End-to-End Supply Chain Automation Sets its Sights on Payables Processing

J.P. Morgan Order-to-Pay Solution Provides a Glimpse of the Future

How can you wring out more operational efficiencies after years of focusing on efficiency gains? Which areas afford the best opportunity for further enhancing working capital? Given Sarbanes-Oxley requirements, how can you create transparency across a broad range of business activities to ensure the integrity of financial reporting?

Companies pursuing supply-chain integration have long focused on automating accounts receivable processing. Now J.P. Morgan Order-to-Pay extends the benefits of end-to-end automation to the accounts payable process. Buyers can electronically: deliver purchase orders; receive, validate and approve invoices; make payments; and enable suppliers to monitor invoice status — all through a J.P. Morgan-hosted solution. Buyers are also able to collapse the settlement cycle and gain an automated approach to capturing discounts for early payment.

The solution delivers dramatic operational and working capital efficiencies and improved visibility over payables processing. Now is the time to consider counting an end-to-end order-to-pay solution among your key planning initiatives.

Reducing the Pain for Tangible Gain

Treasury is an important stakeholder in an efficiency play within the accounts payable and procurement areas because of the impact on working capital. Further, by providing an audit trail for the entire accounts payable process, J.P. Morgan Order-to-Pay supports treasury's efforts to comply with Sarbanes-Oxley requirements. And, as manager of bank relationships, treasury should be a key influencer in the decision process.

The initiative offers a natural point of collaboration among accounts payable, procurement, and treasury for enhancing enterprise-wide financial performance. Besides operational and working capital efficiencies, the solution enables migration towards a comprehensive electronic payables strategy.

Operational Efficiency

Paper's inefficiency versus electronic alternatives is well known. For accounts payable processing, a paper scenario yields an average Days Payables Outstanding (DPO) exceeding 42 days and an estimated cost of $10 per invoice, which triples to $30 for exception items. By contrast, J.P. Morgan's electronic approach can reduce settlement times to as little as 4 to 5 days and can lower payables processing costs by up to 50%. The solution delivers operational efficiencies and cost savings across the order-to-pay cycle by eliminating data-entry errors, imaging costs, and status inquiries from suppliers; reducing exception items by prompting suppliers to self-correct invoices before receipt by a buyer's ERP system; and promoting payments via ACH rather than by check.

Working Capital Efficiency

The J.P. Morgan Order-to-Pay solution collapses the settlement cycle, which, combined with an automated way for buyers to capture discounts, can drive millions of dollars in incremental savings to a company's bottom line. This is achieved by physically enabling payment in as little as 4-5 days from invoice date; providing suppliers complete visibility of invoice and payment status; and leveraging technology to scale the offer and capture of discounts to suppliers well beyond a buyer's current means. As part of a strategic approach to working capital management, treasury can provide guidance on the optimal payment terms. In J.P. Morgan's experience, clients commonly achieve discounted payment terms as favorable as net 5 days at a 3% discount.

Comprehensive Payables Strategy

Unlike the few technology providers operating in the order-to-pay space, J.P. Morgan can work with clients to craft a comprehensive solution across different categories of payables. The J.P. Morgan Order-to- Pay solution complements the bank's controlled disbursement, purchasing card, and ACH capabilities. Clients can migrate further down the paper-to-electronic continuum by using J.P. Morgan Order-to-Pay as an end-to-end electronic approach to those transactions not suited to a purchasing card. J.P. Morgan Supply Chain Financing completes J.P. Morgan's comprehensive continuum of payables solutions by enabling a client to maintain extended payment terms while satisfying its suppliers' financing and cash flow requirements through leveraging its credit relationship with J.P. Morgan.

Achieving a High Rate of Supplier Participation

The key to a rapid return on investment (ROI) is the ability to enroll suppliers into the J.P. Morgan Order-to-Pay network. Therefore, supplier adoption is essential to ROI.

J.P. Morgan, through a combination of supplier segmentation, recruitment resources and enrollment best practices, achieves an average activation rate of 80 to 90 percent of a client's targeted suppliers. First, segmentation of a client's Master Vendor Directory is key to maximizing results. Second, it is likely that a portion of a client's vendors is already participating in J.P. Morgan's supplier network, which currently has over 19,000 suppliers. Finally, J.P. Morgan brings significant supplier recruitment resources and best practices to drive the supplier enrollment methodology. It is common for companies to exceed their ROI within the first 12 months.

A Glimpse of the Future

J.P. Morgan Order-to-Pay aligns the common interests of the treasury, purchasing, and accounts payable departments and demonstrates value by improving bottomline performance on an enterprise-wide level. The solution moves beyond tomorrow's theoretical promises of supply chain automation to deliver proven results today. Might it have a place among your company's strategic initiatives?