In identifying and fixing payments errors, in the move to eliminate waste, it’s time to end the spot check.
Matthew Tillman, CEO of OpenEnvoy, told PYMNTS’ Karen Webster that a staggering number of invoices contain errors, and firms of all sizes make erroneous, duplicative payments.
The accounts payable (AP) department is tasked with uncovering those discrepancies and catching the signs that too much cash is going out the door, preventing companies’ operating margins and operating cash flow from suffering.
The spot check? Well, that’s a “gut” process, when the auditing invoices are performed manually, and a “hunch” might lead back-office teams to scrutinize a particular vendor’s invoices in a bid to uncover discrepancies.
That’s no easy task in the age of eCommerce, amid supply chains that get ever longer and where transparency is lacking.
“In an increasingly real-time world, this becomes incredibly costly,” Tillman said, “especially with the amount of ‘human-touch’ involved.”
OpenEnvoy’s own research shows that nearly 10% of all invoices are duplicates. The company’s systems, said Tillman, recently identified $42 million in duplicate billings based on a sampling of $500 million in enterprise spend. The worst offenders, according to the company, are contract manufacturers and logistics providers. Variable costs can be considerable, as can charges tied to shipping and receiving goods at each port, warehouse and link in the supply chain.
Revenues have accelerated at warp speed, Tillman said, which means that there are usually more partners and vendors in the mix for an enterprise — and as a result, they are paying more for services. (He related the anecdote where an OpenEnvoy customer found a $518,000 overbilling tied to a single invoice.) The standard operating procedure has been to then go out in the field and demand the money back, which takes time, frays buyer/vendor relationships, and costs more money.
Snowball Effect
A snowball effect takes shape.
“If you’re dealing with 15 to 20 invoices on a monthly basis, this is something that a single person can do,” said Tillman, “but as companies scale, then they run into a problem where they have thousands of invoices.” It becomes impossible to check every single line item on every single invoice, in a bid to nail down, say, currency fluctuations and how it all impacts the bottom line.
There’s been no lack of trying to remedy the situation through technology, he said. There are any number of firms offering automated payables solutions (and $1.7 billion was spent on invoice automation just in the U.S. alone last year). But the human-intensive audits are still a mainstay, he said.
But the best laid plans of audits oft go astray. The AP department may not have access to information as critical as contacts or the purchase order. And the AP team is then left trying to track down emails and other documentation — or even asking vendors to change the ways in which they present invoices, too. Duplicate billing is an unfortunate byproduct of the sheer volume and presentation of invoices up and down supply chains. Surcharges on the invoices — tied to, say, inflation or rising fuel costs — also throw some confusion into the mix.
“What we’ve seen to date is that companies will take on the burden of extracting data from invoices on your behalf, or large BPOs will take those invoices and match them to the data on hand — but at the end of the day, it’s still humans matching these data points,” Tillman said.
OpenEnvoy’s offering automates and enhances the auditing and syncs data into client firms’ ERP systems in real-time. Tillman said that even large firms found millions of dollars in ROI within a week of embracing the company’s offerings during the proof-of-concept phase — beating the rate of inflation, too.
“It’s low hanging fruit to find cash as you’re more intelligent about the invoices that are being submitted and approved for payment,” he told Webster.
Getting there, he said, requires a change in mindset, where AP functions make the leap from cost center to revenue center.
But once the mindset is in place, and the integrations are complete, automation, he said, allows AP teams to “claw back” revenues more quickly, and do so with far less manpower per invoice (especially critical in a tight labor market). Looking at data holistically, as a complete “set” of information, in real time, is what ultimately improves cash flow.
Looking ahead, he said, the audit process needs to be automated for 100% of invoices — not tied simply to a “spot” check of 5% of those invoices.
As he told Webster, “Waiting for six months for a vendor to pay you back something they overbilled you in the first place doesn’t seem like a great option anymore.”