driving automation in the payables process

EXECUTIVE SUMMARY

For many organizations the order-to-pay cycle is still littered with

paper. Checks are the favored payment method, while the majority

of invoices continue to be paper-based. But, with the advances in

technology, all that is changing, and for companies looking to make

their order-to-pay cycle more efficient, the tools available are much

more sophisticated than in the past.

Companies are facing a challenging business environment with

lower revenue growth and demanding shareholders which are

driving management to push for cost savings through process

improvements. As a result, more organizations are tackling process

automation projects in payables, putting treasurers on notice to help

deliver results. So why isn’t it easier for them to automate?

While organizations focus on vital success drivers like technology,

internal change management, cost structure, and coordination with

internal stakeholders, they often neglect a key stakeholder — the

supplier. Being able to gain the acceptance and participation of

suppliers (also known as enablement) and leveraging supplier

networks to drive enablement are crucial keys to success.

TAblE of ConTEnTS

Barriers to Automation . . . 2

Overcoming the Barriers . . 2

Know Your Suppliers . . . . . 4

Making the Move . . . . . . . 4

Choosing a Provider . . . . . 5

Conclusion. . . . . . . . . . . . 5

Driving automation in the payables processSupplier enablement and supplier networks

JUNE 2012

DriviNg AUtOMAtiON iN thE PAYABlES PrOCESS. 2

bARRIERS To AUToMATIon

While there are many internal barriers to automation, often the greatest obstacle

for companies wishing to adopt electronic payables solutions (such as card or

ACh) is reluctance to participate on the part of their suppliers. For suppliers

accustomed to receiving checks, paper purchase orders and mailing invoices,

stepping outside the comfort zone can be unappealing. Factors of suppliers’

resistance to accept electronic payables may include concern or unwillingness to

give out bank account details, cost associated with certain electronic payment

vehicles, belief that electronic payments appearing in the account may not

give enough remittance data to identify what the payment is for, familiarity with

receiving paper documents, or simply reluctance to change processes that have

been in place for years.

Even where suppliers are aware of the benefits of electronic payments and

invoices in principle, they may have reservations about the practical requirements

of managing such a project. in particular, they may be concerned about the

technical resources that may be needed to enable their accounts receivable

systems to send electronic invoices or receive electronic payments — particularly

when the supplier is a small or medium sized organization.

Aside from supplier reluctance, organizations aiming to put in place electronic

order-to-pay processes may encounter other obstacles. the organization may feel

that they have insufficient technical resources available, or may perceive that

they lack the resources needed to engage suppliers in order to set up electronic

processing. the inability to exchange the right electronic information with the

payment or invoice is another often-cited concern.

oVERCoMInG THE bARRIERS

Organizations can draw upon different tools and techniques designed to

make the transition to electronic order-to-pay smoother for their own benefit

and their suppliers’.

the first key is choosing the right solution and ensuring that it fits with the

existing infrastructure and provides options to meet organizational requirements.

Modular and flexible

As it resources are often a constraint from the purchasing organization’s point

of view, best in class solutions provide flexibility in terms of how clients can

integrate by supporting a variety of format types for the sending and receiving of

payables data. these solutions can be implemented regardless of the Accounts

Payables or ErP system an organization is leveraging. Solutions should also

provide options to support specific business processes and goals. A modular


solution will allow organizations to automate the parts of the payables process

that have been identified as a key area of focus. this allows the potential to

automate the payment processes, while building a foundation on a solution that

gives the ability to add on electronic invoicing with online approval workflow and

early payment discounting.

Outside of decisions on providers and integration, successful electronic

order-to-pay migration is dependent on supplier enablement.

1. offer multiple options to meet supplier needs

Where electronic payments and invoicing are concerned, there is no one-size-fits-

all. Different suppliers have different needs — while the buyer may wish to make

as many payments by card as possible, the cost to suppliers may mean that

only a small percentage of them are willing to accept card payments. As such,

companies wishing to move as many suppliers as possible to electronic payments

should incorporate ACh and wire payment options into their program — as well as,

inevitably, checks. the chosen solution should also give the supplier multiple ways

to invoice electronically including manual invoice templates, the ability to create

an invoice from an electronic Purchase Order they have received along with file

uploads and transmissions of invoice data.

2. Simplify supplier enrollment

As previously mentioned, getting suppliers on board is typically the biggest issue

that companies face, both for electronic payments and e-invoicing. technology

has a tendency to drive solution selection, but it is just as important to identify

a provider with experience and expertise in marketing to suppliers. in order to

facilitate the process, best in class providers offer services designed to identify,

engage and onboard suppliers — on behalf of the client. Marketing campaigns

should include such activities as online education and enrollment sites for

suppliers along with e-mail, letters or phone calls to suppliers to introduce your

new electronic payables program to suppliers.

3. Access your provider’s network

Some payment providers manage a network of suppliers which are already set up

to do electronic processing. By tapping into this network, purchasing companies

can identify which of their suppliers are already receiving electronic payments or

sending electronic invoices. this allows for quicker adoption and lower costs for

a project and gives suppliers a platform that they can use for multiple buyers.

the best networks will have thousands of active suppliers transacting business

over the network and come at little or no cost to the supplier.


KnoW YoUR SUPPlIERS

When it comes to implementing an automation program, it is essential to give full

consideration to how suppliers will be brought on board. Performing a deep spend

analysis is invaluable: companies should take the time to understand factors such

as how much an individual supplier is paid, which payment method is currently

used, which suppliers accept cards, and which ones require financing.

By answering these questions, companies can segment their suppliers into

different ‘buckets’ and then devise a suitable strategy for each bucket, rather

than attempting to deal with the whole supplier base in the same way. Clearly,

suppliers that already accept card payments are the easiest to onboard in a

new card program. Suppliers currently paid by check that offer early payment

discounts would be ideal candidates for enrollment in a card program.

Meanwhile, other suppliers currently paid by check might be unsuitable for card

payments for a number of reasons — they might be averse to accept cards, or the

size of the spend might be too great for this payment type — but those suppliers

might nevertheless be suitable for another type of electronic payment.

the more information that can be gathered up-front, the more strategically

suppliers can be segmented. For example, once suppliers have been classified

as eligible for a card program other factors might come into play: some of the

suppliers might be taken out of the invoicing process altogether, while others

may still need to send invoices and might therefore be suitable for inclusion

in an e-invoicing program. Meanwhile, suppliers that are found to be good

candidates for e-invoicing might be included in a supply chain finance program.

As this level of analytics can be labor-intensive for the organization to undertake

on its own, it may be more effective to outsource the task to a third party which

can analyze the organization’s annual spend. Some banking providers can draw

upon their own intelligence database or network in order to source much of the

necessary information, such as the payment types that particular suppliers are

willing to accept. the same network can also be leveraged for the e-invoicing

program and potentially an early payment discount program.

MAKInG THE MoVE

Once the decision has been made to proceed and automate the order-to-pay

cycle, organizations must decide how to approach the project. By looking at the

order-to-pay cycle and the options available on a holistic basis, organizations are

in a better position to identify the biggest areas of opportunity or the biggest

pain points, and to make a more informed decision about the best approach.

For many, a best practice might be to automate payments first using cards and

“ Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed. ©2012 Bank of America Corporation

AA-AB-0413ED 07-2012


ACh payments, as this area tends to involve fewer stakeholders and may be

an easier project to complete successfully. Once this has been achieved, the

organization can then look at implementing an e-invoicing solution.

it is important to maintain good communication with internal stakeholders to

align goals. getting buy-in from executive management is equally important

and can be supported by communicating the quantifiable goals and savings

potential of the project and providing regular updates on its achievements.

CHooSInG A PRoVIDER

When looking for a provider, organizations should focus on the strength of

the provider’s existing supplier network and their track record at bringing new

suppliers into the network. While a supplier network will never contain every

supplier the organization wishes to bring on board, the provider should have a

documented and proven methodology for contacting and educating suppliers on

the benefits of joining their network and a quick and easy way for suppliers to

sign up. A key point of differentiation is that some providers charge suppliers a

fee for joining their supplier networks, which can be a significant barrier to entry.

ConClUSIon

A full scale order-to-pay automation project can be transformational for your

business and have significant positive impact to your cost structure and ability

to manage working capital. With checks and paper invoices declining steadily,

suppliers are becoming increasingly comfortable with automated solutions.

there are many providers that offer a comprehensive range of products and

expertise to support these projects. Whichever approach an organization

ultimately takes; looking at the order-to-pay cycle holistically from the outset

will allow the organization to identify the areas that most need to be addressed

and the greatest potential benefits.

KEY PROVIDER ATTRIBUTES

FOR SUPPLIER ENABLEMENT

Strong existing supplier network

No charge to suppliers for joining

supplier network

Proven track record at bringing new

suppliers into the network

Documented methodology for

supplier outreach and marketing

Simple process to on-board

suppliers into the network

driving automation in the payables process

Documents