SAP Invoice Automation – The Ingredients for Success

Introduction

Cogent Consulting has been implementing invoice automation solutions, exclusively for SAP customers, since they were founded in 2005. In that time, our business and offerings have evolved along with the technology, experience, and intellectual capital resulting from the delivery of 150+ projects for SAP customers globally.

We continue the journey with existing and new customers by listening to and incorporating their great ideas into the solutions that we offer, so this document is here to give you a detailed understanding of the key ingredients that go into a successful invoice automation partnership. When we say it’s a journey and a partnership; we mean it because the automation we achieve on Go Live is only the beginning. The invoice automation solution is an enabler but does not deliver high automation rates without being implemented in the right way for the customer and no matter how good the implementation is; you can always improve automation long after Go Live using the insights from analytics.

We are not the kind of company that repeats mantras or put profound quotes on our website, but here are two that should resonate with anyone involved with process improvement:

“If you always do what you’ve always done, you’ll always get what you’ve always got.”
Henry Ford

 

“To improve is to change; to be perfect is to change often.”
Winston Churchill

 

We have set the scene that Invoice Automation is a journey and a partnership, so what do we see as the key components of a solution?

SAP is the one common theme in our projects as are the components we implement in SAP, but how we implement them and the options used for any given customer of course depends on their business and how they use SAP. The solution software is an enabler, but how you implement the software to meet the customers’ requirements and help the customer make informed decisions is the key to success. At the outset of our Partnership (a Project) we know little about a customer’s business and they know little about our software, but we learn from each other in the course of doing an implementation, so that we go live with something that really works and the customer really understands. This is what provides the foundation for the journey.

 

Invoice Automation starts with getting invoices from suppliers and into SAP in an as automated way as possible. We promote a mixed approach to get invoices into SAP and what customers use will depend on what suits their supplier base, the dynamics of the relationship between buyer and suppliers and to a degree, what the customer is willing to pin their hat on from a business case perspective. These are the options that customers consider:

e-invoicing – This comes in many flavours and is often used by customers as a catch-all. For the purposes of this document, we’ll split it into four buckets and some of our customers use all of them, but all of our customers use at least one of them, which aligns with our approach of having a mixed strategy to suit the customers business.

 

    • EDI – True electronic invoicing is EDI (Electronic Data Interchange), which involves the buyer sending their purchase order and any purchase order changes outbound to suppliers via EDI with order acknowledgements, advance shipping notifications and eventually the invoice received inbound from the supplier via EDI. The first EDI invoice was sent in 1965, so it’s been with us for a long time, but the relatively high barriers to entry mean it’s prevalent in high volume/value supply chains like retail, manufacturing and FMCG. There needs to be a significant benefit for both the buyer and supplier and/or a lot of power on the buyer side to dictate terms to the suppliers due to relationship dynamics e.g., Selling GFR (Goods for Resale) to retailers.

     

    • e-invoicing networks – Buyers engage e-invoicing networks to onboard their suppliers to submit their invoices as electronic files or PO flip,
      which is where suppliers view their purchase order and hit submit to generate the invoice. The attraction for buyers is the e-invoicing the network accepts any electronic format from the suppliers and outputs a single file format for submission into their ERP system. e-invoicing
      networks provide suppliers with portals to submit their invoices, view the status of their invoices and potentially functionality such as dynamic discounting (early payment of supplier invoices in exchange for a discount) and master data maintenance. Some e-invoicing networks charge fees to suppliers, which logic says either dissuade the supplier from participating or those costs get passed to the buyer. For e-invoicing to work, it needs to be free and easy for the supplier to participate. It takes time to onboard suppliers and you don’t know what the ultimate take up is going to be, which is why you need a mixed approach, combining e-invoicing with a solution or service that automates PDF invoices and paper invoices as well. As more suppliers move to electronic then your PDF volumes will decrease, but having the combination means that you are 100% electronic invoicing from day one.

     

    • File uploads – This is a homegrown method that some companies use where they have a specific number of suppliers who provide invoice files, typically csv or excel and the buyer has a bespoke upload process into their ERP system. It’s not so common and typically limited to a small number of suppliers where invoices are fixed and they can generate the posting with no exception handling.

       

      • Email – The most popular e-invoicing method and admittedly it’s stretching the definition of e-invoicing, is invoices received as PDF email attachments. It is electronic in that it’s not paper and with the right tools in place, PDF invoices can be converted into electronic invoices and imported into the buyer’s ERP system with no human intervention. If you have the right tools in place then you can deliver the same outcome with PDF invoices as you can with EDI and e-invoicing networks, but with one very important difference – There are no barriers to entry for the supplier because even the smallest trader can submit a PDF invoice and they don’t have to pay for the privilege. The supplier actually saves on printing and postage costs, it won’t get lost in the post and it’s gets to the buyer quicker. We started seeing more customers in 2019 actually tell suppliers no more paper and there’s been a big acceleration this year as a result of Covid-19. Suppliers are already sending on average 93% of their invoices to our customers via email, so we can only see this increasing. Email is the most practical, lowest cost e-invoicing option for buyers and suppliers, so it’s the line of least resistance that will deliver the most certain cost-saving from automation investment.

      So, what tools do you need to convert PDF invoices into electronic files and for import into your ERP system with no human intervention?

      As is often the case, there are a number of options to consider, but the upshot of it is that either you engage a service provider to do this for you or you implement and manage the technology to do it yourself. When we first started in 2005, probably 90% of our customers would manage it themselves, but this has reversed over the years as most customers see their time is better spent on improving automation in SAP with a focus on reducing exceptions. A service provider will manage the emailed invoices as well as paper invoices to deliver 100% electronic invoicing from day one also including the management of the email inbox to ensure suppliers submit valid invoices. Managing the email inbox on your behalf also removes a big headache from your Accounts Payable team which enables you to focus on more value-added activities.

      Whether you prefer a managed service or in-house processing of emailed and paper invoices through to SAP, we practice what we preach by offering both options. The technology and processes we have in place to run the managed service are exactly what we would implement for customers who want to do it themselves. This enables us to give potential customers a real-world view of what both options would look like in order to help them make an informed decision and evaluate the business case for both options.

       

      This is what we think are the key ingredients for both options:

      • Managed Service – It goes without saying that you need accurate invoice data delivered to SAP against an SLA. Getting the data right is not a lights-out process, it requires optimization and feedback between client and service provider to maximise the benefits. The service provider should be checking all the data has been captured correctly and transferred successfully to SAP to ensure integrity. For some vendors, you will need the service provider to tailor the data that is captured to support subsequent processing in SAP and you will have thousands of vendors with different invoice formats and varying degrees of quality. Most SAP customers are multi-national, so you need the service to cope with the complexities that come from multiple languages, company codes and currencies. The technology used by the service provider should be capable of capturing data from PDF invoices that have a usable data layer and from PDF invoices that are in effect images i.e. No data layer. The service provider should also manage the email in-box to ensure valid invoices are submitted and route non-invoice mails back to Accounts Payable based on rules. Service reviews need to monitor performance against the SLA on turnaround time and accuracy.

       

      • In-House – The technology and process for managing emailed and paper invoices in-house is really the same as described for the Managed Service above. Other considerations for in-house is whether you implement the technology On-Premises or use a Cloud-based Platform. On-Premise will of course require infrastructure, so there are IT overheads and upgrade cost/hassle to consider when comparing to Cloud-based platforms. On the other hand, some Cloud-based Platforms have limitations due to being multi-tenant, so there can be less flexibility compared to implementing on-premise. However, the big advantage with the cloud is no IT infrastructure to provision, maintain and upgrade, so the total cost of ownership should be considerably less for Cloud solutions. You do of course need the resource in Accounts Payable to run the process in-house and it’s a specialist skill for Accounts Payable to learn because they are used to working in SAP all day, so this needs to be taken into consideration when comparing in-house to managed service options.

       

      The approach we take with customers is to show them the processes and technology we have in place to deliver our managed service because it’s the very same setup we would do for the customer if they go the in-house route. We offer both On-Premise and Cloud options in-house and the latter is single-tenant, so the customer can have a customized version of the solution. Running the same technology for the managed service ourselves means that in-house customers benefit from all of our knowledge and the experiences that our people have of running our managed service to support in-house implementations.

       

      Now we’ve covered the front-end process of getting invoices into SAP, what are the key components for automating the processing of invoices in SAP?

      Our objective for all customers is to automate the processing of invoices in SAP with no intervention by Accounts Payable. Our definition of automation is the percentage of invoices that match and post the first time plus the percentage of invoices with exceptions that are sent on a workflow for a resolution to business users with no touch by the Accounts Payable team. Automation in SAP is what makes or breaks a business case because no matter how automated the front-end processes are, you’ve got to have the right solution in SAP to manage subsequent processing. It’s no good just being able to automate the SAP posting of a single line invoice against a single PO item that’s been purchased at the same price as the invoice and the goods have been correctly receipted; you’ve got to cope with anything and everything if you are going to achieve high automation rates. Whether it’s multi-PO, multi-delivery note, product code, PO item text or any combination of these, it’s the flexible and intelligent data-checking, line item matching and auto-posting logic in SAP that drives the real cost savings. SAP customers nearly always operate across hundreds of markets around the world, so all of the SAP tax codes for goods/services have to be 100% right when you do the posting in SAP and there are some very obscure and complex rules in different countries. Even to this day, after 15 years of implementing Invoice Automation for SAP customers, we still get at least one new thing to do on a project and we are never surprised when a customer comes up with some anomaly on the tax treatment for a specific goods/service somewhere in the world.

      It’s real around the edge stuff these days, but every time we do something new, it gets added to our implementation template as an option for all customers, existing and new, to benefit from. Over 15 years of doing these projects, you can only imagine the extent of all the options in this template that we’ve got and this is what potential customers have to evaluate in a solution because slick sales decks on artificial intelligence, machine learning and robotics are no substitute for the nitty-gritty of actually making something work in SAP.

      As we said earlier in this document, the automation rates you achieve on go-live should only be seen as the starting point of your automation journey. With the right Analytics and partner in place, you should be able to make incremental improvements to automation rates as part of continuous improvement post go live. Everyone loves a dashboard these days, which we are big fans of as well, but you also need the detail and data behind the pretty dashboards to drill down to understand the details and causes of invoice automation and exceptions.

      If you want to find out more about the Cogent Consulting system, please do not hesitate to contact us with any questions or, better still, book a demo via our website, and we will show you the end-to-end process on a live system.