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Agenda
Introduction

Current State
Automation benefits beyond cost Process change and Automation Solution Selection Small Business Case Study Summary
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Introduction

Over the past 40 years, the greatest contributions in innovation have come in the area of information technology. But companies will take time to learn how to use them, so it will probably be many decades before their full impact is felt. (The Economist Jan 12th 2013)

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Introduction (Continued)
AP has struggled to keep pace
For many companies automation was beyond their reach Increased legislation in the post Enron 9/11 world has increased the pressure on AP The difficult world wide economy has increased the pressure on operational cost and efficiency

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Only 15% of companies are highly automated

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The Problem
Many companies have automated only a few processes, such as e-invoicing Scanning is often still a back end process The approval process is still manual with an image used instead of paper Little or no use of automated workflow or matching Small to medium sized companies often find it difficult to justify automation on cost savings alone

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Top-performing firms gain major benefits in five key ways:

1. Procurement advantage, through better cost analysis and contract management 2. Cash management advantage, through better forecasting and working capital management

3. Discount and rebate advantage, plus penalty avoidance

4. Compliance with SOX and other government regulations 5. Cost advantage
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Key Concerns of AP

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Key Concerns of the CFO

About the economy
Consumer demand Federal government policies Price pressure

About their own companies

Ability to maintain margins Ability to forecast results Working Capital Management

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Key Concerns, Federal Government Policy Regulation

Sarbanes-Oxley Act Results in increased control over financial operations, Corporations are required to document processes to assure compliance with sound business practices. CFO (and CEO) has to Sign off on accuracy of financial documents.

OFAC Companies are required to comply with all aspects of the Patriot Act as regards to who they do business with, i.e. vendors. FCPA (Foreign Corrupt Practices Act) Applies to a companies to customers and vendors
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Key Concerns of AP Dont Match CFOs

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Combining the Goals

Both sets of goals can be met using:
Process change
i.e. Centralizing AP

Automation
Improved visibility Margin maintenance through spend analysis Manual processes replaced On time payments

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Top Reasons for Productivity Rise

Improvements in business process

62%

Improvements in technology

50%

37%
More hours Worked

Better morale or teamwork

31%

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Productivity Rise, Process

It is the combination of the automated solutions with process change that return the best results AP and Purchasing work to improve the complete purchase to Pay Cycle

Centralization of AP into a shared service environment

PO distribution, front end Scanning, e-invoicing, workflow and payments integrated into a complete solution
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Process Change, Automation

Utilize machine to machine e-invoicing
XML, EDI or HTML preferred, although XML etc. can be used

Use a portal to allow small players to create invoices on line, or flip purchase orders. Use workflow for internal matching and resolution Move to e-payments

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Automations Effect on Costs

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Automation Benefits, Visibility

Automation allows for the data to be visible from the moment of entry.
Accruals can be accurately made Invoices can be tracked by AP, purchasing and Vendors from entry through to payment
The auditors of one failing UK company found 50,000 invoices that had not been entered or accrued.

Finance can accurately forecast cash requirements Management can track progress against goals

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Benefits beyond Cost, Discount Capture

Companies with the best cycle times can target discount capture. Discounts
2 /10 net 30 can return over 35%. One major corporate estimated a $200 million addition to the bottom line from discounts
Offer discounts as an alternative to extended terms. One company offered 1.5 / 15 or 60 days.

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Early Payment Discount Capture Yields Lucrative Annualized Returns

Example: Typical 2/10 Net 30 on $100 Invoice Option 1: Pay $100 on Day 30
$100 minus Interest = $99.73 @ 5%/yr Interest

Option 2: Pay $98 on Day 10

$98 + Interest = $100

$100
20 days

$98
20 days

Day 0

Day 10

Day 30

Day 0

Day

i FV PV 1 10 365

20

Day 30

i 100 981 365 i 0.3689

20

$2 Interest over 20 days implies Interest Rate of 37%/yr!!!

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Better Vendor Pricing

Spend analysis
Aberdeen consulting estimate that US business leave $260 billion on the table by not taking advantage of discounts and contract negotiation
Companies are often buying the same product from the same vendors at different prices

Reduce the Number of Vendors Supply Standardization

For Example buying less expensive pens, paper etc.

Lets look at an example

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Benefit Example
Our sample company has:
Sales Of $250 million Profit before tax $25 million Cost of Goods purchased, 45% of revenue

Many companies achieve a 10% reduction in price paid for goods and services.
In this example if 10% reduction is on only 50% of spend the return to the bottom line is $5.6 million

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Most Commonly Used Invoice Delivery Methods

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Workflow

Workflow
Routing of Invoiced for approval
Use negative or assumed approval

Add accounting codes to the invoice automatically from the PO

One company study showed 50% error rates on invoices where buyer/requestor added the account info.

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Portal
Self Service
All information can be distributed directly to end users
PO.s, RAs, Tax and legal agreements etc. Invoices can be generated, or uploaded to the site PO flip can be used.

Client Service
Virtually eliminates the need for phone based customer service.

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Solution Selection
Key Considerations.
Build for today and tomorrow Scalability, do you have monthly or seasonal fluctuations to consider, are you allowing for M and A activity. Consider short term options as part of the long term solution
E.g.Use scanning while automating invoice or payment processing

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The Ideal Solution

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Solution Selection
In house license
Most common Practice, gives the company complete control over system.

Utilize Software As A Service (SAAS)

For smaller companies this can be a complete solution, for larger companies can be utilized as a component, i.e. payments or e-invoicing. Can be an interim solution while staging a full automation program.

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Solution Selection, The Cloud

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The Cloud, Additional Benefits

Back up and recovery

Off site storage and back up

Automatic updates to software and applications

Secure accessibility from any location

Flexible Pricing

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Solution Selection

Key Considerations in selecting a software partner.

Select one who handles;
the largest range of document types, and input methods. Has a large client base, with experience in your industry Has multi-country reach and experience

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Case Study, Small Business

Business involved in Training, Service and Retail
50% of revenue from retail and government contracts

Old POS system

POS and Spread sheets used for accounting system

No scanning, e-invoicing or payment systems used

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Case Study, Small Business

AP Purchasing
Multiple suppliers / lines carried Paying list price for all orders Margins between 35% 40% Unable to compete on government bids Web merchants offering lower prices

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Case Study, First Steps

Analyzed spend over a six month period by supplier and SKU Compared suppliers as to range of products carried, customer service, delivery etc.

Looked at requirements for volume pricing

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Case Study, Small Business

Reduced key suppliers to 3
One high end One Medium Priced One slightly below Medium Priced

Signed annual spend commitments with these three suppliers.

Commitments ranged from $6,000 to $20,000 Increased margins to 50%-75% Allowed us to price more competitively with web Lower COGS allowed us to more aggressive, and win government bids.
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Case Study, Small Business

Sample, Supplier Program
Part # 55.26 Margin 30.1 Margin Tier 1 $27.00 Tier 2 $24.00 Tier 3 $21.50 Core + $19.00 Retail $59.95

54.96% 59.97% 64.14% 68.31% Spread 13.34% $240.00 $225.00 $225.00 $218.00 49.47% 52.63% 52.63% 54.10% Spread $474.95 4.63%

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Next Steps
Move to a cloud based solution
Back up in place

Reasons for this Move

Allow access from remote locations, i.e. off site bookkeeper Disaster recovery,
Server lost after major storm. Data was backed up but new system software was not compatible with (old) operating systems

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Summary
By implementing process change and automation companies can meet both AP and CFOs goals
For AP
Improve Process and reduce errors Automate manual Process Improving Productivity

For the CFO

Maintain (or improve) margins Forecast results Accurately Improve Working Capital management

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Thank You!

For further information on this topic, contact:

The Accounts Payable Network 2100 RiverEdge Parkway, Suite 380 Atlanta, GA 30328 David W Hay dhay@finopsnet.com 866-827-6389 770-984-1184 www.TAPN.com
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