Tuesday, October 12, 2010

The Proper A/P Toolkit

By Bruce Bourdon, CPCP
Vice President, Healthcare Channel Sales Manager
U.S. Bank Corporate Payment Systems

Two key challenges face healthcare accounts payable departments today: Shrinking profit margins due to rising costs, and decreased cash flow due to slower collections and reimbursements.

The cash flow pipeline often plugs up due to an inability of the healthcare provider to extend payment terms with its top suppliers. Operational costs, meantime, have been soaring due to the high cost of printing and mailing paper checks, and often re-issuing and re-mailing checks that get lost. Finally, AP staff spent far too much time researching vendor inquiries about the status of the payment they are owed.

If any industry could stand to benefit from going paperless, it’s healthcare. Yet, a 2010 U.S. Bank/IAPP survey showed that 61 percent of all healthcare payments today are made by paper check. A similar survey, this one by PayStream Advisors in late 2009, found that 68 percent of all invoices are traded by paper, and only about 25 percent of all purchase orders are sent electronically to suppliers.

That’s about to change. The U.S. Bank/IAPP survey that showed such a high rate of paper check payments also predicts a 2/3 reduction in check payments and a three-fold increase in use of purchasing cards over the next three years, based on feedback from respondents.

Some may wonder, what is taking the healthcare industry so long to jump on the technology conversion bandwagon? The answer: it is hampered by many of the same roadblocks being experienced by other industries. Namely, perceived external barriers such as limited willingness or capability of suppliers to handle e-payments, and perceived internal barriers such as the high cost of conversion to e-payments or worries about their own capability to manage the transition.

Such concerns are often overblown. The cost of conversion, for example, is dwarfed by the savings realized over time, according to recent studies. To the extent that it’s measured at all, cost-per-paper-invoice can vary from a dollar to over $15 dollars, says the PayStream Advisors survey. But interestingly enough about half the companies surveyed have no idea what it’s costing them to process each paper invoice.

Electronic processing makes the costs much more transparent and easier to measure, therefore making it easier to spot the cost bottlenecks and act upon them. Aberdeen Group has shown that electronic invoice processing shaves $6 to $7 off the cost or processing each invoice. How? By accelerating the approval cycle, reducing the number of lost and missing invoices, reducing the number of “exceptions” and, ultimately, reducing FTE or allowing redirection of work into more value-added activities.

Annapolis Consulting puts it this way: Automation increases ease of use, ease of use increases adoption, adoption increases on-contract spend, on contract spend enhances visibility and visibility reduces wasteful spend. Just as important, visibility enhances leverage when it comes time to negotiate contracts with suppliers.

Today’s payables toolkit brims with options for the healthcare provider, from Electronic Invoice Presentment and Payment (EIPP) to a wide array of paperless e-payment options including commercial cards, virtual or “ghost” card accounts, wire payments and Automated Clearinghouse (ACH). End-to-end automation is both possible and achievable. It’s easier than ever to establish e-payments as the standard for conducting business with your key suppliers.

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