Processing Invoices the Electronic Way

Processing Invoices the Electronic Way

As document imaging begins to catch on in the construction industry, some contractors are replacing manual data entry with scanning to streamline accounting. Almost a year and a half ago, Rosendin Electric was processing about 13,000 invoices per month with an accounting staff of 12. Under these conditions, it wasn't uncommon for this $400 million electrical contracting firm to have a backlog of unprocessed

As document imaging begins to catch on in the construction industry, some contractors are replacing manual data entry with scanning to streamline accounting.

Almost a year and a half ago, Rosendin Electric was processing about 13,000 invoices per month with an accounting staff of 12. Under these conditions, it wasn't uncommon for this $400 million electrical contracting firm to have a backlog of unprocessed paperwork of at least two weeks and change orders that remained unresolved for months. Today San Jose, Calif.-based Rosendin, which focuses on commercial, industrial, and high-tech jobs, has a backlog of unprocessed paperwork of about five business days after going completely electronic with its Accounts Payable (AP) process. What made the difference? One of the top 10 electrical contractors in the country, with five branch offices, three service divisions, and 1,750 employees, Rosendin is one of several contractors that have gone beyond your basic accounting software and implemented document imaging within the past few years.

Accounting software is nothing new to electrical contractors. Like the rest of the business world, nearly all contractors manage their finances on a computer — what varies are their applications. Some use standard business accounting software while others prefer a package crafted specifically for the construction industry. Some hire programmers to write a program exclusively for their needs or rely on in-house personnel to create a series of customized spreadsheets in Excel. According to data from the Construction Financial Management Association, 97% of contractors (including generals and specialty subs) used some type of accounting software in 2000. But there's a big difference between automating your accounting functions and routing and approving invoices and purchase orders electronically. Standard accounting software doesn't eliminate the manual paper trail that's often necessary for routing and approving invoices. Document imaging, on the other hand, at least holds the promise for a paperless process.

Defining document imaging.

The concept isn't complicated. Scanning replaces the data entry associated with manually inputting invoices into the computer, eliminates copying and filing, and turns the routing and approval process into an electronic step. Once you scan the invoice, it becomes a permanent electronic record (most commonly saved in a .tif or .jpg format), which is indexed to various degrees of sophistication depending on your preference, and attached to the transaction. You can e-mail the image, fax it, and search for information by many variables, including name, date, project, phase, invoice number, dollar amount, part, or vendor. If stored on a CD or optical disc, it's admissible in court as a permanent record — just like paper.

How does document imaging work with accounting in a construction setting? It depends on the solution, and there are several ways to go. There are hundreds of generic document imaging systems; however, most of them aren't industry specific. Targeting a much narrower niche, Construction Imaging Systems (CIS), Rocky Mount, N.C., offers a stand-alone document imaging system designed specifically for the construction industry. The system works in conjunction with various accounting and project management vendors' software by pulling data from these programs into its imaging system. Another alternative is document imaging built into the accounting and project management software as an additional module, such as Seattle-based Dexter & Chaney's Forefront software. Rosendin selected a customized imaging solution from CIS to work with its existing applications, a traditional accounting and project control software product designed for construction companies.

Breaking new ground.

Before implementing the system in July 2001, Rosendin handled all transactions the old-fashioned way — with paper, says Daren Mays, assistant controller. “We would make copies of every invoice that came in and route those out to purchasing agents for approval,” he says. “We have offices in Oregon, Arizona, New Mexico, and California, and job sites all over the West Coast. Probably on a third of those, we wouldn't hear anything back, so we'd make another copy and send out a second request. That would take a day. The purchasing agents would approve it, and send it back down to us — that would take another day. Then sometimes it still wasn't right because we'd already paid another invoice against that purchase order. Sometimes it could take a week to get something resolved. With the new system, we can get something like that resolved in 15 to 30 minutes.”

Here's how it works at Rosendin. An AP clerk opens the mail and scans the invoices into batches. “This is not your typical desktop scanner,” clarifies Mays. “It's a $20,000 scanner that's the size of a large fax machine.”

With both the accounting and imaging software programs open, the clerk returns to his workstation to input some basic indexing information into the accounting software. Next, he hits a button and the imaging system scrapes all of the appropriate information from the accounting screen and imports the data into its indexes. The information is automatically stored on a dedicated server and saved to optical laser disk. When a project manager logs onto the system, a function called Doc Notify pops up, showing him he has “X” number of invoices to approve. He can also view any electronic sticky notes or annotations right on the image. The system keeps a complete audit trail of who's seen what, so tracking and reporting becomes almost effortless.

Since implementing the system, Mays says Rosendin has reduced its AP staff by six people (although partly due to the economy), eliminated overtime, and seen a payback on the investment in less than a year. Although he originally selected this product solely for AP purposes, Mays says imaging has already spread to other applications in his company, such as contracts, change orders, field time cards, labor reports, and monthly job cost reports. “We don't really image the labor and job cost reports,” Mays says. “What we do is COLD [computer output to laser disk] store them where we create a report in [our accounting program] and then download that into the imaging system. So instead of having 60 different project managers running that report all at the same time, they're all able to go out onto the imaging system and look at the information.”

Mays and his accounting staff can also deal with their vendors in a more proactive way. “Before we had this system, my boss and I were getting phone calls probably at least once a week from vendors complaining,” Mays says. “I get a call maybe once every other month now, and it's often not even AP-related. Certain vendors are going to get mad, so you just kind of have to put that by the wayside. But overall our vendor relations have greatly improved, our capital has improved, we're getting information into our billing system quicker, and we bill the expenses much faster now.”

Another advantage of electronic invoicing relates to litigation prevention. Before document imaging, Mays recalls a potential litigation situation. “We had to run a job report with all of the vendor history on a particular job and pull all of the invoices,” Mays says. “I was out in a semi trailer for about a day and a half looking through files. With this system, I could have probably gotten all of that together in 15 minutes.”

Now Rosendin only keeps paper originals for three months before getting rid of them. “We're at the point now where we're going to be able to blow out a wall in an area we call our ‘vault,’ which is our document storage space next to MIS, so they can have more room for the servers we need,” says Mays.

Besides moving toward a paperless process and maximizing accounting efficiency, Mays has greater aspirations for the system. Although files are currently accessible through the network, Mays hopes to eventually provide Web access for his larger vendors so they can pull up invoices and check on the status of different payments via the Internet. He would also like to use another feature of the system: pulling up invoices (for cost plus billing and time and material projects) and creating CD-ROMs with a viewer for customers.

Feasibility for small- to mid-sized contractors.

If you look at the construction market as a whole, Rosendin is undoubtedly ahead of the game technology-wise, as an early adopter of imaging. How realistic is it for smaller contractors to implement a similar solution?

Dennis Earnshaw, who's worked as a software designer for Timberline Software, Beaverton, Ore., for the past 19 years and recently moved into strategic planning, thinks it will be awhile before most of his customers are ready to throw away paper — at least until the price of imaging comes down. “To invest the kind of money you need for an imaging system to handle any kind of substantial volume, you're looking at well over $100,000,” says Earnshaw. “We've got some larger general contractors that have done that. But by the time you look at the kind of scanners you need (paper-fed high-speed scanners), the storage, jukeboxes, and the indexing software, it's pretty expensive. You can get these little desktop scanners, but to really scan the kind of volume of paper that these guys push, it's still a big-guy solution.”

Brad Mathews, vice president of sales and marketing, Dexter & Chaney, says since technology has improved recently, document imaging is now cost-effective for most electrical contractors. “You can now buy a good scanner for way under $1,000,” Mathews says. “You can buy a little inexpensive one for $100, but for $600 or so, you can get a very fast practical unit for somebody who does a lot of scanning, and they're wonderful. Perhaps best of all, integrated document imaging provides a fast, easy way to route and approve vendor invoices using e-mail notification. Storage has gotten so much cheaper. Just a few years ago, people were talking about using optical drives to store this stuff and all of these fancy systems. That's not necessary. You just use the hard drive on your server.”

Although it's currently geared toward contractors who have at least $30 million annual revenues, Larry McAdams, president of CIS, says he's working on making his product more economically feasible for smaller contractors. To ensure a quality imaging system, McAdams says two requirements are critical for scanning an AP invoice: the quality of the image enhancement board in the scanner and feed capability. “You need an image enhancement board or software because some invoices are blue, red, yellow, or green, and some are very light. We use a Bell & Howell scanner a lot because it does a line-by-line contrast adjustment,” says McAdams, noting that the least expensive scanner he's seen that will handle multi-size documents effectively costs $3,700; however, he's in the process of testing a $2,500 unit he believes will be acceptable. “Some of the scanners also don't feed multi-sized documents very well. It's no good to have a document after you shred the original if you can't read it.”

Offering a document imaging option to his project management and accounting software for the past 21/2 years, John Chaney, president and cofounder of Dexter & Chaney, has seen demand pick up recently. “The majority of customers are still storing one paper copy, but I think that's changing,” says Chaney. “It's one thing for us to tell them they need to get into imaging, but when their fellow electrical contractors start saying, ‘What are you saving that stuff for? Yeah, we did that too, and then realized it was just a waste,’ it really makes an impression.”

Chaney says the ironic thing is his larger customers and early adopters of document imaging are the ones that have eliminated paper. “The funny thing is they have much more volume than the smaller guys,” he says. “So what happens is the small guy goes, ‘Wow, if they can do it, why aren't we doing it?’”

Earnshaw believes the industry is moving toward single vendor solutions. “That might help somebody like Timberline or hurt them,” he says. “It's going to be interesting to see what's going to happen out there because we've tried the whole integration thing between vendors, and that's a rough road. You get into issues like who is going to support whom, what happened when a version changes on one end and not on another. Now the integration is broken. Who owns the rights to this? The data doesn't match — over here the job number is six characters, over there it's 10 characters.”

Roseann Rohrssen, vice president at New York City-based Zwicker Electric, an electrical contractor that specializes in mostly new commercial/industrial construction, sees integration as the wave of the future. “We have wanted to scan, but scanning is not ready for us,” she says. “If we scanned all of our invoices, it's not going to work. We still have people who hand write invoices. Scanning is great, but right now that's really Jetsons — it's really way out there.”

Rohrssen spent the past four years converting her firm's previous customized proprietary software program to a real-time Y2K-compliant system, choosing Timberline. Now everything is electronic except keying in invoice information. Zwicker, who would like to scan, rehashes the issue every six to nine months with upper management, and continues to look at what's out there. “There are a lot of great products out there for storage, but we don't want to just do storage. We want to be able to process the paper. I think what's eventually going to end up taking the place of imaging is e-mailed invoices.”

Earnshaw agrees e-mail is a viable alternative to document imaging. In fact, Timberline announced a concept called I-docs some time ago. “It's an electronic document that can travel via e-mail. Let's say the GC sends a draw request to the sub, they open it up, they just type their numbers in, and e-mail it back,” says Earnshaw. “That's something further out on our horizon, but it's an example of where one might go with data exchange. The construction industry is just now getting on the e-mail bandwagon. If you can use some kind of existing medium that they're used to working with right in their office on their network, it's going to be more realistic.”

No matter if you buy into document imaging or not, it's no secret contractors struggle with integration. Most have separate systems for accounting, project management, tool tracking, and estimating. Whichever answer enables all of these systems to communicate with each other will be the ideal solution. Obviously, this is easier said than done.

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