30 reasons to replace ‘the check is in the mail’ with ‘check your e-mail’

As supply chain professionals continue to implement automated contracting, inventory and purchasing applications, the electronic invoicing and payment components remain the holy grail that the information technology-minded doggedly pursue.

Yet with the Healthcare Information Management Systems Society (HIMSS) conference and exhibition quickly approaching early this month in Chicago (April 4-8) it’s only appropriate to reiterate the explicit financial and operational benefits electronic invoicing (810) and payment (820) can offer healthcare facilities.

Consequently, Healthcare Purchasing News tapped six influential industry observers and players from the software manufacturing and consulting services segments each to weigh in on five reasons to make electronic invoicing and payment standard operating procedures. Many of the 30 tips may be obvious but worth the reminder. Here’s what they had to say.

1. Fewer exceptions due to manual keying of invoices.

2. Improved accuracy for orders and billing with suppliers.

3. Faster approvals and quicker payments due to automated matching; maximizing of rebates.

4. Reduction in costs associated with labor and data entry.

5. Early pay discounts and incentives; facilities can take advantage of special or early payment terms to effectively comply with contracts.

1. Electronic invoices can reduce the invoice cycle from an average of 15 to 60 days to just 2 to 5 days, making it possible for hospitals to pay suppliers within the typical 10 to 15 day early pay discount window. GHX hospitals have reported savings ranging from $76,000 to $500,000 annually through greater use of early pay discounts. By paying within stated contract terms, hospitals can also avoid late payment fees and credit holds

2. Electronic invoices eliminate the need to key invoices manually into an MMIS or ERP system, saving an average of three minutes per invoice, and improving accuracy (no manual entry errors)

3. With electronic invoices, accounts payable clerks can match invoices to purchase orders, purchase order acknowledgements and other supply chain documents, such as advanced ship notices, in half the time it takes to perform the same task manually. 

4. On average, with electronic invoices, hospitals achieve a 50 to 75 percent gain in Accounts Payable productivity.

5. Payments made electronically are approximately one-fifth the cost of paying with paper checks.

1. Lower AP processing costs.

2. Timely, consistent workflow.

3. Less friction between trading partners.

4. Better cash flow management.

5. Improved credit management.

1. Ability to properly take early payment discounts.

2. Ability to improve the accuracy of their financial data.

3. Increased negotiation power due to better payment processes.

4. Less paper, less waste.

5. Improved audit trails.

1. Increased AP productivity through automated matching and payment processing.

2. Increased purchasing productivity through reduction in time required for error resolution.

3. Increased receiving productivity through automated invoice/receipt matches.

4. Potential reduced prices and/or bonus payments from vendors due to reduced cost of receiving accurate payments.

5. Potential opportunity to negotiate enhanced payment discounts due to hospital’s ability to effectively manage and promote faster payment turnaround/terms.

810 Incentives: In the case of the 810, distributors have done a pretty good job of creating incentives for change. Within the MediClick for Financials user community, over 65 percent of our customers have adopted electronic invoicing. But they’re doing it almost exclusively with distributors like Cardinal Health and Owens & Minor. Why? Follow the money.

It is important to the distributor business model that they maintain a low "days sales outstanding" record by collecting quickly on accounts receivable. They’ve found that hospitals using the 810 tend to process their invoices much more quickly and thereby pay their bills on time. So the distributors have encouraged the practice with financial incentives, i.e., "prompt payment discounts," and hospital AP departments are eager to participate in the savings.

Invoice Discrepancy Processing: It’s important to note that the main advantage of the 810 is that it brings the invoice into the hospital’s AP system without the manual work of keying invoices or sifting through scanned images (and avoiding the human errors that occur from both).

Invoice discrepancies are highest when the vendor changes a contract. This can affect the price of thousands of items the hospital buys. The goal is to update the purchasing system with the new prices on the day they take effect.

Contracts & Analysis automatically updates the materials management system with the new contract prices on the exact date they take effect. As importantly, it goes the extra step of alerting the users in advance of the price change, allowing them time to confirm that their distributor has also updated the price on file. This process lets the hospital take advantage of new contract prices as soon as they’re available while also avoiding invoice discrepancies.

820 Electronic Payments: We have seen very little use of 820 electronic payments. Instead, many customers choose to use an automated clearinghouse (ACH) and transmit a payment file directly from the MediClick system to their banks.

The ACH payment process is simple, but there are limitations. For example, ACH files do not carry with them supporting information about which invoices the payments are for. The hospital often sends a separate report to the vendor with details about the specific invoices.