By Jason Bramwell
An invoice presentment and payment system has enabled a cancer center to receive almost 90 percent of invoices electronically from its suppliers-up from 54 percent eight years ago-while also accelerating payments and improving cash flow visibility.
In 2003, New York-based Memorial Sloan-Kettering Cancer Center-the world's oldest and largest private cancer center-was looking to automate its approach to processing and paying supplier invoices.
At that time, the accounts payable (A/P) department-which consisted of a manager, a supervisor, four A/P representatives, and a mail clerk-processed about 430,000 invoices a year from hundreds of suppliers, ranging from medical/surgical supplies, food service, and linens to pharmaceuticals and legal consultations. But only 54 percent of those invoices were delivered electronically.
"Up to that point, we had really concentrated our e-commerce solutions on automating the buy side rather than the invoice and payment side," says Barbara Cassera, manager, financial systems, Memorial Sloan-Kettering. "We had to move forward and close that loop."
The organization implemented an IT solution that manages purchase orders, invoices, and payments electronically.
"The system we implemented brings invoices that are approved for payment into the department's enterprise resource planning application without manual intervention," says Cassera.
The electronic system has helped Memorial Sloan-Kettering almost double the percentage of invoices that are delivered electronically and, despite the increase to more than a million A/P invoice lines processed in 2010, the cancer center was able to maintain its current complement of A/P staff.
It has also accelerated payments to suppliers, which in turn, has increased the dollars Memorial Sloan-Kettering has saved via early payment discounts. Many suppliers give hospitals discounts proportional to the number of days early a payment is made.
In addition, cancer center leaders now have a more up-to-date understanding of the organization's cash flow situation, which helps in strategic and financial decision making.
Improving the Process
Cassera says there were three key reasons for implementing the invoice presentment system:
- Reduce back-office costs
- Reduce error handling that results from manual processes
- Improve online visibility to suppliers
"We wanted to improve a difficult payment process, where invoices were not paid timely due to manual tasks and decentralized invoice delivery," she adds.
Getting the various hospital departments on board-and trained-in the electronic invoicing system required legwork and communication. Enthusiasm helps, says Cassera.
"Believe in your program, and go to those departments that are having difficulty with moving their invoices forward for payment," she says. "Select a problem area, and that area will be your best performer and a model for other departments to come on board."
For the most part, suppliers have enthusiastically embraced the cancer center's electronic system. In addition to getting paid more rapidly, the suppliers can login to a secure network to see where their invoices are in the payment process, says Cassera.
"We send our purchase orders out to the electronic application, and our suppliers present their invoices against those purchase orders," she adds. "If the purchase order and invoice don't match on price and quantity, the invoice is rejected immediately back to the supplier who then takes steps to have that invoice approved. Suppliers know whether their invoices have been approved and whether they have been rejected; they also receive status information on the day they should expect payment."
Cassera offers three pieces of advice on getting suppliers enrolled.
- Target suppliers in like supply categories: "It's easier to talk to a group of the same category of suppliers, such as food service and pharmacy, and present invoice presentment information back to that group using the same concept," says Cassera.
- Develop standard talking points for staff who will contact suppliers for enrollment.
- Have invoice presentment language built into new contract negotiations: "This allows suppliers to understand where you are going with an invoice presentment program," she says.
According to cost analyses conducted by Memorial Sloan-Kettering for 2011, the following outcomes are projected:
- Settled payments to increase from $419 million in 2010 to $554 million in 2011
- Settled invoices to increase from 148,330 in 2010 to 197,643 in 2011
- Early payment discounts to increase 33 percent through the first three quarters of 2011
"A/P loves this process," says Cassera. "We went from 54 percent electronic invoicing to between 87 percent and 90 percent processing, depending on the time of year, in 2010. Phone calls and payment inquiries are down, and payments are accelerated to pay at term rather than late. The system has also increased our discount capture, and we have immediate invoice dispute information available."
Jason Bramwell is associate editor, newsletters & forums, HFMA (email@example.com).
This article is based on an HFMA webinar by Barbara Cassera, manager, financial systems, Memorial Sloan-Kettering Cancer Center, New York (firstname.lastname@example.org).
Publication Date: Tuesday, September 20, 2011