Case Study #52: Invoices with Wings – An Automated Approval Workflow System

The client was an international power management technology manufacturer with sales of more than $1.1 billion. Our sister company, Corporate Knowledge, Inc., performed this work.

Situation

Before paying a vendor invoice, Accounts Payable (A/P) required an approval from the internal customer that had ordered the product or service. Large invoices also required additional executive sign-offs based on a dollar-value approval hierarchy.

The A/P department, with a staff of 17 people, was responsible for securing the approvals before issuing payment. Because the company had offices across a four-block area with the approving departments in various locations, paper copies of invoices, and usually copies of the copies as well, were sent via the internal mail system.

Internal customer responsiveness was such that getting an invoice approved for payment took an average of 30-45 days. A/P personnel averaged 3-10 phone calls and emails per invoice to get the required approvals.

This system presented several significant problems:

  • Invoices out for approval were very difficult to track down – as a last resort A/P personnel literally walked department to department across the four-block campus, trying to determine whether the invoices had been approved.
  • Vendor payments were taking increasingly longer than the specified contract terms.
  • A/P, the sole contact for the vendors, could not predict for the vendor when an invoice might be paid.
  • Between the workload and inability to provide high quality customer service, the A/P department suffered from very low morale.

Approach

We recommended an automated work flow system whereby invoices would be captured electronically and routed automatically based on the requestor of the services (the internal customer) and any dollar-value approvals required. A two-person project team was assigned to the project, one of our consultants and one person from the company’s A/P department, which minimized the impact to client resources.

The new system functioned as follows: Invoices were sent to a third party service for scanning and routing to the Accounts Payable department. The digital invoices were then sent electronically to the approver(s). A matrix was set up covering the required approval routings (depending on the service or product and the dollar value of the invoice) to allow for correct sending and ease of tracking.

Result

The work flow system was tested and became functional within a few months, resulting in positive progress on multiple fronts. The first major improvement was that the invoice approval cycle time decreased significantly, simply because the A/P department and line management could track an invoice almost instantly, also allowing A/P staff to easily identify any obstacles or slow-downs. The average approval time dropped from 30-45 days to 5 days.

Another major improvement was that A/P was able to meaningfully answer vendor inquiries immediately. With the reduction in workflow, the A/P department was able to reduce the size of its department by 3.5 people.

An additional benefit came in the form of the reporting mechanism of the work flow system – using the reporting function, the monthly reconciliation to the General Ledger was completed in a fraction of the time that had previously been required.

Thus, efficiency, significant cost savings and vendor satisfaction improvement were achieved with minimal cash outlay and minimal use of client resources to implement the solution.

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