Unlocking World-Class with Straight-Through-Processing
Exaggeration can be frustrating. The promise of a bright, new future only to be left with an underwhelming reality. Technology is often prone to exaggeration too. Vast amounts of trust and hope are promised by digitization projects – and a substantial amount of money – because the potential benefits could be so extensive to the business if everything went to plan.
Incidentally, one of the key reasons that technology fails to live up to expectations usually revolves around a lack of clarity on its operational purpose and the short, and long-term deliverables.
That brings us to straight-through-processing (STP), also known as touchless processing or AP automation – the holy grail of performance metrics, following decades of manual handling and the key to unlocking the untapped potential within both your staff and you streamlining the processes you rely on every day. On the journey to world-class performance, a consistent STP rate is a KPI that businesses can achieve when they are working at such a high standard.
What is Straight-Through-Processing?
Straight-through-processing (STP) is a payment or transaction process that relies on automation technology to operate completely independent of human intervention. However, in regard to the invoice process, straight-through-processing can mean different things to different processes.
For an AP team, STP would include automatic receipt, capture and archiving of supplier invoice data. Ideally, you’d also capture the invoice at the moment it is created by the supplier’s billing system, eliminating postage time. It also auto codes the invoice and provides a form of approval to pay (typically PO and Goods Receipt, although it could also be quality checks).
If you were referring to STP in the context of exception-handling, an invoice that can’t be automatically approved is routed for exception handling through a workflow process that notifies buyers when invoices don’t match a purchase order or notify the end-user when a non-PO invoice comes in that requires the user’s approval. Fundamentally, the system knows to route the invoices to the appropriate person. It’s not completely touchless – there’s a necessary approval needed from one individual – but we’re reducing those touchpoints from many potential exception-related delays to a single action.
This level of processing performance is unrecognizable in comparison to the historically manual methods. Until STP becomes a reality, many companies are resigned to chalking up under-performance as an inescapable cost of doing business.
For global buyers, meeting local regulatory requirements and laws is both an obligation and an ever-changing challenge – it’s also very labour-intensive and not remotely cost-effective. Because it increased the need for human intervention, exception processing, and heightened risk of error, the regulation also carries the threat of reputational risk when not followed correctly.
Beyond compliance, a high STP rate shifts pressure off employees. It’s not about taking your eyes off the vital documents you work with and leaving it all to computers. With real-time monitoring of the process, you’re actually gaining enhanced visibility of spend and payment without the time-consuming administrative efforts that generally come with it.
Naturally, STP is a long way from the normal level of performance businesses are used to. There are ‘soft’ actions you can take to create an environment that facilitates higher STP rates. For example, introducing guidance detailing the required fields for invoices allows the people around the payment process to oversee and understand a touchless process. Equally, procurement can include STP metrics in category reviews with bigger suppliers. For a smaller supplier, services like Tungsten Network’s Purchase Order (PO) Convert are designed for repeatable business processes common to these working relationships. On a wider scale, introducing an ‘STP-focused’ KPI into a wider P2P KPI means getting closer to the standardisation and normalisation of automated AP processing.
Taking bigger steps
Technically speaking, the complexity in implementing measures to improve STP – repairing the engine while driving it – can be an intimidating prospect. It requires aligning digital tools to your business process.
Categorisation of suppliers is a great starting point – applying matching and validation rules appropriate for the spend type allows for a more targeted approach to maximising your STP rate.
Practical steps should also include using Unit of Measurement (UoM) conversion matrixes to convert to the PO UoM and calculating the price per unit, automating the process of matching and validating PO documents. On the topic of PO vendors, separating non-PO vendors out supports that process. Finally, endeavouring to deliver electronic PO’s from the supplier’s catalogue if possible makes for a better chance of hitting consistent straight-through-processing rates.
Equally, including pre-ERP matching validations in your invoice process – and rejecting invoices that fail – builds a more conducive process to minimise the need for human interventions. The same applies to global and country-specific checks on the invoice upfront.
Ultimately, the onus is on the Supplier to submit an accurate invoice, but working with an e-invoicing provider that identifies exceptions at the point of submission facilitates this [accurate invoices]. It also gives you total visibility into the exceptions – providing the foundation for benchmarking and KPIs.
In truth, the average AP team has been operating with a glass ceiling for a long time, unable to improve efficiency or provide more value. The steps we’ve discussed are focused on reducing the need for human intervention when things go wrong, or the need to validate. It doesn’t have to be this way – automation can be the support system that increases an AP functions’ efficiency, and also its capacity for higher volumes.
A high STP rate is a technical term – what it really means to an AP department is breaking through that historic ‘glass ceiling’ and discovering just how far you can go.
Want to learn more?
Sometimes, the smallest changes can result in the biggest changes. To learn more, watch our recent webinar where Tungsten Network’s Solution Consultant, Sam Purches shares five simple hacks that can improve your straight-through-processing rates and make a rapid impact on your business.