10 SCS:VIEWPOINT OCTOBER 2008 SUPPLY CHAIN STANDARD
www.supplychainstandard.com
FINANCE
Matching makes
invoice heaven
Why intelligent matching is key to
gaining control of payment cycles – and
saving cash through capturing early
settlement discounts. JAMIE TAYLOR
Ask a financial controller if he’d like a three per cent
discount on his payment runs every month, while
saving on invoice processing costs, and he’d bite
your hand off. At the start of 2008, Experian found
that on average, UK businesses are taking 61 days to
pay their bills, up two days since the previous year.
While everyone’s doing it, it isn’t good for supplier
relationships, nor is it the best financial sense. Paying
suppliers early to improve your own cashflow seems
counter-intuitive, but the figures add up. A typical
business reserve account gives around five per cent
interest, or 0.4 per cent per month.
However, a supplier will typically offer a 1.5 per
cent to five per cent discount for settlement within
15 days. Let’s assume a company negotiates an
average discount across its suppliers of 2.5 per cent.
On a monthly payment run of £1m, this company
would earn at most £4,100 in interest, but save
£25,000 per month through early settlement.
However, the problem is, in many cases, that
companies’ accounts payable systems aren’t up to
the task of hitting early settlement deadlines. In
many cases, companies’ AP automation solutions
focus on the scanning and capture of invoice data,
and uploading onto the accounting system.
But the most critical step is what happens after
the invoice is digitised – the matching of the invoice
to its corresponding PO and supporting documents,
so it can be approved and passed for payment.
Matching is the most time-consuming phase of
the process, as manual tasks like finding purchase
orders and good received notes; checking and
consolidating; and manual entry into business
systems eats man-hours that could be better used.
If these matching-related tasks can be automated,
then settlement deadlines can be hit, and
accounting staff can have more strategic roles
instead of chasing paper. The key is to integrate the
captured invoice data with approved supplier details
and approved purchase order information. This
demands links with core business systems.
Invoices that match the defined criteria are
automatically released for approval and payment,
minimising the need for manual intervention and
action. This workflow can be governed by businessspecific
rules, enabling AP staff to manage invoice
processing by exception – so that only nonmatching
invoices require hands-on attention for
approval. This also means that key targets like
settlement deadlines can be built into workflow.
JAMIE TAYLOR WORKS FOR SOLUTION
PROVIDER CONTEMPUS.
THE RISING COST OF ERP SUPPORT
Members of the SAP UK and Ireland User Group have spent the
last three months arguing with SAP about increases in support
charges, but can software-as-a-service offer a real alternative?
JOHN LAMB
The November annual conference of the SAP UK
and Ireland User Group promises to throw light
on an increasingly contentious aspect of logistics
IT: the cost of running enterprise resource
planning (ERP) systems.
ERP systems have generally been regarded as a
cheaper alternative to so-called best of breed
supply chain and warehouse management
software because the logistics modules included
with them can be turned on at lower cost.
However, many IT buyers believe that the extra
cost is worth it because performance and features
are superior in software developed by specialists.
European companies that opt for an ERP solution
compared with those that go for best of breed or
custom applications are split roughly 50/50,
according to research company AMR.
Members of the SAP UK and Ireland User
Group, many of them with big supply chain
operations, have spent the last three months
arguing with SAP, the company that virtually
invented ERP software, about increases in the
amount of money that it charges them to look
after the software. Support from SAP is a vital
element in getting the best out of the software.
The cost of support for new SAP customers
went up from 17 per cent of the value of their
contracts per year to 22 per cent in June. Existing
customers will move to the higher rates in phases
which SAP will complete in 2012.
SAP user groups around the world have
protested about the price rise which they say
represents an increase of close to 30 per cent. SAP
will in effect move all its customers from cheaper
‘standard’ and ‘premium’ support to a higher
priced ‘enterprise’ support package.
However, the UK and Ireland User Group
argues that many of the technologies covered by
enterprise support such as service oriented
architecture are of no use to smaller and medium
sized companies, because they do not use them.
"We understand that if SAP is to provide more
comprehensive support then it has to charge
more for it,”says Alan Bowling, chairman of the
group. “However, many of our members may not
want or need this extra level of support and
therefore are reacting negatively to having a new
support product and the associated increase in
costs forced upon them."
SAP says the price hike is a result of the
increasing complexity of its products. However,
the company recorded an 18 per cent drop in
profits earlier this year and is under pressure from
customers looking to keep IT costs to a minimum.
A spokesman for SAP explained that the
company’s job is to be broad enough to help the
majority of its customers, most of whom need a
level of support that addresses expanding IT
complexity and increased adoption of a serviceoriented-architecture
strategy.
There is a change in the way software is
delivered that has big implications for SAP. Until
recently most software has been licensed to users
to run on their own premises. But over the past
three years a new way of buying software called
software-as-a-service (SaaS) has gained ground.
Under this model, suppliers host software on
large, central systems and sell monthly
subscriptions to customers who access the
applications via their Internet browsers.
The arrangement reduces the capital cost of IT
and removes a lot of the management overhead
involved in programs that run on a user’s own
computers. With SaaS, IT departments do not
have to get involved in maintaining software
and sorting out glitches.
Gartner Group forecasts
that within three years 35 per
cent of packaged software
will be supplied as a service.
Companies are already selling ERP applications
using the SaaS model. And Gartner Group
forecasts that within three years 35 per cent of
packaged software will be supplied as a service.
SAP has begun testing its SaaS product called
Business by Design. The company has found it hard
going to translate its existing portfolio, which was
designed for large companies to the SaaS format.
Service levels have to be high. For example, SAP
makes concerted efforts to record errors that occur
in its SaaS offering, because it cannot rely on nontechnical
end users to describe problems accurately.
Some observers believe that mainstream
software companies such as SAP will lose out
financially, because the amount of money they
can charge for subscriptions is much less than
they can for software packages. But the
economics of SaaS are by no means clear and
costs per user may turn out to be much closer to
the conventional method of delivering software.
In the meantime watch out for fireworks
in November.
JOHN LAMB IS A FORMER EDITOR OF COMPUTER
WEEKLY, INFORMATION WEEK UK AND
INFORMATION ECONOMICS JOURNAL.
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