Can going paperless save you money?

It might be an exaggeration to say that smaller companies are “drowning in paper.” But, no question, an overreliance on hard copy creates an obstacle to the healthy, efficient functioning of their finance departments.

Take accounts payable, for example. More than 84 percent of all invoices are still received on paper or via email and faxes (which then become paper), according to a just-released survey of some 300 A/P pros by analyst firm PayStream Advisors Inc.* “The biggest invoice management challenges remain an overreliance on people- and paper-based processes, and the high number of discrepancies and exceptions associated with such a system,” the report notes. “Emerging concerns include discount capture and visibility of spend.”

Indeed, visibility into paper-based systems is so challenging that many organizations don’t even know what it costs them to process an invoice, but PayStream estimates the average cost at small businesses at $15.58. This is  about 40 percent higher than at midsize and large firms, which have seen the benefits of automation.

Of course, a paperless back office is no guarantee of efficiency. But it is the foundation of efficiency.

A glance around the A/P desks at a typical small business reveals why that’s so. Here’s a tale of two invoices, one processed in a paper-based system, and one paperless.

Paper-based: Terri, the office manager, opens the envelope, sees that it’s a bill from a vendor, and walks it over to Peter in accounts payable. Peter decides that it’s an invoice for marketing services and takes it to Andrea, the Marketing Manager, for approval. But wait, she’s at a conference, so Peter scans a copy, emails it to Andrea and puts the original in a basket on his desk where he keeps all invoices that need follow-up for approval. A few days later Peter sends a follow-up email, but Andrea responds that she can’t find the original and asks Peter to resend her a copy, which he does.

While this is in progress, the invoice is noted in the accounting system. But only Peter, with his pile of papers, can tell you where it is in the process.

After the approval comes the payment process. Peter scans a copy of the invoice, cuts a check and staples it to the copy, and brings it over to you, the CFO, for your signature. After you sign the check, Peter goes back, prints an envelope, stuffs the check into the envelope, applies postage, mails the check and files copies in the A/P file drawer.

In many small companies, Peter may be the single person who approves invoices, and who also sets up new vendors and releases payments. What’s to stop him from setting up his brother’s firm for payments? Well, he’s just not that kind of person … right?

Paperless: All invoices arrive electronically in a workflow queue for Peter. Peter receives notification of a new invoice, and he logs in and clicks a drop-down box on his screen to select the correct person for approval, Andrea in this case. Andrea receives a notice from the system that there’s an invoice awaiting approval; if she’s at a conference the document will stay queued up, and she’ll get reminders. Once it’s approved, Peter receives a notice from the system; he logs in, sees Andrea’s electronic approval and queues the invoice for payment. Anyone with proper access can log in at any time to find where in the process the invoice is currently sitting.

Each payment cycle, you, the CFO, get an e-mail from the system that shows images of the invoices and details of the payments. You log in from any location (office, home, etc…) to a secure web based portal, click a button to release payments, and out they go without printing or envelope stuffing.  The supporting document images are then linked with your accounting system for easy reference for internal staff or auditors.

There’s no backtracking, no need for “gentle reminders,” no lost or missing invoices and no need to hunt around on staffers’ desks or dig through filing cabinets.

What there is instead: efficient workflows; clearly defined responsibilities; built-in protection against fraud; and, most important, deep insight into A/P at any point in the cycle, giving you the financial information you need to make the big decisions.

The PayStream Advisor study notes that “while the adoption of A/P technologies has been limited to larger companies until recently, we are evidencing this trend trickling downward to small and medium-sized businesses,” for a variety of reasons including cost reduction, liquidity pressures, and the evolution of software-as-a-service delivery models.

Migrating accounts payable from a paper based to a paperless process can often be fairly simple step … what are you waiting for?

*PayStream Advisors: Invoice Automation Adoption Survey Report, Q3 2011