AP Dept. Upgrades Its Invoice Imaging to ‘Intelligent Scanning'

July 2008

Main article

Technology is advancing so rapidly that what was a perfectly adequate system a few years ago can now be antiquated. Plus, AP departments are being asked to do more with less, so a system upgrade may be just what the doctor ordered.

One of the difficulties with making upgrades in AP systems can be the presence of legacy equipment that must be incorporated into the new setup. Legacy equipment can include such items as old computers, printers, or scanners. The estimated lifespan of each of these is often shortened by advances in technology.

David Bailey, controller at Exel Transportation Services since 2004, had an experience with this type of upgrade. Exel provides accounts payable, accounts receivable, and commissions payment services for transportation brokerages.

Exel arranges the domestic and international transportation of its customers’ freight via air, ground, rail, and water. The company and its affiliates also provide contract logistics services, such as private fleet management, warehousing, and distribution. Exel is part of the DHL Exel Supply Chain business unit of DHL Worldwide Network.

Exel’s document control department receives and identifies incoming client-related correspondence from branch offices and centrally processes all of the carrier payments. When the department identifies that a document is "freight payable," it is scanned, verified, and prepared for payment. The processing includes printing backup documents such as "bill of lading" and "proof of delivery" forms.

Customers expect to receive an actual image of the proof of delivery before they will pay for having goods delivered. Therefore a proof of delivery document is sent with the invoice, minus Exel’s costs to broker the transport.

"We processed an average of 126,000 invoices a month—about 6,000 a day. We needed to substantially improve the ability to process those invoices while reducing the labor costs," said Bailey, addressing attendees at RECAP’s 12th Annual Enhancing AP Operations Conference and IOMA’s 8th Annual Advanced AP Institute held recently in Ft. Lauderdale, Florida. "The original system was becoming overwhelmed by the sheer volume of paperwork."

A single invoice under the old process could take up to 10 business days from mailroom to carrier payment. After factoring in mail time, the invoice could actually be past due by the time it got through the process. This removed all flexibility for payment and could reduce clients’ incentive to do business with Exel.

Even so, the older system’s adequacy, and the scale of the potential new upgrade, held them back from making a change. "We had IP20-based scanning, so we couldn’t just go out and buy a new scanner to plug in. That meant that if our scanner went down, we were in trouble. In addition, the old scanners needed a PC with Windows 95, which is unsupported now.

"It was crazy. It got so that if somebody was getting rid of a Windows 95 box, I’d try to grab it. I had a bunch on a shelf, ready in case I needed one, because the scanner card would only fit into one of those boxes," said Bailey.

Another ungainly piece of the older system used a bar coding process. "It’s always scary when you start separating documents—because they may never come back together again. In the old system, we had to use bar codes to make sure that they did come back together," he said.

Despite the costs to make a major purchase of new equipment, it became clear that the system could not be sustained as it was and that changes were needed.

There were several pieces to the planned upgrade, beginning with replacing the scanners that worked only on unsupported software and then upgrading the handling of invoices. These included:

• replace Exel’s IP20-based system with an ISIS-based scanning software solution;
• replace four Bell & Howell CopiScan II scanners that were at least eight years old;
• eliminate the existing bar coding process used to associate document information with a scanned document image;
• replace unsupported Desktop PC’s running Windows 95 equipment and fix inherent security issues;
• substantially improve the ability to process thousands of daily invoices and related backup documentation;
• reduce total employee hours needed to support the scanning process; and
• reduce the total processing time and cost, thereby increasing available time for exception resolution and timely payment to Exel vendors.

Their solution was to partner with Torrential Data Solutions Inc. to provide necessary development work to implement iScan Scan, Vscan Virtual Scan Actions, RuleRunner Standard, and Taskmaster Verify programs into one unified processing system.

The iScan module allowed Exel to upgrade from four IP20 scanners to two Kodak i600 series scanners with the latest technology. VScan Virtual Scan Actions delivered an electronic file to Taskmaster RuleRunner. The RuleRunner Standard module performed recognition and automated capture of data from the images. Taskmaster Verify allowed Exel staff to review results flagged by RuleRunner and images that did not go through the RuleRunner process.

Exel uses a three-step process for AP document handling—document preparation, scanning, and verification. Two of the processes (scanning and verification) were upgraded.

1. Document preparation. Manual document preparation—such as pulling staples, straightening crumpled documents, excluding odd-shaped documents, creating efficient batch sizes, and using patch sheets to differentiate document type—would still be required and was not updated.

2. Scanning. "Under the old system, we could only single-feed invoices, limiting us to about five to 10 pages per minute. Once we installed the new system, we could process 80 pages per minute," says Bailey.

"With the new scanning technology, a scanning associate feeds the invoices and monitors the images on screen for feed errors or possible preparation errors," says Bailey. "It is incredible—even with the different size and thickness of documents, the scanner does a really good job of feeding.

"We have two scanners, with a separate one for exceptions or expedited processes. If somebody says, ‘I need to get paid today,’ we can do that on the backup scanner and get it through the process a lot quicker."

To Bailey’s astonished delight, the Datacap Rulerunner Service program was able to handle invoices from all of their approximately 15,000 carrier clients, each with a different format. Datacap allows user adjustments in both its server setup and the software to maximize data recognition.

"We have an incredible hit rate. We’re up to 90 percent of the data correctly read from these invoices, which is fantastic," says Bailey, "but still you have to have someone correct that other 10 percent. Somebody needs to decide if that vertical line is a one or an el."

3. Verification. Those exceptions move to the Taskmaster Verify program. Invoice verifiers can also correct RuleRunner errors and create and/or adjust new vendor fingerprints. "Verification is a very important process," said Bailey. "If you’re in the AP profession, you know that if it enters a system incorrectly, you’ve got big problems and it’s going to cost even more time."

The Taskmaster Verify program displays the fields captured from the invoice. Some data is captured via zip code, and it can link to the vendor master database. It also captures shipment data from the invoice based on fingerprints for that vendor. The process can also be adjusted to become more efficient over time.

"The program highlights the fields that the system had problems reading, and staff can verify that information," says Bailey. "That ‘clearing up process’ automatically adjusts the vendor fingerprint so that subsequent invoices, even in the same batch, are captured more efficiently."

Once the batches are verified, they are set up to export into the AR and AP system. "It was fairly simple to build an interface between the Datacap and our image repository and then into our AP system, which is a custom system called Delta 7," said Bailey.

"What I’m starting to realize is that, with invoice processing time cut in half, we can look at carrier discounts," said Bailey. "And with the increased flexibility in payment times, we can start managing our working capital better. We have more flexibility in our relationship with our carriers—we can either pay them quicker or we can take a little discount. I didn’t figure these extra benefits in with the ROI."

Over a period of five years, Exel estimates a 218 percent savings, mostly as a result of staff reductions. "I had 24 people in the old manual process. We cut 10 out very easily," said Bailey. "We planned the reduction over a period of time, so when we finally implemented the new system, we only had to lay off or redeploy two people."

In the future, Bailey wants to tap the system’s ability to perform remote capture. "In the transportation field, there are truckloads and ‘less-than truckloads.’ With ‘less-than truckloads,’ the branch office has to work on the invoice before it comes to the central office," he explained.

"Right now, they are overnighting invoices. Only a few are scanned and e-mailed. We’d like to put a scanner in each of the branch facilities, so they can input directly to this system and either we or they can verify it. Being an accountant, I prefer to verify it."

"Datacap and Torrential and everybody else say you can let data automatically go into your system if it passes, even a whole batch—just let it go. I’m an accountant. I’m kind of a control freak," Bailey said half-jokingly. "Probably in another couple of months, I’ll let them turn on automatic. I won’t sleep real well for a few nights, but once I get comfortable, I’m sure it’ll be OK."

Another future step is to handle more documents electronically. "In the AP profession, it’s better to not deal with paper at all," he said. "But that’s not realistic in the transportation business. A lot of carriers are mom and pop owner and operators, and they’re not set up to do electronic data interchange transmissions. So we’re always going to have to deal with some paper. But we want to arrange for them to fax or e-mail into that Rulerunner process so we’re not scanning the documents."

Altogether, the upgrade has been a great success. "The projected payback was 1.6 years, and it’s definitely on track at that rate right now," said Bailey. "We implemented it in July of last year, and it’s been phenomenal ever since."