In Part One of this guide we looked at the two steps of efficient invoice data capture:

• Invoice receipt and scanning
• Data capture through OCR (Optical Character Recognition).

The next step in the Purchase-to-Pay process is matching and validating invoices, where data from paper and electronic invoices is automatically matched against purchase orders and goods received notes (PO's and GRN's), according to pre-defined criteria. Just like invoices, these PO's and GRN's can also be received in paper or electronic format. But by this stage all invoices, PO's and GRN's have been transformed into consistently formatted electronic data. This matching activity is very important in reducing risk, since this exercise shows the goods have been ordered and received in order. This is valuable information for a corporate before taking an early payment discount and for a bank providing supply chain finance, which we will examine in Part 4 of this guide. This matching prior to settlement has a significant risk mitigation advantage over conventional factoring, since the bank knows the correct goods have been received, using buyer and supplier data. This is not generally the case in conventional factoring.

Invoices can be coded at line item level, making it easy to split costs across multiple cost centres or cost codes. All quantities, calculations and totals are checked, to ensure the integrity of invoice data being captured. Compliant invoices can then be automatically approved for payment. By automating the straight-through processing of validated invoices, the application allows AP staff to concentrate on managing exceptions.

A file of matched invoices and a file of non-matched invoices can typically be uploaded to a corporate's ERP or invoice management system within less than 24 hours, as opposed to a delay averaging 10-15 days in an organisation using manual processes. This allows the organisation to take advantage of early settlement discounts and reduce late payment penalties, directly benefiting the bottom line.

The fourth step is approval workflow. Authorised users can access a web-based workflow to review and approve invoices and manage exceptions. Identified anomalies are emailed to the relevant approver for resolution. The nominated approver can then forward, hold, reject or approve the invoice. Browser-based workflow, with email alerts and automatic escalations built in, should ensure that anomalies are dealt with quickly, and invoices do not get lost or delayed in approvers' in-trays. AP personnel have access to real time reports on the status of invoices down to an individual transaction level, supporting compliance and control activity. Working with invoices is much easier when the invoice has been converted to an image and data. Online workflow enables rapid resolution or referral of queries, with full control and visibility at all times. Alternatively, for those organisations who prefer to use their own ERP approval workflow, files can be uploaded to the corporate's host system. However, in organisations using multiple ERP systems, it is often easier to access via browser an invoice management system positioned as a hub linking various ERPs in order to perform approval workflow in a standardised way across the enterprise. This is more efficient than using a disparate set of ERP platforms.

Streamlining and automating the management of invoices can cut the average processing cost by over 50%. After this approval workflow step, approved invoices can be uploaded to the corporate ERP for payment. Valuable early settlement discounts and improved supplier relationships are gained through accelerating the invoice process in this way.

Under VAT regulations, businesses are required to store invoices for a up to 10 years (this period varies by country). An efficient invoice management and archiving capability can prove particularly valuable here: Storing paper invoices can be a significant overhead, especially as they need to be available for inspection by customs or tax authorities. However, if these invoices are accurately scanned and validated through suitable OCR engines, they can then be stored electronically, with significant savings in terms of space and cost. The images of these documents, both current and archived, can then be accessed via the web 24/7 by a business' own personnel as well as any external auditors, provided they are granted suitable entitlements. This reduces the amount of time taken to retrieve invoices and also makes it easier to resolve supplier queries.

It is not just personnel in AP and external auditors who can be allowed to access the valuable data maintained on an invoice management system. With the payer's prior-authorisation, selected personnel from the supplier can also be entitled to access a web portal to obtain visibility of the status of their own invoices. This not only enables suppliers to better manage their inbound cash flow, but also the self-service nature of this controlled access reduces the number of supplier queries that the payer has to endure regarding whether invoices are approved and when they will be paid. In some case suppliers may choose to flip PO's into electronic invoices which can be submitted directly to the buyer.

• Increased process efficiency
o Reduces invoice routing and approval delays
o Reduces time taken to process an invoice
o Allows invoice management by exception
o Boosts productivity - Invoices Processed per Full Time Equivalent are boosted
o Cuts the use of Excel spreadsheets for invoice management
o Reporting on performance KPIs, giving management information to improve productivity
o Reduces the amount of time taken to retrieve filed or archived invoices
o Automatic posting to accounting systems.

• Improved visibility and compliance
o Reporting on all invoice transactions, allowing informed cash management decisions
o Audit trail of all actions performed on invoices
o Complex processing rules can be embodied in the system, so that knowledge of these rules no longer resides in individuals' heads or notes
o Strengthens relationships with suppliers through visibility of invoice status.

• Reduced costs
o Average processing costs cut by over 50%
o Reduces the number of duplicate invoices and hence duplicate payment errors
o Reduces payments to the wrong supplier
o Cuts the number of lost invoices
o Allows staff to be reallocated from chasing paper to exception management and value-add tasks
o Enables capture of early settlement discounts.

Management of company spend and compliance with corporate governance legislation are under the spotlight in many organisations. Up to 45% of discretionary corporate spend can be attributed to 'rogue' purchasing and off contract spending. Therefore businesses need to ensure compliance and close management of company purchasing without impeding the organisation's commercial flow.

A flexible purchasing management system can enable the daily flow of requisition and purchasing activity within tightly controlled and monitored boundaries, and is the best way to achieve visibility, control and efficiency. By deploying browser-based solutions designed to automate and control internal buying processes, a business can embed corporate procurement policy and ensure best practice, whilst enabling the timely flow of requisitions and approvals for the procurement of business-critical products and services. Entitled employees throughout an enterprise can requisition goods and services from approved suppliers and online catalogues using templates. Purchases requiring approval should be automatically routed through an authorisation matrix, enabling relevant budgets to be updated and all spend allocated to the appropriate cost centres and codes. When goods and services are delivered, the details can be recorded to facilitate matching with purchase order information and invoice details.

Streamlining purchasing across an organisation can improve processes and save money, throughout the purchasing cycle. Opportunities for fraud are reduced as it is more difficult to make purchases from unauthorised suppliers. Compliance is vital for all organisations: Through greater control and monitoring of requisition raising and approval, unauthorised spending can be prevented before it occurs. A full audit trail of all users actions should be recorded and available via reporting.

This approach gives organisations the ability to control their procurement policies and improve process efficiency by providing visibility of the daily flow of requisition and approval. Organisations are able to reduce costs through improved budget management, the reduction of off contract and 'rogue' spending, and by gaining tighter control over the use of approved suppliers.

An efficient purchase management system should incorporate the flexibility to permit selected users to be restricted to only purchasing from approved suppliers with pre-negotiated contracts, from internal databases /catalogues or pre-determined external sources, whilst also enabling other approved users to have wider powers and search externally for the right deal.

The principal steps in efficient purchasing management can be summarised as follows:

• Requisition
o Users select goods and services from catalogue or free form entry
o Pre-set templates built in to simplify process.

• Approvals Management
o An authorisation matrix manages sophisticated sequential and parallel approvals
o Urgent requisitions can be 'fast tracked'
o Email notifications and automated alerts to ensure the process runs smoothly


• Budget Management
o Relevant budgets are automatically updated with warnings if budgets are about to be exceeded
o Business rules can stop requisitions or pass them to the budget holder for approval
o Line items can be split across different cost centres and codes.

• Purchase ordering & receipting

• A PO is generated and sent in required format – XML, CSV, email, fax or printed
• Multiple requisitions for a single supplier can be consolidated into one PO
• Approved PO's are automatically updated in the host accounting system
• The PO automatically populates in the receipting screen
• Allows goods to be receipted within the system, catering for situations such as part delivery or damaged goods
• Goods delivery can be receipted either centrally or remotely.

• Audited history, reports and analysis

o Date and time stamps to provide a full audit trail
o Users can check on the progress of requisitions, approval status, orders, arrival of goods and services
o Reports and analysis on user performance, supplier performance
o Purchasing patterns and budget management.


Benefits of efficient purchasing management

• Improved process efficiency
o Electronic approvals accelerates the authorisation process for requisitions
o Automatic distribution of POs by lowest cost route improves the chances of suppliers quoting a PO number.

• Improved visibility and compliance
o Provides a full audit trail on all approvals for actions in the system
o Ease of use means PO compliance is more likely
o Manages spend against allocated budgets giving early warning of overspends
o Enhanced budget management and visibility
o Can limit spending to only approved suppliers for selected users.

• Reduced costs
o Minimises unauthorised or off-plan spend
o Reduces the opportunity for fraud from making purchases from fake suppliers.

Essentially we see three basic phases in the journey to optimum efficiency in Purchase-to-Pay:

Step 1: Improve discrete business processes within AP and Purchasing
In order to improve the Purchase-to-Pay cycle and realise further benefits a corporate must firstly improve processes within AP in order to free up employees from the shackles of manual processes that delay the processing of invoices. Immediate benefits can be achieved by reducing costs, errors and improving visibility and compliance. The challenge here is to reach an efficient process that puts the organisation in control of their AP process and allows them to process invoices to a ready to pay state in as little time as possible.

Step 2: Allow AP and Purchasing to work together
Once we have efficient processes the next step is to allow AP and Purchasing to work more
closely. By giving AP the time to be able to analyse the invoices that they are paying they can further improve processes internally and allow Purchasing to work on their own internal process in order to increase PO compliance for example or to approach major suppliers and negotiate discounts for early payment. This can now be approached confidently as the processes are in place to permit invoices to be paid early.

Step 3: Improve Collaboration between buyers and suppliers
The longer term objective is to improve the way in which buyers and suppliers work with each other. A common supplier portal can vastly improve the way that buyers and suppliers conduct business. The supplier portal should be able to perform the following functions:
• Give visibility to suppliers of what stage an invoice is at during processing at the buyer
• Allow buyers to deliver PO's to suppliers
• Allows suppliers to flip PO's into Invoices
• Allows suppliers to manually upload or enter electronic invoices
• Allows buyers and suppliers to take advantage of dynamic discounts or supplier financing options.

On each stage of the migration, it is essential to ensure that users can see tangible benefits. These progressive steps position the corporate at a point where they can move to an electronic environment at their own pace, while also allowing their suppliers to move at varying speeds.

The next section of this guide will examine best practice in improving security, efficiency and control in payments and cash management.