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Increasing Accounts Payable Efficiency with Evaluated Receipts Settlement (ERS)

The idea of Evaluated Receipts Settlement – making payment based on receipt information without matching to an invoice – is an approach that’s been around for decades, most notably cited in the 1993 best seller, “Reengineering the Corporation”, by Michael Hammer and James Champy.   The concept is simple: If your Purchasing Department and your suppliers can agree on details for what is being purchased and at what price, the Accounts Payable process can be all but eliminated, with payments generated automatically once ordered items are recorded as being received.

Now, 20 years later, based on a recent Peeriosity iPoll, while an impressive 56% of member companies have implemented ERS, 7% attempted to implement and failed.  Of the remaining 37%, less than half are actively considering implementation.  Here are the details: utilization status of ERS in your company ipolling

Looking specifically at the companies that do not currently use ERS, 15% of these companies are successfully using another electronic method (probably EDI).  For the remaining 85% who aren’t using ERS for a reason other than “we prefer another electronic method”, the primary reasons cited include purchase order quality issues, concerns about use tax compliance, and just not having considered the possibility of using ERS.

reason to why ERS is not used in the company ipolling results

Here are some representative comments from iPoll respondents:

  • We conducted a pilot several years ago. We experienced significant post-payment reconciliation work with our pilot supplier to enable them to accurately apply for our payments. Since then, we have increased our percentage of electronic invoices and automated low-dollar matching discrepancies, which has streamlined our process and reduced costs.
  • ERS has been successfully implemented in the US and Germany. Other European countries are being evaluated.
  • We use it extensively for outbound freight and materials and for some inbound materials. We are currently expanding to inbound freight. Tax concerns have to be fully resolved prior to implementation.

A Peeriosity PeercastTM in the Accounts Payable research area featured a global $6B manufacturing company that recently completed a push to increase their use of ERS.  While the benefits of reduced costs and improved quality of the Purchasing process were overwhelming, a number of unintended consequences were noted, including:

  • An increase in the number of payments – if you’re paying by paper check, you might want to make sure the suppliers are set up to be paid electronically
  • A shorter cycle time may result in paying sooner
  • Increases in calls from suppliers to ask about how to apply for the payment

Key findings of the implementation included:

  • ERS drives a fundamental change to the Procurement cycle, with an emphasis on data quality in your Purchasing and Receiving departments.
  • Accounts Payable is no longer responsible to resolve errors.  It’s up to Purchasing and Receiving to eliminate reasons for errors and resolve them when they occur.  Purchase Orders need to be accurate and complete, supplier packing slip information needs to be accurate, and receipt information needs to be processed timely and accurately by Receiving.

While implementation issues are likely to be more complex than you might expect, the benefits of pursuing ERS as part of your efforts to reduce processing costs are often clear and compelling.   It might be time to take a closer look.

How is your company reducing costs in Accounts Payable and improving the quality of Purchasing and Receiving processes?

Who are your peers and how are you collaborating with them?

1 “PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion.  Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content.  Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member.  Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees.

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