitor discounts lost and find root causes

– Work with contracting to negotiate realistic discounts• Never negotiate Net 10

– Work with contracting to negotiate more discounts

– Create visibility to discounts taken and discounts available.

Improving Financial Results

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• Changing the paradigm of work division

Vendors A - L

Vendors M - S

Vendors T - Z

Invoices Received

Invoices Entered

Invoices Entered

Invoices Entered

Vendor-centric

Work Division

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• Changing the paradigm of work division

Facility-centricLoc #1

Loc #2

Loc #3

Invoices Received

Invoices Entered

Invoices Entered

Invoices Entered

Work Division

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Accounts Payable Shared Service Center (fully implemented)

Accounts Payable Shared Service Center Manager

Purchase Order Team Lead

Non-Purchase Order Team Lead

Purchase Order Processing Team

Accounts Payable Reps

Non-Purchase Order Processing Team

Accounts Payable Analyst

Accounts Payable Reps

Vendor/Customer Service

Representative

Mail/Scan Clerk

Another View of AP

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• Establish Metrics– Identify the numbers that really matter– Establish targets– Report results on regular basis– Share metrics with your team and discuss

where improvements can be made– Share metrics with management

Continuous Improvement

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Brian Rosenberg

Senior Partner

RPI Consultants

brosenberg@rpic.com

www.rpic.com

Tel: 410.276.6090

Cell: 703.989.2180

Questions / Open Discussion