IOMA's Managing Accounts Payable - How Aetna Took The Paper Out of Its Payables Operation

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How Aetna Took The Paper Out of Its Payables Operation

Like most, the payables department at Aetna Inc. wanted to reduce the number of invoices it processed. And, like a growing number of companies, it was able to do so through a number of different techniques. At RECAP’s recent Enhancing Your Accounts Payable Operations Conference, Brenda Pinette explained how the company achieved its goal through a multi-pronged approach which included, EDI, EDI to fax, P-cards, consolidated billing, and use of a P-card in the accounts payable department.

Gradually Phasing in EDI

The Aetna payables department began its EDI program with three vendors who had heavy invoice volume. Pinette emphasized that the company began with firms that had EDI experience. She says this is extremely important, otherwise you can end up with the blind leading the blind. The fact that the vendors chosen had high volume also gave the company a chance to make a serious dent in the number of invoices processed.

The company did not start with a full-blown program. To begin with, only three transactions sets were chosen, including:

850/860, the purchase order/PO change;
810 invoice, and
997, functional acknowledgement.

With the success of the first phase of the program, Aetna proceeded to the next step. It contracted with a software company to produce an Aetna EDI template for vendors who do not have EDI software. At the same time, 19 vendors were added to the program. While it may seem that the number of vendors being added to the program is small, keep in mind that the suppliers added at the beginning of the program were those with large numbers of invoices.

Simultaneously, the company added three EDI transactions sets, including:

820, electronic payment;
831, transaction totals; and
824, application advice.

In the next phase, another 22 high-volume vendors were added along with the following transaction sets:

824, application advice; and
811, invoice (utilities and maintenance).

Despite the fact that there were not a huge number of vendors, there were quite a few errors which required fixing.

EDI to fax

Given the success of the program, the company added another 88 vendors in the next phase. All were not EDI capable. Over 70% of the vendors added in this phase were included in the program by using a third party service that provided an EDI-to-fax service. The vendors who use this service pay for it themselves, and at first they were not too happy about it. However, once they saw they were getting paid more quickly—some even received payments electronically—the complaining subsided.

P-cards

At the same time that the company began its EDI-to-fax program, it also introduced purchasing cards, mainly to handle the very small-dollar invoices.

Consolidated billing

For several large vendors, like Express Mail and Air Travel, Aetna began a program of using consolidated-billing statements and paying monthly. This reduced 23,000 records for the mail service to 12 monthly payments, and 24,000 for the air travel company to 12 monthly invoices also.

P-card in the A/P department

Aetna also gave the accounts payable department its own purchasing card. This card is used to pay the myriad of small bills that inundate most companies.

Invoice activity

When analyzing its activity, the company discovered that:

Fully 50% of its volume and 1% of its dollars spent were for invoices under $100. Aetna is targeting this groupof expenses for the P-card and hopes to eliminate much of this activity in accounts payable.
Only 19% of the company’s volume and 94% of its dollars spent were on invoices over $600.
A mere 6% of dollars spent were covered by 81% of the invoices.

The company expects that the P-cards and consolidated billing will ultimately make a big impact on the number of invoices flowing into the accounts payable department. Aetna has gone from paying 28% of its dollars through EFT in 1995 to paying 50% of its dollars by that method in 1997.

Accounts payable managers who see paper wherever they look may have some success by adapting some of the techniques practiced at Aetna to their own organizations.