This blog is part of my series on streamlining finance processes. I previously wrote about the procure-to-pay process (see link), specifically the supplier invoicing component, how it consumes a great deal of the accounting staff’s time and what companies can do about it. On the other side of the cash conversion cycle, the order-to-cash process, namely its more accounting ΜΆ focused component customer billing, is equally fraught with paper-based processes, time-consuming information checking and manual re-keying of data. However, the accounts receivable cycle is arguably more critical because of its impact on days sales outstanding (DSO), cash flow and liquidity. The reason is one of control. In the AP cycle, we have more control in that we can always delay vendor payments to stretch our cash. But since one company’s payable is another’s receivable, if a customer were to do that to us, we could experience a cash crunch.

So how do we streamline invoice creation to ensure that customers pay in a timely manner and enable a healthy cash flow? The obvious tactic is the early payment discount. If standard payment terms are net 30 (i.e. payment is due 30 days after the invoice date) we can offer customers discounts for paying early. Typical early payment discounts run 2% if the customer pays the invoice within 10 days.

Incentives are great and can go a long way to reducing DSO and accelerating cash collection. However payment delays can often result from other problems such as hard to find invoice numbers, incorrect line items or sending the invoice to the wrong person. Invoice disputes, according to some studies, can tie up as much as 25% of a company’s accounts receivable.  Frequently, disputes result from something as simple as line items on the invoice that are unclear or not recognized by the customer. In either case, it requires the accounting and purchasing staff to investigate the item in question by either matching it to their purchase orders or speaking directly with the person who received the product or service to make sure the item is valid and OK to pay.  A simple line item dispute like this can hold up an entire invoice for days. Another cause of payment delays is invoices that are sent to the wrong person or address. Often, this happens when sales force automation and order management applications don’t share data with the accounting or billing system. Lost invoices are particularly problematic because the issuing company typically doesn’t detect the problem until the receivable trips an aging threshold or goes into collections.

Fortunately, there are steps companies can take to ensure invoices are completely accurate and issued in a timely manner. Many of these steps are manual, such as working with customers who have online billing websites. Though keying invoice data into the site may add to the workload, most of sites are front-ends to their accounting or supplier invoice systems and this ensures the invoice is both received properly and the data is entered into the customer’s accounting system.

The most effective way to speed up customer invoice processing and reducing errors is though an integrated software system that combines sales order entry, shipping notification, journal entry and invoice creation within a single, workflow-enabled application. This is preferable to developing custom integrations between stand alone accounting and customer relationship management systems because integrations are costly to develop and maintain. Conversely, an integrated system ensures several things. First, the sales people who interact with your customers are usually the first to know about changes in the customer’s accounts payable process and organization and they should be tasked with keeping the account and “bill to” information up to date. Systems that have automated workflows notify the shipping staff when a sales order is entered and in turn, notifies the accounting staff when the order ships. System notifications tell the accounting staff to create a journal entry and issue an invoice. In addition, the information contained in the sales order is used to populate the invoice. Line items, monetary amounts and “bill to” information as well as references to customer’s purchase order ensures that  the invoice is accurate and spares the customer’s AP staff from having to perform more than cursory validation. Moreover, enabling the shipping notice trigger the customer invoicing process allows companies to issue invoices early which helps cut even more time off the payment cycle. These are examples of how an integrated order-to-cash process can save your accounting staff time, send invoices out quickly and with fewer errors and help speed up incoming payments to ensure you have strong cash flow and low DSO. In the next blog, I will discuss how the order-to-cash process works in SAP Business ByDesign along with a link to a short demo so you can see it in action.

On March 25 I created a post about streamlining the supplier invoicing process and discussed how this can be accomplised in SAP Business ByDesign. As a follow up, I thought I'd walk you through the Procure-to-Pay process (or at least most of it) in a step-by-step description of how this is accomplished in SAP Business ByDesign. Before I dive into the details, I want to say what is unique about Business ByDesign is its process-centric approach. All point accounting systems enable the accounting staff to enter supplier invoices-either through manual entry or electronic scanning. However creating the invoice in the system (and the AP journal entry in the GL) misses some important steps in the process--steps that should be properly documented for process integrity and internal control purposes. Supplier invoicing that starts with the accounting entry still leaves a lot of manual work for the accounting staff--mainly searching for POs, verifying invoices, and securing approvals.

Let's walk through this in Business ByDesign. The process starts out with a requisition--either created by any employee from their Home workcenter--self services shopping view or other employees through a more formal requisition process. Built-in workflows automatically forward the request to the appropriate manager for approval and then on to the procurement people for request for quote creation and transmission to vendors. After a vendor is selected, the PO is issued. When goods are delivered, a workflow is sent to the original requester who confirms the correct goods or services have been received and a goods and services reciept is created in the system. Understand, that from the point the first requisition was created, this entire process is carried out and documented within ByDesign.

The accounting process--that is payment of the vendor invoice-- starts in the accountant's Supplier Invoicing Work Center/Invoice Entry view. The process is created from the work list of deliveries to be invoiced by highlighting the particular item and clicking on the "New Invoice" button. This brings up a new screen that's already prepopulated with the vendor's information and references to the purchase order. The accountant can further confirm what has taken place by checking the document flow--which provides a visual depiction of all the steps which have taken place to date. At this point, if there are discrepancies between the physical invoice and the data in Business ByDesign, the accountant can create a workflow--a clarification request and send it to the purchaser.  Assuming the purchaser OKs the discrepancy, the accountant can check the document flow or the exceptions or actions log to verify that all steps have been completed properly and that she has received authorization to pay the invloice.

For those who haven't experienced AP processing first hand, you'll notice that this automated process avoided a lot of manual checking, looking for original POs or checking them in a separate system or spreadsheet. We've also avoided having to chase down the purchaser by email or phone calls to get the "OK to pay" and of course, the real advantage is every step and who completed it is documented in Business ByDesign. This is just one example of how ByD's process-centric approach can streamline accounting processes and ensure that proper internal controls have been followed.


Filter Blog

By date:
By tag: