We want you to provide a concise document, that tells us what the healthcare Best Practices are relative to invoice matching, we are not taking about software function, but rather Best Practices for business processes, regardless of whether the software supports them or not. (Hospital AP staff)
Achieving benefits from adopting Best Practices generally results from combining business process (re)design and
leveraging of the software (ERP) application to the best ability to maximize results.
Integrating and streamlining Invoice Matching and Payable can result in direct material Return-On-Investment (ROI). As healthcare organizations work to build efficiency and improve business strategy, many of our healthcare clients have said there is a need for more efficient hospital administrative operations.
Caveat: While some of these recommendations will obviously be tangent to application function, the overall thrust of a Best Practice initiative is aimed at divining what practices might benefit the organization, recommending those “Best Practices” that fit into the culture of the healthcare system, then supporting the implementation of those practices.
Best Practice Metrics
Processes that allow for Receiving, Purchasing and Accounts Payable Department performance to be documented and tracked must be in place and operational. Procedures that use the specific metrics (results) help improve end-to-end process quality, such as:
- Tracking auto-match percentage.
- Monitoring the number of invoice discrepancies including cost type invoice messages and reducing them through various methods such as effective cost file maintenance and vendor management.
- Defining the time allowed to address invoice messages, and enforcing the necessary compliance.
- Managing Invoice Matching application quality. Procedures should be in place to ensure that application problems are addressed in a timely and efficient manner so as to promote the least effect on day-to-day processing.
- Overall emphasis on obtaining the most advantageous invoice matching:
- Standardized processes
- Repeatable functions
- Consistent results
Productivity Management Metric
- Tracking global Requisition to-Check productivity (Purchasing Staff + IT Procurement Support Staff + Receiving Staff + A/P Invoice Handling Staff). This is a global metric that serves to illustrate how a performance shortfall in any of the referenced areas affects the success of the organization.
- Tracking Cost to process an invoice and use of this information to determine how best to utilize purchase orders, set tolerances and manage approval structure.
- Benchmarking against peer facilities should be in place. Also benchmarking against like organizations (outside your healthcare system).
- Tracking Days to process vendor payments?
- Tracking number of payments made per Accounts Payable staff? 
- Invoice Payments in error, including Duplicate Payments to Vendors, should be logged and the results should be reviewed on a regular basis.
Note: High auto-match rate obviously directly corresponds to higher of number of vendor payments per staff per month.
- Tracking Contract Cost Variance
- Tracking successful order completion and number of shipments/invoices required completing order. Note: Number of invoices generated per purchase order has direct impact on the “cost-to-complete” an order cycle [Req to Check]
Strategic Receiving Metrics
- Logging and evaluating the number of receiving messages generated.
- Tracking receiving errors per receiver, per month, including missed receipts and receipts tagged against the wrong purchase order line. Note: use of electronic receipts reduces the instance of human error in receiving processes.
- Use of Receiving messages, and PO Returns to document the instances of shipping overages and track goods for which credits will be made by vendor.
Administrative Best Practices
- Basic settings for the Invoice Matching System, should be made, tested, and secured,
to prevent unauthorized changes in base system settings.
- Organizational, Business and Departmental, Policies, Rules, and Procedures, should be enforced to allow for consistency and quality processing. All procedures and rules should be available to staff members, and should be reviewed annually to ensure that they are accurate and complete.
- Training documentation (UPK) should be utilized to allow consistent performance from staff members, and repeatable success when assisting new employees in learning the Invoice Matching system.
- Certifying trainers by the organizational role, so as to ensure that they possess the knowledge, skill and tools to provide training in an efficient, effective and consistent manner.
- Receipts from the purchase order system should be accurately accrued, and the accrual should be reconciled on a monthly basis.
- All invoices for goods or services for which a purchase order was created must be matched to the purchase order in order for the invoice payment to be completed.
- General Ledger Postings resulting from matched invoices should be reviewed weekly, before the invoices are paid (before check-run). Discrepancies and out-of-balance invoices should be corrected before they are paid.
- Invoices should be brought into the system as soon as they are received by the facility. This allows the invoice to be recognized, and any cost or receiving discrepancies to be addressed in a timely manner.
- A procedure should be developed (if not currently in place) to define how credits should be processed. In general, credits should be recognized and taken in the shortest amount of time as possible. Invoices, Purchase Orders, and Returns for which a credit are taken should be referenced by attaching a comment to the credit, along with the vendor’s credit memo number, so as to let the vendor know how the credit should be applied and to save time in researching credit application in the future (when vendor asks for clarification of why invoice was not paid in full).
- Unapplied credits should be reviewed bi-monthly, to insure they are taken as quickly as possible to avoid expiration of the credit.
- Invoice Aging reports should be put in place, and invoices should be reviewed for release bi-monthly.
- Vendor terms codes should be utilized (associated to vendors) to allow invoice processing with a minimum of human intervention, and in a manner most advantageous to the organization.
- Invoice entry and Invoice problem resolution should be handled by the appropriate persons. It is more efficient to have persons possessing the skill set to allow for resolution of problems to concentrate on the more complex invoice issues. Persons who have not yet developed problem resolution skills should enter invoices without taking time to resolve issues; this allows invoices to be recognized into the system in the
most expeditious manner.
- A central point (position) to resolve problems concerning receiving in a timely manner is essential. Receiving issues affecting invoice payment typically point out problems that continue into the Purchasing and Inventory Control systems. Utilization of a position of a “Receiving Coordinator” to facilitate interaction between buyers, Accounts Payable and the receiving staff is a Best Practice, and will pay for itself in
reduced time spent researching and correcting improper cost distribution through the warehouse system, invoices paid in excess of amount due, and issues surrounding incorrect inventory valuation.
- Recurring invoices and purchase orders should be reviewed and re-built at the end of each fiscal year. Review of these orders and re-issuance can prevent unscrupulous practices of vendors who may take advantage of un-tended avenues of payment. Service Agreements and Standing Orders should be utilized to allow for maximum agreement amounts to be specified for payments that will occur over a length of time. This maximum amount serves as a warning when the preset maximum for an agreement is exceeded and will serve as a stop-loss if the vendor attempts (either on purpose or inadvertently) to overbill on a specific purchase order, or if the Accounts Payable department executes a double payment accidentally.
- Invoices needing manual approval should be keyed into the system and placed on hold, pending approval. (See last bullet in Automation In Processing section)
Automation in Processing
- Utilizing the Evaluated Receipts Settlement (ERS) process is a Best Practice, with the caveat that vendor-pricing agreements must be adequately maintained. ERS is the most efficient way to bring an invoice into the system. Application of pricing (based on the customers pricing records rather than vendor) virtually
eliminates invoice cost message delays, and provides invoice payment in the most timely and cost efficient manner.
- Electronic Data Interchange:
- Using 810 Invoice effectively is a Best Practice if ERS is not an option.
- Using 832 Vendor Catalog with an effective price agreement approval process is a Best Practice. Using the 832 Vendor Catalog is required when ERS is in place.
- Using 850 PO effectively is a Best Practice. Large organizations will benefit from using Services such as GHX or any of the larger healthcare Group Purchasing Organizations (GPOs), which will allow using FTP
data transfer instead of the less reliable and slower modem communication methods.
- Using 855 PO Acknowledgement effectively for capturing price changes and allowing the buyer to recognize unit of measure confusion is a Best Practice.
- Using 856 Advance Ship Notice to pre-build and stage receivers removes the human error factor from receiving. Allowing the receivers to be pre-built in an unreleased state, then having the person receiving the goods perform a check of actual goods against the pre-built receiver then “managing the exceptions” saves time and reduces errors, while still catching vendor picking errors and missed shipments.
- Adoption of automation in match invoice error resolution and in expense type invoice approvals is indicated at most healthcare systems to eliminate the bad practices of making paper copies or (even worse) sending original invoices through in-house mail to individuals for approvals. This practice contributes to delays in invoice processing, lost and misplaced invoices, and consumes a significant amount of time, of some of your
organizations most valuable resources. Another drawback to the process of manual approvals is that it is a prime factor in causing mistaken and double invoice payments (an invoice that should be matched is sent for manual approval and paid as an expense, with no match to PO, meanwhile, a statement or duplicate invoice arrives and is also approved and paid. This is one of the largest factors contributing to duplicate payments and mistakes in processing.
Leveraging Economy of Scale
Most healthcare Invoice Matching processes currently rely upon disparate business operations (owned and affiliate facilities) at many locations, performing identical tasks. Possibly the greatest single step toward lowering overhead and minimizing administrative costs, while at the same time potentially improving the service level to the entire organization, would be to adopt a shared service approach to the invoice matching and payables function. This Best Practice will dramatically streamline processing while allowing organic facilities to manage costs effectively.
Some of the typical challenges faced by the individual facilities’ payables functions include:
- Difficulty in keeping up with the demand of invoice payment
- Invoice Matching skill set has become more complex and demanding
- Maintaining staff training, and managing staff performance, at each facility, is a constant drain on administrative and training resources.
- Separate payables departments make it more difficult to apply consistency and realize benefits from being part of a large organization
- Maintaining adequate staff coverage for vacations and sick days is a challenge when only a few people at the facility possess the skill required to match and pay invoices.
- Each facility must supply and maintain equipment and infrastructure to perform matching activity.
Moving to a Shared Services Payables platform could allow the healthcare system to provide payables functions at a lower cost overall, by utilizing a smaller number of employees to perform payables activities at a centralized location. This could provide a situation that is more economical to maintain and could be supervised more effectively by a smaller number of staff. The performance and efficiency of this Shared Service operation could greatly exceed the performance of the many facilities now working to pay invoices for all of their separate companies. Organization wide metrics become much easier to implement and allow a hospital to realize the benefit from the economy of scale in regard to payables function.
Utilizing payables management activities shared across the healthcare system, can benefit the entire system through:
- Reduction in the number of personnel performing invoice matching for organization
- Enhanced ability to foment standardized, repeatable, consistent processing.
- Clarity in detecting, and correcting duplications, errors, and inconsistencies in the Vendor Master
- Adoption of automated processing, training, and supervision of activity, and reporting and monitoring initiatives more effective and less costly to perform in a centralized location.
- Controls could become more cost effective and manageable with a single shared location
- Reduced personnel turnover
- Improved service quality across the organization
The utilization of payables management can benefit Individual facilities and affiliates through:
- Gain from reduction of FTE’s, and associated expenses and administrative costs.
- Increased control over cash
- Reduced facilities cost
- More accurate financial reporting
- Increased control over payables and vendor compliance
- Reduced cost associated with creation and management of check printing.
- Reduced errors in day-to-day processing
How to Begin
Best Practices apply to the operation of owned and affiliated healthcare facilities. Consider the following next steps to begin the change:
- Document Best Practices that would provide the greatest overall benefit to the health system.
- Present the documentation for discussion and approval.
- Evaluate existing procedures and documentation, to determine the amount of effort and resources required to modify or recreate documentation necessary to implement and maintain Best Practice.
- Create a project plan to define the resources, and time required to implement the Best Practice solutions after they have been approved.
- Develop procedures and documentation, including operations and training manuals and materials necessary to support Best Practices which were adopted and approved as part of the project plan.
- Execute the project plan to implement the Best Practice Solutions.
Exercises and Results
- Discuss methods of organization Change (Change Management and structure).
- Adherence to internal policies and procedures, and meeting regulatory responsibilities.
- Develop processes that promote reportability, efficiency, provide good business function, and fiscal “well being.”
- Focus on utilizing automation to perform routine tasks, and ensure that the workforce can be dedicated to those functions that bring value to the health system.
- Work to create mechanisms through which employees may be trained to train other employees, and developing training methods and materials for direct training to support Best Practices.
staffer, per month with high levels of automation