Take Me Out to the Ball Game: Invoice Exceptions and the 90:10 Rule
Last week, the Wall Street Journal published an article on major league baseball. The premise was that very little action occurs in a major league baseball game. Citing a 9-inning contest that lasted 2 hours and 58 minutes, the breakdown was nearly 18 minutes of action, and just under 2 hours and 40 minutes of no action. Put another way, that’s 10% action and 90% no action.
The article got me thinking of a ratio in accounts payable relating to invoice exception handling. If yours is a shop that processes invoices the old fashioned way—manual processing, predominantly paper—your AP staff probably spends 90% of its time dealing with errors and exceptions or fielding phone calls from suppliers asking when they will get paid. That leaves about 10% of time that your staff can devote to activities that can actually drive value to your corporate finance organization.
Contrast that with the organization that conducts transactions with trading partners over a business network. Here, purchase orders and invoices can be exchanged electronically and automatically matched; invoice validation can occur via business rules in the network; suppliers can access their invoice status from a web browser; and payment timing can be managed in a collaborative fashion.
For these organizations, less than 10% of activity might be spent dealing with the occasional invoice error or exception. That leaves more than 90% of time for activities that can contribute to substantial business process improvements: identifying early payment discount opportunities; analyzing line-level invoice detail to improve sourcing and management of spend; monitoring supplier performance; or ensuring contract compliance.
How much time you spend in AP managing invoice exceptions can serve as a barometer of the efficiency of your AP operations, and your ability to compete in a networked economy. The payback from connecting with your suppliers over a business network comes from substantially lower invoice processing costs, expansion of early payment discounts while maintaining or extending Days Payable Outstanding (DPO), and enforcing compliance to preferred suppliers and negotiated prices. Your suppliers, in turn, benefit from lower transaction costs, improved Days Sales Outstanding (DSO), better customer relationships, and new sales opportunities.
For a return on investment, that’s not peanuts. Or cracker jack.