AP Automation Series: Benefits and Capabilities of Document Management Technology

In this 2nd post in our AP Automation Series, we will explain the elements of a basic content management system, including invoice capturing, indexing,workflow and storage and how to implement as a very easy first step in the electronic AP Process. 

What is a Document Management System?

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A Document Management System,(DMS) also known as Enterprise Content Management (ECM) is a technology that is often the first step for many businesses trying to automate their AP process.  When we look at the costs associated with a single invoice, a significant reduction occurs when you automate the AP process. Even with a partially automated process, the savings is significant – a savings of as much as $7 per invoice quickly adds up to a solid ROI.

Document management systems allow you to capture and route invoices from anywhere and store them in an electronic catalog with vital information – what the invoice is, invoice details, who has reviewed it, approved it, routed it – and ultimately paid it. Invoices can be indexed, classified, matched and even directly transferred into your ERP or accounting system. By adding in automated workflow you can process invoices in a matter of minutes
or hours instead of days, weeks and months.

Your documents are no longer just paper, to be misfiled, misplaced or lost. They are searchable sources of key financial data at your fingertips.

Why DMS?

Document management systems significantly reduce the time spent searching for and duplicating information, speeding up document routing, shortening cycle-times and preventing delays and errors. DMS can reduce the time AP staff spends on menial tasks like data entry – at the same time helping to increase visibility by allowing data to be seen and acted on by multiple people simultaneously. Staff has access to all the information they need to approve and route invoices to pay promptly, adding greater insight and predictability into your accounting. Small issues are solved before they become big issues – helping to improve vendor and customer relations. The entire procure-to-pay process is streamlined for reduction in errors and increased profitability. By eliminating bottlenecks, staff can focus on the accounts that need attention and improved cash management overall.

Where do I begin?

There is no doubt that a fully automated process from receiving an invoice electronically to a full Accounting System/ERP can be a home run for many businesses. But full automation may not make sense for a small to medium size business – especially if you are only processing 300 or 400 invoices per month; there may not be enough volume for you to realize a significant ROI.  With many lower volume AP departments the complaint is usually that the process isn’t working and there are too many exceptions, lost invoices and too much time wasted on routing for approvals.

What are your biggest challenges, bottlenecks and pain points?

For example, say you have 120 branches and you need to mail all of those invoices out for approval. Without automation, you lose productivity, get approvals back late, and have angry vendors calling you. Unfortunately, you have no insight into the problem because you don’t have the invoice in front of you and are unsure in what stage of process the invoice is stuck.  Starting with electronic workflow to route invoices would really help the most here – giving you visibility in all stages of the process and offering a greater return.  But let’s say as a larger company you are processing 10,000 invoices a month. Then it makes sense to start by reducing the time you spend inputting invoice data manually as you can gain significant ROI on transactional process time alone.

Let your invoice volume and process dictate the first level of automation for your business. Focus on your biggest issues – costs, speed or accuracy. The best way to maximize your investment is to adopt a scalable solution which provides for smoother deployment around one process and then allows you to expand the solution to other business processes. Like any other business process, look at automation as an evolution – start with the basics and where it makes sense, move to a more complicated system.

Once you have started with the basics, you can then add automation like advanced document capture or advanced workflow to further refine the process down the road. When you utilize a phased approach, you can focus on solving your most pressing needs first. It isn’t realistic to take a manual process and fully automate it overnight.  By phasing in your AP automation, you can improve your success rate and realize payoffs sooner.

Let’s get started with an overview of how Document Management works.

Components of Document Management

There are a number of questions when it comes to DMS like:

  • Capture: Do we need basic capture or full automation with intelligent data capture (IDC)?graphs1
  • Indexing: What types and how much data do I need to capture?
  • Workflow: Do we need basic or advanced workflow? Should we integrate DMS with our ERP system?
  • Storage: Should we use a cloud or on-premises system?

All good questions. There are pros and cons to each of these questions at different phases of your automation journey, and we will address each along the way.

Capturing Invoices

There are a number of ways to capture an invoice with a document management system – from data entry and batchgraphs2 scanning to Optical Character Recognition (OCR), and Intelligent Data Capture.

The most basic way to capture an invoice is receiving a paper invoice and scanning it, saving it to a folder on your computer or network in digital form.  This alleviates the burden and costs of managing paper – mailing, faxing, copying, etc. and invoices can be routed for approval via email. Starting with data capture that is simple still offers benefits right off the bat. When you start storing invoices electronically you can have more insight and visibility and can share invoices electronically for approvals. There is also batch scanning that uses barcodes for document separation and

Source: PayStream Advisors 2014 Invoice Workflow Automation Report To calculate your CPI, visit www.paystreamadvisors.com/cost-per-invoice-calculator

Source: PayStream Advisors 2014 Invoice Workflow Automation Report To calculate your CPI, visit www.paystreamadvisors.com/cost-per-invoice-calculator

recognition giving you another level of convenience when there are many invoices for multiple vendors. Advanced technology like Optical Character Recognition (OCR) and Intelligent Data Capture (IDC) has built in intelligence to “teach” the software how to recognize, classify, extract and store key information.

For larger organizations with many vendors, IDC can help process greater volumes of data from vendor invoices. At the highest level, DMS can integrate with an existing accounting or ERP system for 2, 3 or 4 way matching process. Business rules can be applied to add automation to the process from start to finish.

When you start with even the simplest data capture, you are on your way to improving your AP Process. You can always move to intelligent data capture at a later time, and ultimately move to receiving invoices electronically if vendors and suppliers are on board. Even the most basic DMS can save significant time and money by reducing the costs associated with printing, mailing, copying and filing paper. Time spent tracking down documents can be better spent on more important business priorities.

Indexing

Another consideration when moving to a document management system is maintaining the right balance between too much information and not enough. Ultimately, what you put in is what you will get out so it is important to identify how you will retrieve that information to determine what data elements will be captured on the front end.

Questions like:

  • How do we want to search?
  • Invoice number?
  • PO?
  • Dollar Amounts?
  • Vendor?  
  • What reports do we need to access and which data elements are critical?

These questions will impact how you will capture an invoice and associated data. How will you retrieve supporting documentation from files? Review the status or assignment of open invoices?

Many businesses start by simply entering data into a field, or using dropdowns to track Vendor name, invoice number, date, amount and status. The next step may be to scan invoices and track that data via barcoding to add efficiency in the process and collect important data elements.

Whether you are keying text into data fields or you are utilizing intelligent data capture, the way you extract your invoice data will also affect how you index. The guiding principal should be formulating your indexing the right way so you can retrieve the information in the easiest, most efficient way for invoice tracking and reporting.

Workflow

From emailing an invoice for approval to automatically advancing files to multiple branches with complex business rules, workflow – from basic to advanced – is a powerful way to increase processing speed, reduce costs, enhance visibility and improve accuracy and cash management.

It all comes down to accountability for routing and approval – and when utilized to its fullest potential in AP Processing –  can take data and automatically integrate with ERP and other accounting systems for a complete 360 degree view of your AP. Invoices can be routed automatically to the CFO for approval or payment. Exceptions can be automatically identified and routed for review and correction. Vendor ID, GL and line item codes can be looked up and assigned without lifting a finger to auto-populate ERP or accounting system transactions.

Like capture and indexing, there is a season for basic workflow, advanced workflow and special considerations for integrating with other systems and processes. The good news is that even the simplest workflow – like emailing invoices for approval instead of mailing – will provide solid ROI in a short time, with more complex rules added on later.

Storage

The way you store your invoices has a direct impact on indexing, retrieval and document retention settings. Questions like: how do you intend to find a document once it is entered into the system? What reports do you need? Starting with a simple storage folder on a company network with a common sense structure can help companies locate, retrieve and review the right invoices and associated POs and supporting documentation. Just this small change can help companies gain more insight, respond to vendor and customer queries faster and amalgamate essential information in one location.

To take it further, storing meta data like historical record and document actions with folders/subfolders, check in and out history, search and retrieve settings is important for compliance with HIPAA, CFR21, etc. Security settings are a critical part of any document storage system in order to control who has access to specific folders, and who can see the history on a specific invoice.

There are also a full range of DMS that can be implemented on premises or via the cloud – and all companies need to perform due diligence on security, certification, compliance, redundacy and access for each type of system in order to protect all data.

There is terrific opportunity through automation to improve productivity and turn your AP process around. With simple to complex techniques for data capture, indexing, workflow and storage you can gain insight into the process to make your AP team more efficient and productive, reduce errors and processing time and identify and solve the bottlenecks to help you unlock the barriers to accountability and cash flow. In the next chapter, we’ll break it down even further.

Be sure to stay tuned for the rest of our series: