Imaging & Workflow Automation: A White Paper on SAP Invoice Management by OpenText

Pay treamPaA D V I S O R S

IWAWHITEPAPER

Imaging & Workflow AutomationA White Paper on SAP ® Invoice Management by OpenText

www.paystreamadvisors.com

Q32009

Featuring Insights on...

Pain Points in Accounts Payable (AP)

What is Imaging & Workflow Automation (IWA)?

Invoice Handling Best Practices

IWA and Intelligent Document Recognition

SAP Invoice Managementby OpenText

For more informationCall your SAP representative or http://www.sap.com/solutions/solutionextensions/invoice-management/index.epx

Imaging & Workflow Automation

© 2009 PayStream Advisors, Inc. • [email protected] • www.paystreamadvisors.com

Introduction“Doing more with less” has become the mantra of the day. In the current recessionary economic environment, organizations are constantly being challenged get more done with fewer resources. Accounts Payable (AP) is no exception. AP departments now have to process more invoices and pay them faster, all with a smaller staff. And the biggest stumbling block to accomplishing this has been our continued reliance on paper-based invoices and people-based processes. We have put men on the moon and we might even colonize Mars some day, but removing paper from the finance department appears to be out of reach in the near future.

PayStream Survey Says! PayStream Advisors conducted its “IWA Adoption Survey” in the last two quarters of 2008 to highlight the overall trends that are shaping the rapidly evolving AP automation space. The Adoption Survey throws light on the pain felt in the AP department. We asked respondents to rate the pain caused by certain AP processes, on a scale of one to five where five was the highest pain. Manual data entry, matching errors and exceptions and routing invoices for approval emerged as the most painful, in that order. These findings are very similar to the responses from earlier surveys conducted by PayStream, indicating that there is tremendous potential for improvement by automating the front-end of the AP process - namely invoice receipt, matching and approval workflow.

Imaging & Workflow Automation Until corporate America goes completely paperless, we need a better way to manage the tons of paper that we receive every day. A significant shift is beginning to shake traditional AP operations, starting with the search for automation options that help them address the hassles inherent to people and paper-based activities. Our research indicates that Imaging & Workflow Automation (IWA) solutions that streamline the invoice receipt-to-pay cycle have matured and become mainstream technology and are delivering tangible benefits in the invoice processing cycle.

Introduction

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Inability to accuratelyforecast liabilities

Lost or missinginvoices

Lack of visibility acrossinvoice-to-pay process

Routing of invoicesfor approval

Resolving errorsand exceptions

Manual dataentry

2.57

2.59

2.71

3.08

3.17

3.27

Figure 1PAIN POINTS IN AP OPERATIONS

The front-end of the invoice receipt-to-pay cycle causes the most pain for AP operations.

We asked respondents to rate the pain associated with each of the following activities on a scale of 1 to 5, where 5 is the highest. Results are a weighted average of all responses.

What will you get in this White Paper?What challenges are company’s facing in their current paper-based AP operations?

What best practices and technology options are available to address these pain points?

What is imaging and workflow automation (IWA) ?

What benefits have companies achieved from implementing IWA?

How can SAP Invoice Management by OpenText help you streamline the invoice receipt-to-pay process?



What is Imaging & Workflow Automation?

IWA Universe

IWA solutions compress the invoice receipt-to-pay cycle by enabling organizations to convert paper invoices into digital images, store them in a central repository for rapid retrieval, and extract data from them to enhance invoice matching, approval and posting. IWA solutions may provide document and data capture, workflow, or both, in order to create an end-to-end imaging and workflow solution that integrates with enterprise and line-of-business applications.

Components of the IWA UniverseThe IWA universe can be defined as follows:Invoice Receipt This is the hands-on process that is necessary to prepare paper invoices for scanning and electronic access. Steps may include removing invoices from envelopes, removing staples, and making photocopies of smaller items, if required. In some cases, invoices need to be manually sorted into different batches (by cost center, business unit, vendor type, etc.), whereas some solutions do this automatically. Sometimes blank separator pages need to be inserted between invoices and their attachments. Document and Data Capture This is the process of converting paper invoices and other transaction-related documents (e.g., proofs of receipt) into digital images and index data. Document scanning and data extraction could be centralized or remote based on the organization’s needs. Specific steps include scanning, image enhancement, data extraction based on bar codes, optical character recognition (OCR), and intelligent document recognition (IDR) and validation, most of which are handled automatically by the solution being used. In some cases manual data entry or review of extracted data is required.

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Figure 2IWA UNIVERSEIWA solutions improve the invoice-receipt to payment cycle by streamlining how organizations receive and approve invoices and make payments



Vendor Portal Most IWA solutions come bundled with a vendor portal, which suppliers can use to submit invoices electronically. Suppliers have the option of selecting the method that best suits them from a range of electronic submission options; enter data manually in the portal, perform purchase-order flips (convert a PO into an invoice), or browse and add documents from accounting systems. The vendor portals are also configured with validation checks and buyer-defined tolerance levels to check invoices for missing information and exceptions. Suppliers are immediately notified about invoices that fail the validation criteria and are asked to correct the exceptions before the invoice is forwarded to the AP department.Content Management This refers to the delivery, storage, management, and disposition of electronic documents and index data. Some IWA solutions come bundled with a central repository that can store invoice images and data while others rely on third-party content management solutions for this purpose. The content management system integrates tightly with clients’ existing ERP or back-end accounting systems to enable seamless retrieval of documents from within the client system to users with the appropriate access rights.Workflow Management The value of an IWA solution lies in its ability to route invoices for review and approval. Workflow management capabilities handle the electronic approval of non-purchase-order-based invoices as well as the resolution of any exceptions related to PO-based invoices. Most solutions allow the creation and maintenance of workflows through a menu-driven, easy-to-use interface, which can be managed by business administrators, without the involvement of the IT department. Tasks and pending invoices can be routed to various individuals within the organization according to predefined business rules. Common features include automatic notifications to users when specific actions are required, reminder messages, and escalation procedures based on approval hierarchies.Reporting and Analysis Analyzing key invoice receipt-to-pay metrics and the ability to monitor individual users’ actions for quality control and load balancing is a key part of implementing an IWA solution. Typical reporting and analysis tools include the generation of standard and ad hoc reports detailing invoices pending approval, past due invoices, and average invoice processing time. Some solutions offer robust reporting capabilities bundled with the IWA solution, while others only allow for download of transactional data to third-party reporting tools.

IWA Universe

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Benefits of IWAReduce processing costs;

Increase efficiency and productivity;

Compress invoice receipt-to-pay cycle

Reduce errors and accelerate discrepancy resolution;

Increase early payment discount capture;

Strengthen vendor relations;

Improve cashflow forecasting abilities;

Improve visibility and control;

Lower storage and retrieval costs;

Improve ability to audit invoices and spend;

Enhance ability to comply with regulatory requirements.



Best Practices

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Invoice Handling Best PracticesThe key to successful AP automation lies in the redesign of invoice and payment management processes and a strong strategy to leverage the available technology to meet each organization’s specific business requirements.

Invoice ReceiptThere is no doubt that paper invoices are the enemy of efficiency in the AP department. This challenge is further compounded by the fact that invoices are rarely sent directly to the AP department. In a lot of cases, suppliers send invoices to buyers in the purchasing department or field approvers. Sometimes the invoice is sitting on an approver’s desk for two to three weeks, without even being entered into the accounting system. Worse, some companies don’t even have a formal policy that specifies where invoices should be sent. This results in a number of problems. Senior management does not have visibility to all the company’s outstanding liabilities when making investment and borrowing decisions. Suppliers could stop sending inventory or put your company on credit hold because invoices are not paid on time. This also increases the potential for duplicate invoices if the supplier sends a second invoice. Centralization is the way to go A formal policy mandating that all invoices should be sent to the AP department is the first step in addressing this issue. Respondents to PayStream’s “IWA Adoption Survey” understand the value of centralization, with more than two-thirds (67 percent) of respondent companies receiving and paying their invoices from one central location). When placing an order itself, provide the supplier with the address where the invoice should be mailed. Once invoices are received, they can be entered into the accounting system, with visibility to all the relevant parties. Taking it further with imaging and e-invoicing Front-end imaging ensures that invoices enter the system quickly and are available to all the parties immediately, irrespective of where they are located. Combining imaging with automated data capture adds further benefits in terms of quicker entry of data and fewer errors.

67% 8% 25%

Centralized PartlyCentralized

Decentralized

Figure 3NATURE OF AP DEPARTMENTCompanies that had centralized AP operations dominated the survey.

Invoice Receipt Best PracticesCentralize invoice receipt;

Institute a formal policy;

Notify suppliers where to send invoices;

Leverage front-end imaging and e-invoicing.



Best Practices

An electronic invoicing solution goes a step further in streamlining the invoice receipt process. All invoices are submitted via a central solution and go through stringent validation rules – is the PO number valid, is the invoice number a duplicate, does the invoice have an approver name on it, etc. If any of the invoices fail to satisfy the validation criteria, the supplier is notified immediately and asked to correct the error on the invoices. In addition to increasing visibility and access to the invoices, this also ensures that only clean invoices come into the AP department for processing. Another advantage of this is that the clock on discounts starts ticking only after all the exceptions on the invoice have been rectified.

Invoice RoutingThe AP department typically deals with two types of invoices – purchase order (PO) based invoices and non-PO invoices. PO invoices go through a two or three way match before they can be paid whereas non-PO invoices need approval from the appropriate person in the organization. Sometimes even PO invoices might need to reviewed by an approver if they fail the match process. What happens in most organizations is that invoices that could not be forwarded to the appropriate user for review and approval end up in an “exception queue” or “red light area” and these exceptions have to be manually resolved by the AP staff. It can take days or even weeks for some of these exceptions to be resolved, which significantly lengthens the invoice receipt-to-pay cycle. Formalizing the Process Identify all the people in the organization who can approve invoices. The approvers can be classified by the types of invoices they can approve – invoices from a specific vendor, certain spend types, up to a dollar limit, for example. All AP employees who will route invoices for approval should have a copy of the list and be familiar with who should review what type of invoices. A similar list should be made identifying the appropriate persons who would be responsible for collaborating with the suppliers or buyers to resolve exception invoices. Make sure that these lists are updated periodically or when employees leave the organization and ensure that old lists are collected and destroyed when new lists are made. Taking it further with automated workflow Organizations can further streamline this process by leveraging an automated workflow solution. In this case, the approver list is maintained and updated in the automated workflow solution itself. Invoices, once entered in to the solution, will be routed to the required approver automatically, based on pre-defined business rules. The business logic is typically configured at the time of solution implementation and can be updated as needed. Employees who have invoices pending their approval receive email notifications with links to specific invoices. Users have the option of either approving the invoice directly from the email itself or they can log into the system to view more details about the invoice. Workflow solutions also come bundled with reminder and escalation features. If no action is taken on an invoice within a certain period of time, either a reminder can be sent to the employee or a message can be sent to the employee’s manager. This ensures timely processing of invoices.

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Invoice Routing Best PracticesIdentify approvers by type of invoice;

Update approver lists periodically;

Train AP operators on approval chains;

Leverage automated workflow solutions.



IWA and Intelligent Document Recognition

IWA and IDR

Tools and technologies that facilitate the extraction of information from scanned invoice images have had an interesting lifecycle, starting from template-based optical character recognition (OCR) to free-form recognition and more recently, intelligent document recognition (IDR).

Template-Based RecognitionTemplate-based OCR works by defining zones – x and y coordinates or bounding boxes – for each field that needs to be captured. The image snippet for each zone is then sent through OCR and the resulting data is used to populate the specific data field. Some template-based technologies also utilize text or image-based anchors that allow zones to “float,” which further improves accuracy as pages tend to shift slightly when being scanned. Template based recognition works well for structured forms, however for invoices it requires one template for each vendor’s invoice layout. This is cumbersome and tedious as vendors also tend to change their document layout.

Free-Form RecognitionFree-form image technology relies on user-defined keywords, rather than search boundaries, to recognize and capture required data. Once a keyword is located, nearby data is examined until other keywords are found. For example, if “purchase order number” is the keyword phrase, the software searches data around those or similar words in the document to identify and populate the PO number field. Typically, free-form image recognition rules include directional clues as well. The directional rules instruct the software to search in a particular direction relative to the keyword(s) for other required data. Free-form recognition can be valuable when handling invoices that may not be captured as effectively using template-based recognition. Further, there is no set-up time involved, and the rules can be tuned as required.

Intelligent Document RecognitionThe term Intelligent Document Recognition (IDR) denotes a collection of technologies aimed at extracting information from documents. Going beyond template and free-forms recognition it comprises sorting and classification technologies as well as automatic learning algorithms.All IDR systems extract information without the system having to learn the layout of the invoice. Rather the systems learn by reviewing a relatively small number of invoice samples. This helps them scale to large invoice volumes and widely varying document layouts without requiring a human operator to specify a template for each one, or explicitly create and tune an extensive library of keywords.

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SAP® Invoice Management by OpenText

Solution Profile

Given the need to overcome the hassles associated with manual and paper-based processes and the proven ability of IWA solutions to deliver tangible improvements in the AP space, organizations are actively looking for solutions that address all their invoice receipt-to-pay issues. One solution provider in particular, SAP, is attracting attention based on the ability of its solution, SAP Invoice Management by Open Text, to provide an end-to-end solution for invoice receipt and approval.

SAP Invoice Management by OpenTextWith approximately 76,000 customers in over 120 countries, SAP is the world’s leading provider of business software, offering applications and services that enable companies of all sizes and in more than 25 industries become best-run businesses. SAP resells Open Text Vendor Invoice Management under the name the SAP Invoice Management by Open Text. As part of this agreement, SAP also resells Open Text’s document capture solution Invoice Capture Center, from Open Text’s acquisition of Captaris, under the name OCR option for SAP Invoice Management. SAP Invoice Management completes the portfolio of finance solutions for SAP’s enterprise resource planning (ERP) application, SAP ERP, enabling companies to optimize their entire financial supply chain. Open Text is an industry leader in ECM solutions for use with SAP solutions, leveraging two decades of partnership and co-development, and expertise gained from delivering solutions to more than 3,700 SAP customer sites around the world. Open Text’s well-established products offer a complete range of capabilities for managing and archiving business documents—incoming and outgoing invoices, orders, delivery notes, quality certificates, human resources documents—that originate from customers’ back-end applications. Open Text’s applications for use with SAP software help customers improve efficiency in key processes, manage compliance, consolidate IT systems and reduce costs. The partnership with OpenText demonstrates continued evidence of SAP’s strategy to deliver additional choice and flexibility to customers looking to extend the value of their SAP investments.Invoice Receipt: Paper documents can be scanned into Invoice Management through Open Text Imaging Enterprise Scan. The strength of the solution lies in its strong integration with OpenText repositories.The solution can be expanded beyond the AP department to address the imaging needs of the entire organization. As the solution is agnostic to invoice metadata receipt, invoice information can be brought into the solution using a multitude of methods, including manual data entry, email, fax, OCR data capture, EDI, or other electronic means. To add deployment flexibility, data entry and exception routing may be accomplished off-site, while approval work can be handled by on-site AP staff. Document and Data Capture: With the recent acquisition of Captaris, Open Text not only provides functionality for the efficient processing of invoices, but now also offers an OCR option for Invoice Management called Invoice Capture Center (ICC), which further extends the solution’s capabilities to completely automate the capture of paper invoices. We were really impressed with “knowledge base”, which comes bundled with the ICC tool. The knowledge base has been trained on samples of invoices from thousands of different vendors and multiple countries around the world, enabling ICC to more

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Solution Profile

intelligently recognize the type and position of invoice data, and extract it accurately with minimal human intervention. Once data is extracted it is validated against ERP and other backend systems to increase the accuracy of data extracted. At this point, invoices that contain missing or invalid information are flagged as exceptions and routed to the appropriate individuals or groups for resolution. The new version of ICC to be released in September 2009 comes bundled with an innovative integration concept. Instead of running as a detached front-end process, the capture process is called from and controlled by the SAP system. This enables true early archiving and allows for a complete end-to-end control for the AP process.Content Storage and Management: Open Text provides a highly scalable and secure repository with its SAP solution, which enables organizations to create access, manage, and securely archive all transaction-related content. All user screens include the ability to immediately retrieve invoice images as well as the ability to open supporting documents such as purchase orders and receipt documents, where applicable. Workflow Management: The system leverages SAP Workflow, which comes bundled with 46 unique business rules that encase most of the business scenarios a company is likely to encounter. Additionally, the system is completely configurable, if the client has any other processes outside the ones that are pre-configured. It is flexible enough to utilize existing SAP HCM structure or it can also work with other organizational matrices. SAP role resolution is configurable for all process roles such as AP processor, buyer, etc. and roles are maintained using standard SAP security profiles. Invoice Management runs inside of SAP ERP using SAP transaction codes and functionality such as 2- and 3-way matching. If all issues are resolved satisfactorily then the invoices can be automatically posted to the GL or routed to AP for final review before posting. Invoice exceptions are automatically detected. If exceptions are detected, the invoice is automatically and immediately routed to the appropriate Role (such as a Buyer) based on configurable business rules for resolution. Invoice Management automatically determines whether invoices require approval or possible coding. Reviewers and approvers are sent an email with a link to a portal presenting all the required metadata and invoice images with process history allowing them to take appropriate actions. The solution also includes a process monitoring feature as a standard option, available for continuously documenting every touch point.Reporting and Analysis: The solution delivers robust reporting capabilities. Several standard reports are available to monitor the invoice lifecycle management. The Vendor Analytics module provides detailed analysis of the process flows and the ability to drill down to transactional data. Since the solution runs entirely inside SAP, a standard SAP tool bar with sorting, filtering, printing, etc. is available, as is SAP Workflow Information System (WIS), which allows users to download the data into spreadsheets for client specific analysis. The metadata used in the reporting is also structured for easy export to SAP Business Objects Intelligence. In the next release of Invoice Management, scheduled for late fall 2009, additional reporting will be provided with a focus on invoice aging, productivity, and exception analytics.Implementation and Pricing: Implementation starts with a blue print session with key stakeholders, followed by configuration of out-of-the-box rules and related role resolution. Implementation takes two to three months. Pricing is based on annual invoice volume.

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About PayStream Advisors, Inc.PayStream Advisors is a technology research and consulting firm that improves the way companies plan, evaluate, and select emerging technologies to achieve their business objectives. PayStream Advisors assists clients in sorting through the growing complexities of IT applications related to business process automation with the goal of making objective, analytical, and actionable recommendations. Wherever business process automation technology is an issue, PayStream Advisors is there to help. For more information, call (704) 523-7357 or visit us on the Web at www.paystreamadvisors.com.

About the AnalystAs Research Director, Sush Koka manages PayStream Advisors’ overall technology research effort. She writes research reports, leads client briefings, and participates in consulting engagements in the purchase-to-pay and order-to-cash functional areas. Her deep experience both as a market analyst and a consultant enables her to analyze trends in financial services automation, assess feasibility of products and drive research activities. Her areas of focus include invoice and payment management, travel and expense management and business process automation. She has extensively researched and written reports in the above areas and her work has also been published in trade magazines such as Supply & Demand Chain Executive and DOCUMENT magazine.

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