But friction with finance people simmers just outside the obvious three, particularly with accounts payable and the revenue cycle managers.

Their beef? Invoices don’t match purchase orders, exceptions are growing and too many fingers are tapping keyboards.

As supply chain management departments fuse with A/P, struggle to adopt and implement information technology applications for critical functions and fret about data standards, automating the payment process – including POs, invoices and workflow – remains relegated to the "to-do" list unless any or all of it can be outsourced.

So where are supply chain management departments at this point?

Healthcare Purchasing News wanted to examine the context around automated payment strategies and explore how supply chain management might contribute to the process.

Unfortunately, right out of the gate, supply chain managers face two challenges that can sully the motivation for and expected outcomes of automated payment processes.

For instance, what inherent value does automating payment bring if processes leading up to it still need to be fixed?

After all, automated payment may help resolve invoice matching errors, manage exceptions and eliminate manual data entry, which can improve workflow and relations with AP, but how might it prevent the data errors in the first place that only will corrupt the rest of the process?

Bottom line: It doesn’t. At least at first.

Alex Zimmerman

"Automated payment has inherent value even when processes leading up to it still require repair," argued Alex Zimmerman, director supply chain information management, Resource Optimization & Innovation (ROi), Sisters of Mercy Health System, St. Louis. "Although the process doesn’t directly prevent errors, it does make them more noticeable and more worthwhile to repair." 

Zimmerman indicated that the inherent value automated payment brings is process efficiency and better discount terms. "Because the process is machine to machine everything must be perfect in order to auto-match," he said. "In fact, in many systems the errors cause the invoice to not even make it into the system and once in the system other errors still must be corrected, so the effort is magnified both ways by the process. Because of these hard failures it behooves stakeholders to ensure the data is correct prior to order."

Discount terms should be another motivator, according to Zimmerman. "Many vendors offer early pay discounts for paying within an aggressive window," he noted. "The window cannot be met when factoring in postal service mail time, so virtually the only way to take advantage of many of these discounts is through automated payment. Here again, the stakes are higher when real discounts are on the line and stakeholders are behooved further to pressure for clean data prior to order."

Thayer Stewart

Even in non-automated "procure-to-pay" processes, errors must be uncovered or even prevented with the receipt of the invoice, contended Thayer Stewart, vice president, marketing and business development, OB10 Inc., Atlanta.

"The difficulty in reducing matching and data entry errors revolve around the fact that paper is cumbersome to deal with, often is lost or is misplaced, and is entered incorrectly into a hospital’s [enterprise resource planning] system," Stewart said. "The best way to eliminate most, if not all, of these issues is to automate the invoice receipt component on the front end. This can significantly eliminate matching errors, along with a purchase order matching feature, reduce exceptions and eliminate data entry mistakes. Solving these problems on the front end can resolve a host of issues on the back end."

But if you can’t obtain clean data prior to issuing or receiving an invoice, how do you determine and measure the effectiveness and efficiency of an automated payment process, which includes electronic invoicing and automated workflow applications?

ROi’s automated payment strategy primarily involves electronic invoicing, evaluated receipt settlement, accounts payable workflow, electronic funds transfer and procurement cards, according to Zimmerman. "We only measure effectiveness by tracking early pay discounts taken, early pay discounts lost and P-card rebates earned," he said. "We do not attempt to measure efficiency largely because we have been doing it for so long and the efficiency is so noticeable that no one is interested in seeing the metric."

Still, ROi matches and pays 75 percent of its invoices electronically and maintains 18 clerks in its A/P department, only one of whom monitors the A/P electronic process. The remainder manages the 25 percent of paper invoices.

"It does make a difference if we cannot get clean data prior to issuing an invoice," Zimmerman admitted. "The reason… if the electronic invoices didn’t match electronically, due to discrepancies, we would be required to have more than one A/P clerk managing the electronic invoice process as part of their role is to ensure they match."

Stewart emphasized that ensuring a smooth procure-to-pay process requires clean data prior to issuing a payment, not an invoice. He indicated that you can determine the effectiveness of your automated payment process by answering several questions:

1. Does your payment to vendors occur within a desirable timeframe in which you have insight and control over the management of your cash?

2. Are you able to take advantage of early pay discounts due to quickly receiving the invoice along with the option of paying your vendor quickly through an automated solution?

"Early pay discounts often allow A/P departments to generate additional cash for the organization," he continued. "In addition, the use of automated payment solutions, like a P-card and Buyer Initiated Payment (BIP), allow organizations to pay vendors, take advantage of the float and take advantage of early pay discounts. Incorporating all or some of these solutions can ensure effectiveness and efficiency of an automated payment process."

Before even attempting an automated payment strategy it may be wise to clean up your item master first, and maybe centralize it, advocated Zimmerman and Stewart.

"One of the first steps we take when boarding a supplier into our automated process includes a complete scrub of items maintained in our ERP," Zimmerman revealed. "If you don’t you will incur much more effort after the fact and may even end up reverting back to prior payment methods for that supplier."

A clean item master drives progress, according to Stewart. "Cleaning up the item master is key to a successful automation solution, whether it be automated invoice receipt or automated payment," he said. "Cleaning up the item master will allow the organization to reduce or eliminate duplications, thereby reducing duplicate payments, ensure accurate contact information and verify proper banking information. Cleaning up the item master first will allow the automation process to proceed much more smoothly."

But centralization may not be needed. "Centralization shouldn’t be required as long as the technology is supported by the multiple sites," Zimmerman said. "Automated payment is usually driven by bill-to and ship-to so centralization isn’t really necessary."

Hinging automated purchase orders to invoicing doesn’t necessarily have to be implemented concurrently, but why not?

"Automated purchase orders are not required for automated payment," Zimmerman said, "however it is a complementary process. As long as automation is on the agenda why not do both? I am a firm believer in automating every routine and repetitive task, and my organization is supportive of this as well."

Stewart urged providers to recruit the assistance of a third-party supplier network to connect POs to invoicing. "Ensuring that invoices can be validated against approved POs are yet another step in ensuring the procurement-to-pay process occurs smoothly," he said. "Once the approved PO is presented to be invoiced against, a supplier can easily submit their invoice. Then that invoice is validated accurately based on the information contained on that particular PO and that invoice can then be moved along and approved more quickly with little to no exception handling."

Average A/P staff productivity varies by organization, Stewart confirmed, but it’s not uncommon for a single A/P professional to handle anywhere from 10,000 to 20,000 invoices per year, he said. That includes keying in of data and exception handling. The error rates also can reach up to 20 percent.

"Ideally, AP staff should be allowed to operate in an environment where automation, as in automated invoice receipt, is in place," Stewart noted. "This allows AP staff to focus on more value-added issues and be more effective. Furthermore, automation can reduce error rates significantly – down to 5 percent or less, he added.

Zimmerman banks on the following benchmarks for his organization: The A/P staff processes more than 30,000 invoices annually with an exception rate of less than 2 percent.

"A 2 percent discrepancy rate is considered best-in-class, and it probably isn’t possible to do any better than this until better standards are put in place," he noted. "I would say anything between 6 percent and 2 percent is really good."

Stewart agreed. "The ideal objective is to reduce matched items exception – or discrepancy – rate to 5 percent or less," he added.

Supply data standards will go a long way toward making automated payment truly efficient, according to Zimmerman.

"Without any data standards it wouldn’t be possible to automate anything," he stated. "Fortunately, there are already a number of data standards in place, which is why we are able to have automated payments at all. The process will further improve once additional standards, like ones proposed by GS1, are adopted."

Zimmerman pointed to Walmart as an example because it forced the supplier community to adopt GS1 standards in the retail space years ago and it enabled them to reduce costs noticeably for the consumer. "Can you imagine how ecstatic companies and consumers would be if healthcare costs began to decline? Once standards are in place across the board it will cause all supply chain functions to become easier and more efficient," he noted. "The use of bar codes and unique device identifiers will impact ordering the right product from the right supplier and in receiving the right quantity at the right unit of measure. Fewer discrepancies translate into better match rates."

Yet advocates still sweat to convince a skeptical audience to pursue automated payment even as they struggle to improve processes earlier in the chain. Admittedly, such effort slows adoption and implementation progress, according to Stewart and Zimmerman.

"The fact that a particular audience is struggling with processes earlier in the chain is a significant reason why an organization should consider automation all throughout the supply chain – not just in the payment area," Stewart advised. "An organization can significantly streamline their overall operation, reduce costs and improve cash management by automating the invoice receipt process, ensuring POs are validated automatically, incorporating workflow and automating payment at the tail end. Automating the process at each juncture will help ensure organizations realize significant ROI."

To present his case, Zimmerman cites success stories from other similar institutions and draws parallels between their processes, issues, costs’ and benefits. Then he demonstrates that such change is possible and attests to the benefits reaped.