Vendor invoices are very complicated. In fact, some have hundreds of line items on hundreds of pages.
Auditing these invoices monthly or quarterly is time-consuming and resource extensive. This is why, in many financial institutions, such high value critical vendor invoices are not audited thoroughly until long after they are paid. Some operations may compare this month’s invoice to last month’s and, absenta material variation, approve them. This approach, however, is limited in its effectiveness and may, in fact, allow invoice errors to survive and multiply over time.If some credit unions do dedicate the time and effort to audit these high dollar invoices properly, they do so manually. Given the level of detail in these invoices, it is not surprising that the level of human error is significant.
Invoices do contain errors, however, and,many times, they are substantial. In SRM conducted research, it was found that 10% of the tens of thousands of invoices the firm has audited contained errors. Other datafrom other industries supports this finding and makes it clear this is not a phenomenon unique to banking.For example, from a survey by Ardent Partners – a firm working in the supply management space – found 62% of respondents identified “exceptions” as the primary contributor to lengthy invoice review cycles. A survey by The International Association of Commercial and Contract Management found poor practices such as these cost organizations 9.2% of their bottom line.
An additional factor that is and will continue to add to the challenges of vendor management for credit unions is the increasing number of suppliers needed to continue to match the always changing expectations of members. The ongoing adoption of new technology by members will create a need for continuous innovation by credit unions. Most credit unions will seek partnerships with emerging vendors with services that address the demand of members for new features and functions. Many of these vendors will have different pricing models and fee structures incorporated into their contracts and the impact will show up in invoices that may look very different from those received from legacy vendors.
It can be hard to raise enough awareness about the need to improve the level of due diligencepaid to vendor invoices. The mindset at many organizations if often anchored in the “if it isn’t broken, don’t fix it” view. The problem is, of course, that it is broken and, perhaps, costing the institution millions. The reason that fact is not obvious is the “bleeding” is not visible. No one knows if there are costly errors because no one is auditing the invoices in a fashion that would uncover such losses. One can’t know what one doesn’t know.
Penetrating the “if it isn’t broken” mindset may require the identification of benefits beyond recovering the dollars associated with errors in the invoices of high value vendors. This is where automation comes into play. Not only does technology eclipse a human’s ability to identify exceptions, it also delivers an ROI that is hard for any executive to ignore. According to a Concur study, organizations using automation to audit invoices recorded a 44% reduction in overhead cost.This reduction in cost does not take into account the value of any errors uncovered during these audits.
And the technology required to deliver this reduction of overhead and audit invoices across multiple variables is not costlyconsidering the value it delivers. Additionally, finding a partner who offers this capability as a service means thereis no disruption for the credit union. A credit union does not need to hire additional expertise in areas such as artificial intelligence, intelligent workflow or sophisticated algorithm development.There is no new technology to purchase or license. No one at the credit union will have to be trained to deliver the benefits unlocked by this type of service.
In considering partners which can provide this type of service, credit unions should look for an organization with deep expertise in the areas where the institution relies on high cost vendors. The landscape in areas such as core processing, payments, digital banking,etc. is ripe with nuances a generalist firm will not be able to understand quickly.
As for the technology, a credit union should seek partners who offer an automated vendor invoice auditing system which includes a combination of technologies such as robotic process automation, machine learning, intelligent workflow processes and algorithm-driven auditing engines. The machine learning component will likely be used to read the invoices – all of which come in different formats – and normalizes the content to allow for the algorithm engine to consume the data. The algorithm engine then conducts a two-step invoice comparison,contrasting the current data to all previous invoice data and to the fee schedule in the most current version of the vendor contract. Humans remain a key part of this process, as exceptions are flagged then reviewed by an analyst before the client or the vendor is notified. Most importantly, this is all be achieved BEFORE the invoice is paid.
Automation Enables Best Practices
Automating vendor invoice auditing is a good example of applying technology precisely where it can return the most value in the shortest amount of time. This should be the criteria for any institution starting to introduce automation into its operations. To find the areas where a credit union can best apply automation and reap the benefits requires the identification of tasks which can be better done by machine than human, as is the case with vendor invoice auditing. The tasks to inspect will be manual, repetitive, and – perhaps – involve combing through a considerable amount of information. Machines are very good at this.Humans?Not so much. Implementing automation releases the member of the credit union’s team to assist in areas where amachine cannot perform as well as humans.
Vendor management practices in many institutions suffer because oversight falls to an individual or set of individuals who have a number of other responsibilities. In the current environment, where so many factors within the organization need urgent attention,if a credit union is to continue to provide value to its members, there often is not enough time to implement best practices in areas such as vendor management. Still, the cost of not implementing best practices is non-trivial and reaches beyond the errors in vendor invoices. Software that utilizes artificial intelligence offer a means for automating best practices. The investment made can be returned in months rather than years. Starting with automating vendor invoice auditing should be the first step in a journey to identify other areas within vendor management which can be improved with technology.
The Bottom Line
Each year, manually driven vendor management practices negatively impact the bottom line of credit unions. Unfortunately, that condition is often replicated across a number of back office systems where manually driven processes often reign. To any credit union decision maker, it may appear all is well since the extent of the damage to the bottom line is not readily visible.
Today’s financial services landscape is more complex than ever, and credit unions have a long list of initiatives and projects they are juggling. Nearly every institution is trying to do more with less…even while conditions create more challenges which must be addressed. These dynamics are unlikely to change in the near term (if ever), so it is vital credit unions consider where intelligent automation can be applied to improve efficiencies and lower costs.
Using automation to audit high value critical vendor invoices is the perfect place to demonstrate the value of this type of initiative.
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Michael E. Carter is Executive Vice President at Strategic Resource Management, Inc. in Memphis, Tn. His email address is firstname.lastname@example.org