Ariba Smart Invoicing: Worth Checking Out

Sure, to most of us accounting sounds as exciting as watching paint dry, but no business can survive without properly managing its financial means. Especially in these days of scarce cash, processing invoices faster and more accurately by the accounts payable (A/P) or billing department is critical so that the accounts receivable (A/R) folks can get their cash faster. An efficient A/P function is something that all companies want, but few have been able to achieve.

Purchase order (PO) and invoice management remains highly paper-intensive and error-prone. A/P teams thus spend inordinate amounts of time and effort processing paper invoices: from matching them with contracts and tracking PO numbers and goods receipts to correcting errors and fielding supplier inquiries. If and when all the matched data are in order, the invoice can be paid. This process is referred to as the three-way match.

But the three-way match can slow down the payment process, so the method may be modified. For example, it may be limited solely to large-value invoices, or the matching is automatically approved if the received quantity is within a certain percentage of the amount authorized in the purchase order. Needless to say, in spite of their enterprise resource planning (ERP) and accounting systems deployment, most companies still have limited visibility into their invoicing process, which, e.g., leaves them exposed to risks such as overlooked billing discrepancies, missed discounts (if leveraging favorable payment terms), and overpayments.

Enter Smart Invoicing

A smarter invoicing process could augment ERP systems and deliver greater visibility and control, improved contract compliance, and stronger supplier relationships through reduced errors and speedier approvals. Certainly, there have been many enhancements around electronic invoicing and billing (e-invoicing or e-billing), but the improvement here is only in terms of the speed of capturing invoices. In fact, following the axiom “garbage in, garbage out,” the tedious manual work of rectifying invoice errors will only increase with automation of entering faulty invoices. Well, perhaps the work will not really increase per se so much as just getting the garbage to the A/P module quicker. That is, it does nothing to clean up the mess, just moves it in faster in an electronic form.

Ariba (NASDAQ: ARBA), the leading provider of collaborative business commerce solutions, has long been helping companies streamline their procurement processes. Ariba Invoice Management and Ariba PO Automation are services that are delivered on-demand via the Ariba Network to a growing number of ERP users. As traditional ERP systems are not well-known for collaboration and connectivity, these companies are leveraging Ariba’s cloud-based solutions to extend the value of their systems by driving process efficiencies, transparency, and better collaboration with their external trading partners. See TEC’s recent article for more information on Ariba’s Business Commerce value proposition here.

Ariba Smart Invoicing is a set of capabilities that enable organizations to drive towards 100 percent “touchless” invoice processing (i.e. "straight thru payables” rather than “faster to payables"). Ariba's Smart Invoicing capabilities enable organizations to leverage over 70 configurable real-time matching and validation rules that find exceptions at the point the supplier submits an invoice. Preempting the capture of incorrect invoices saves the A/P clerks from inordinate follow up efforts of correcting the errors in a time-consuming manner (via paper, faxes, and telephones). This approach aligns the objectives of the buyer and the seller, because the seller wants the opportunity to get paid quickly, and the buyer wants to reduce their payables cost. Ariba Smart Invoicing does both.

Invoices that originate from POs or contracts (i.e. PO or non-PO invoices) are validated at three levels of detail including PO header, order line, and line detail levels. If necessary, invoices can be processed as non-PO ones, which then enables users to link orders to invoices and reverse out commitments. The business rules are regarded as "smart" because Ariba is able to learn from the best practices shared by users and by industry experts in the Ariba Exchange community. For example, KPMG is globally recognized as an authority in global tax and audit concerns. KPMG has written and signed dozens of country-specific compliance statements for Ariba, which have been built into the vendor’s cloud-based solution.

Exceptions that are discovered, based on the buying organization's template and invoice data field level rules, are immediately and clearly communicated to the supplier so the supplier knows what field(s) are incorrect and can usually take immediate corrective action. This is all done in a hub-and-spoke manner within the Ariba Network rather than in a traditional point-to-point manner between two hard-wired accounting systems. Ariba Smart Invoicing is critical to buyer and seller success for the following reasons:

  • Lower A/P Cost: The greatest value to an A/P manager is controlling cost. One of the greatest cost savings is the ability to receive invoices that can immediately post to their ERP system without anyone ever touching the invoice or requiring exception handling or workflow.

  • Supplier Value: It is often overlooked (but very critical to the A/P or shared services cost savings initiatives) that suppliers are more than happy to ensure the invoices they submit are correct so they know they can get paid faster. Ariba has seen a reduction of about five days on average from processing invoices through the Ariba Network versus paper or other electronic invoicing tools that do not offer Smart Invoicing.

  • Program Maturity, Refinement and Management: Getting to over 98 percent touchless invoicing and auto posts to ERP is a journey that does not happen overnight. Ariba Smart Invoicing provides an intuitive administration interface that enables organizations to refine their Smart Invoicing rules as they learn what is required to move their “auto post” rates to the highest levels. Ariba facilitates learning through online communities that share best practices to help advise on the grouping and refinement of Smart Invoicing business rules across buyer and seller communities.

The figure of 98 percent correct invoices before receipt includes a three-way matching practice. Still, there is an understanding that there can be some change management issues in buyer processes to manage getting invoices before receipt in the e-invoice world. The 98 percent that Ariba quotes is based on its customer experiences (although it is not clear whether the stat is the same for the tail-end spend as it is for the top strategic suppliers).

There is also the issue that suppliers’ practice of including PO line numbers on invoices is difficult to enforce, and that matching up part numbers to PO line numbers can be problematic. This results in lower match rates. To that end, Ariba’s cascading logic refers to sequential rules of validation (e.g., field range of values, order line range of values, etc.) based on best practices and configurations.

Invoice conversion of paper documents to electronic ones covers the use case of paper invoicing. Paper invoices obviously cannot give immediate feedback to suppliers, but logic is built into the process to validate fields and thus drive higher rates of touchless processing. Quickly approved accurate invoices do indeed prevent late payments, but they do not guarantee payment before the agreed terms (i.e. net 45).  However, they do open up the opportunity for suppliers to accelerate payment on their invoices through dynamic discounting or receivables financing (both capabilities are offered on the Ariba Network).

Some Other Approaches

Along similar lines, PROACTIS’ Intelligent Invoice Matching module offers a “learning engine” capable of building up knowledge of finance codes, procurement classifications, value added tax (VAT), and other tax codes and reference fields. From the outset, it can apply them against future bills ready for approval. When incorporated into the test cycles that the invoice goes through, this approach can significantly reduce the time and cost of coding invoices, and is particularly useful in automating validation processes and processing utility bills.

When a mistake is detected, it is flagged, and the clerk can deal with the exceptions. The module reduces the pressures of troubleshooting and the management of exceptions. In addition, PROACTIS’ portal technology eliminates supplier phone calls, as suppliers can see the status of their invoice. Supplier enablement services are also incorporated into the platform.

Flagging the exception will make it easier to identify problems for the clerks in A/P departments so they can get right to work on fixing them. While that is better than not flagging a mistake, it has still let the mistake in the door and requires an A/P clerk to “touch” the invoice and spend time processing it. In contrast, Ariba's Smart Invoicing approach stops the exception at the door and requires the supplier to correct it, thus completely bypassing the A/P clerk altogether, which results in straight-through processing of the invoice once corrected by the supplier.

“Smart Invoicing” is just a term that Ariba uses to talk about its e-invoicing solutions, which the vendor has been offering for a while now. The recently launched Ariba 11S3 cloud suite release adds additional capabilities to the over 70 configurable rules that currently make up the offering. The vendor has several success stories including Caterpillar, Rock-Tenn, Maxim Healthcare, GlaxoSmithKline, Kimberly-Clark, Clariant, Deutsche Bank, etc. In recorded webinars these companies explain best how the "Smart Invoicing" approach has driven cost out of their A/P departments and has led to additional savings opportunities around discount capture, contract compliance, and working capital impact.

These stories are available in archived webinars that can be found here. In summary, the typically cited benefits are as follows:

  • Move to a completely paperless PO and invoice management process (often as quickly as in 100 days)

  • Reduce operating costs (typically by 70 percent or more)

  • Eliminate exceptions and simplify and accelerate dispute resolution

  • Minimize risk of overpayments, duplicate payments, and fraudulent payments

  • Comply with corporate and regulatory requirements

  • Effectively benchmark and measure performance

  • Capture missed discounts and open up new opportunities for dynamic discount savings

In an e-mail exchange, Ariba sent me the following statement and additional clarifications on its offering:
“Ariba’s smart invoicing customers achieve nearly 100 percent touchless processing. Many Ariba customers (e.g., Caterpillar, Exxon, KCC, others) are already over 98 percent paperless with our smart invoicing approach. Some invoices will naturally require approval based on spend limits and approval hierarchies; however, our smart invoicing approach helps with this issue and allows customers to configure account coding and even buyer email addresses into their supplier invoicing rules to automate the routing and approval process. And with our hybrid scanning/e-Invoicing approach, even the most risk-averse AP Director will agree that we can help reduce the cost of old-fashioned scanning/optical character recognition (OCR) technology by automating the migration of paper invoices to the Ariba Network as supplier’s invoice volumes reach a configurable level.”

The conclusion – it’s time to lead your company from yesterday’s paper processing factory to today’s networked enterprise. For more information, see the company’s official press release (PR) here.

Dear readers, what are your comments and opinions with regards to smarter invoicing/billing practices, and Ariba’s aforementioned capabilities? What are your current A/P practices? Do you think that such value add capabilities justify the fees and expenses associated with participating in the Ariba Network?
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