Oil & Gas Invoicing: How to Make It a Time- and Money-Friendly Process04/24/2015
If you had to guess, what percentage of businesses’ vendor-invoice activities today is handled via paper?
Thirty percent? Thirty-five? Forty? Fifty?
Actually, according to the business intelligence research provider Aberdeen Group, that number is 77 percent.
In fact, for a lot of upstream oil and gas companies, it can take more than 30 days to get an invoice entered, processed, and paid.
When paper is used for invoicing, a common cradle-to-grave process might look something like this: First, the invoice is scanned and entered into the company’s ERP system. Second, a printed copy is walked over to reviewer no. 1’s desk. Next, the copy is taken to approver no. 1 and reconciled. Fourth, the copy is passed on to approver no. 2 and reconciled again. Next, because of how much other paperwork has been processed and how much time has passed since the invoice was originally scanned and entered, it will probably need to be tracked down. Finally, the invoice can be paid.
This process can work, but it can just as well be a time-sapping process that’s susceptible to error.
Aberdeen found that when more than 30 days are needed to process a single invoice, the average cost of doing so is about $38. Simple math here: If a company processes 1,000 invoices each month, that’s roughly $456,000 spent on invoice activities every year. At the same time, fewer early-payment discounts are captured and companies run the risk of straining vendor relationships when time-to-pay cycles live in the 30-day range.
Now let’s take a look at the cradle-to-grave process when a system with electronic workflows and automated processes is used to manage invoice activities:
- Step One: Once scanned and entered into the system, the documents are immediately routed to reviewer no. 1. Scanned images of the paperwork are also stored in the database.
- Step Two: Reviewer no. 1 receives an automated email notifying him to review the documents.
- Step Three: Approver no. 1 receives an automated email notifying him to approve the documents. Approvals can be done from anywhere with an internet connection. If the approver rejects the invoice, reasons are entered as to why and the documents are returned to the previous step in the process.
- Step Four: The process repeats for approver no. 2.
- Step Five: Determining the status of any document is as easy as looking in the system’s Administration module. If for whatever reason a reviewer or approver is unavailable, the documents are routed to someone who is.
- Step Six: The invoice is paid.
Just as many steps as the process described earlier, just a different way of completing them.
So what does the before and after look like in terms of time and dollars and cents?
One of our clients, who had been using paper and manual processes to manage their invoice activities, was spending more than 30 days on getting each invoice entered, processed, and paid. Now, because of electronic workflows and automated processes, less than 20 days are needed to get an invoice in and out.
Back to the Aberdeen report for a moment. According to the research group, when an invoice completes its cycle in 20 days, the cost of processing that invoice is roughly $15. A company that processes 1,000 invoices every month, then, would spend $180,000 on those activities on an annual basis – or $276,000 less than the company that needs 30 days to process an invoice. Not only that, but the $15-an-invoice company would also experience a year-over-year increase in early-payment discounts and improved vendor relationships.
So as you can see, introducing electronic workflows and automation to invoice activities can lead to better back-office processes and improved capital management – two things that all upstream oil and gas firms are looking to achieve in these challenging times.
Want to Learn More?
Watch this webinar to learn more about best practices for making your oil and gas invoice activities more time- and money-friendly.
About The Author
Rusty Wirt, a Principal Business Analyst at P2, has worked in upstream oil and gas for 18 years – all of that time with IDEAS. Not much prompting is needed to get him talking about oil and gas financial management, electronic workflows, and similar topics. He can talk just as freely about golf and gardening. A graduate of the University of South Florida, Rusty is also the bass player for his church praise band, cover band, and local community theater.