KeySpan, a Brooklyn, N.Y., energy utility, had trouble paying its bills. The problem, however, was paper, not money: the company’s accounts-payable department was wallowing in paperwork, processing up to 300,000 invoices each year. It was mired in a five-day backlog and missing out on vendor discounts. “The process didn’t allow us to capture discounts as much as we wanted to or as much as our vendors wanted us to,” says Ken Daly, KeySpan’s vice president of financial and employee related services.
Under KeySpan’s old, paper-based system, workers usually couldn’t pay bills fast enough to qualify for discounts. “The vendor didn’t like it because they had to wait longer got their money than they wanted to and, as a finance person, I hated it because I lost that 2 percent discount,” Daly says.
But KeySpan is hardly the only company with A/P problems, and vendors have found a lucrative niche in trying to solve them. Electronic-payment specialists like Ariba, Harbor Payments, and Xign are promising to reinvent customers’ A/P operations by offering payment services that sit between enterprise A/P departments and their suppliers, eliminating paper-based invoices and streamlining the payments process.
For help in overhauling its A/P system, KeySpan turned to Pleasanton, Calif.-based Xign. By changing over to a new network system, KeySpan has boosted its A/P staff productivity by 33 percent over the past year, Daly. The company has also seen its average bill-payments window shrink from 45 days to under 10 days and its invoice backlog drop from five days to fewer than one day. The streamlining has opened the door to five times as many discounts, according to the finance exec.
Xign’s technology is compatible with major enterprise resource planning (ERP) systems, including Oracle, SAP, and PeopleSoft. “We sort of pick up where the ERP leaves off,” says George Fan, Xign’s vice president of marketing and supplier operations. The network automatically collects invoices and times payments to suppliers.
Using the promise of speedier payments as a lure—and making suppliers an offer they won’t be likely to refuse—Daly says he hasn’t had much trouble convincing suppliers to join Xign’s network. Some 750 KeySpan suppliers currently take part in the program. “After about one year, we’re probably between 75 and 80 percent of where we need to be,” Daly says. He expects to achieve close to 100 percent supplier participation within the next year. “We really don’t allow anyone to opt out,” he notes. “We’ll require everyone, over time, to move to the Xign platform.”
For many companies, A/P automation promises a way to cut both costs and productivity-draining paperwork. Like KeySpan, Kennametal, a Latrobe, Pa.-based maker of metal-cutting tools and mining and construction equipment, is now using A/P automation to gain better control over its payment processes and timing. The technology also provides bargaining power to help the company negotiate better trade terms and helps it make better use of discounts, says Dean Hoffman, Kennametal’s manager of customer and vendor support services.