Introduction

One of the persistent challenges in accounts payable management is the lack of granularity in vendor invoices. This problem becomes particularly pronounced with large invoices like an annual $10M software license or maintenance agreement. Without a sufficient level of detail, it becomes challenging to perform costing exercises, reconcile costs with deliverables, and ensure accurate financial reporting. This paper delves into strategies that companies are adopting to improve invoice visibility and provide examples of how they're implemented.

The Problem

An invoice without details is like a map without any labels. For large enterprises, reconciling invoice amounts with actual services or products received becomes a daunting task, leading to:

1. Reduced Transparency: Invoices that don't break down costs don't provide clear insight into where money is being spent.
2. Budgeting Challenges: Accurate future budgeting becomes difficult without clarity on past expenses.
3. Contractual Discrepancies: Without granular data, it's tough to confirm if the vendor has adhered to the contractual agreement.

Strategies Adopted by Companies

Several of our customers have recognized this challenge and undertook strategies to enhance the visibility of vendor invoices. Here are some examples:

1. Life Insurance Group (US): Collaborative Detail Entry and Vendor Incentivization

• Strategy: The TBM office introduced an editable table within their Apptio system, allowing their Accounts Payable team to enter invoice details manually. They also mandated labor vendors to provide detailed invoices in a specified format.
• Benefit for Vendors: Complying with this requirement elevated the vendor to a 'preferred vendor' status. This not only streamlined their contract negotiations but also increased their potential business volume with the company.
• Outcome: This approach transformed the vendor relationship into a win-win situation. While accounting obtained the necessary invoice data for better financial management, vendors received more business.

2. Manufacturing (Global): Introduction of Annual POs for Subscriptions

• Strategy: To handle invoices without POs, especially from giants like Microsoft, the company transitioned to issuing annual POs for subscriptions. The costs were broken down into individual PO line items, ensuring that every payment had an associated PO.
• Implementation: A significant change was made to internal policy requiring vendors to reference the PO on their invoices to qualify for payment.
• Outcome: This strategy not only added an extra layer of validation for subscription costs but also facilitated the creation of PO burn-down reports in Apptio, which were valuable for budget forecasting and management.

3. Insurance Group (Global): Utilization and Action in Hosted Vendor Contract

• Strategy: In order to analyze the cost effectiveness and optimization of hosted server and storage resources, this customer added detail requirements to their contract renewal. They insisted on utilization metrics, and they required that the vendor action their requests for resource reductions.
• Benefit for Vendor: Faced with accelerating cloud migration programs, the extra negotiated invoice detail and services made them a more attractive partner.
• Outcome: The customer used Apptio to highlight under-utilized CPUs, Memory, and Storage allowing their CIO to mandate reductions to their Application Portfolio Owners. The vendor executed the reductions, and the customer tracked the savings monthly in Apptio.

Services and Solutions in the Industry

Centralized Invoice Processing Systems

• Overview: Large enterprises often adopt centralized systems, like SAP's Ariba or Oracle's Procure-to-Pay, to streamline the receipt and processing of invoices.
• Benefits: These systems often come with standardized templates and formats, ensuring that all vendors provide a consistent level of detail. Automated validation against purchase orders or contracts further ensures data accuracy.

E-Invoicing Platforms

• Overview: E-invoicing became a prevalent solution, especially within the EU due to the European Standard on e-Invoicing. Platforms such as Tungsten Network or Tradeshift allow vendors to submit digital invoices in standardized formats.
• Benefits: These platforms enforce specific levels of detail and enable easy integration with enterprise financial systems, automating much of the data entry and validation processes.

Invoice Scanning and OCR Technology

• Overview: Companies with a high volume of paper invoices adopted Optical Character Recognition (OCR) technology. Vendors such as Kofax or ABBYY provide solutions that scan and extract data from physical invoices, converting them into digital formats.
• Benefits: While the initial setup requires mapping and training, once optimized, these systems can drastically reduce manual data entry and ensure that essential invoice details are captured and processed.

Vendor Compliance Programs

• Overview: Some enterprises developed vendor compliance programs that define the required level of detail in invoices. Vendors might be provided with guidelines, templates, or even training to ensure their invoices meet the set criteria.
• Benefits: Over time, such initiatives can improve the quality of received invoices, reduce back-and-forth communication, and expedite payment processes.

Third-party Audit and Reconciliation Services

• Overview: Recognizing the challenge of invoice detail discrepancies, third-party services emerged offering audit and reconciliation services. Such vendors analyze invoice data against contracts, purchase orders, and other enterprise data to ensure accuracy.
• Benefits: Outsourcing this function can save time for internal teams and may uncover discrepancies that might otherwise go unnoticed.

Conclusion

Enhancing the visibility of vendor invoices requires a mix of technology adoption, procedural changes, and vendor management strategies. Companies that understand the implications of inadequate invoice details are now proactively adopting strategies to bridge the gap. Whether through collaborative data entry platforms, mandatory POs, or incentivizing vendors, the ultimate goal remains consistent: achieving a detailed, transparent, and efficient invoice processing system.