The Financial Production Line
The Finance department is a bit like a production line, with the finished goods being accurate business documents, such as orders or invoices. Like any manufacturing facility, its operators are continually looking to boost productivity and efficiency. So I’m not surprised to see Accounts Payable departments are getting a bee in their collective bonnet about electronic invoices.
The trouble is that in practice, the concept of “e-invoicing” is often limited to invoice scanning with optical character recognition – basically, digitising paper documents. It’s not “electronic” in the truest sense of the word, whereby an invoice should go from creation through delivery, approval and payment without involving a single piece of paper. I suspect the reason invoice-scanning gained such traction was because a lot of organisations couldn’t persuade enough of their suppliers to switch to purely electronic methods for submitting invoices, so ended up with a hybrid scenario of an under-delivering e-invoice solution while still having to deal with paperwork.
Scanning isn’t automation
So in fact, scanning doesn’t automate anything – all it does is accelerate the process of sending exceptions to Procurement. It doesn’t optimise the process at all and merely introduces “contaminants” into the production line that still have to be stripped out through exception handling. Of course, this creates a bottleneck: invoices might get to AP faster, but they don’t get through AP faster. The process of validation and management is still just as labour-intensive as ever: someone still has to manually check whether there’s a PO number, a supplier reference and VAT number, and whether the invoice has been added up correctly. And this high-touch human intervention comes at a high cost. Scanning is simply a means to an end, not the answer to the question.
As any manufacturing plant manager knows, keeping the production line going is critical. There is a raft of tools and techniques that can be applied to optimise a production line, like Lean, TQM and in-line monitoring. So why don’t we treat the flow of documents involved in transactions the same way? It seems that all the investment and effort to optimise is front-loaded into the order to cash process, but procure to pay is playing catch-up.
By the way, if this sounds familiar, you might want to add a copy of Dr Eliyahu M. Goldratt’s “The Goal” to your wishlist. I first came across this book many years ago: although written as fiction, it’s used in education and the business world to teach operations management, and how to alleviate bottlenecks. As the narrative unfolds, it shows how optimising just one process doesn’t necessarily result in any optimisation in the full production line. But – spoiler alert – you’ll be glad to know there’s a happy ending. The key is to treat the supply chain holistically: aim to improve the flow, and don’t try and optimize one process in isolation, as that merely causes another downstream process to back up. Similarly, the solution to eInvoicing doesn’t lie in optimising one department: you need to look at the whole “production line” including purchasing and payment.
Of course, the trick is not to perpetuate paper in the first place. “Smart invoicing” via an ecommerce network enables a truly touchless process.
100% digitisation of invoices means all matching and validation is done automatically, saving vast amounts of effort and dramatically shortening the invoice cycle.
Suppliers get the chance to intercept and correct errors before they can cause the machine to trip, and look up information on payment status autonomously without having to chase your AP department. Payables can get processed more quickly, efficiently and at a much lower cost. And as you might expect, by bringing best practices to such workflows, finance stands to gain greater visibility and control, support tighter collaboration with suppliers, and maintain procedural, contractual and legal compliance.