Vijay Ramnathan
How back-office finance automation can help healthcare providers’ bottom lines
March 21, 2022
By Vijay Ramnathan
There is a lot of focus on finance in healthcare these days. And for good reason. According to a recent report from the American Hospital Association, more than one third of hospitals in the US maintained negative operating margins in 2021. In total, providers lost $54 billion. Let that settle for a bit.
To help stem these losses, and prior year’s, hospitals and other healthcare providers have been investing in revenue cycle management with the goal of making it easier for patients to pay their increasing share of healthcare expenses in a timely fashion. Appropriately, the emphasis has been on digital; offering more convenient digital payment methods not only helps the patients, it also streamlines the reconciliation process on the backend and reduces operating costs and the burden on finance staff. All these things benefit the bottom line.
Another other area of healthcare finance that gets less attention is accounts payable (AP). Like any function in a healthcare organization, there are costs with paying suppliers (beyond the payments being made.) For example, what is the process for approving an invoice and what does it cost from a time and resource perspective? How many invoices does the AP department process in an average month? What percentage of payments are still made by check and what does it cost to print, sign, stuff, seal, and mail those payments?
Here are some staggering statistics:
● According to Ardent Partners, the average cost in 2020 to process a single invoice – including labor, overhead and technology – was $10.89. A lot of that cost represents staff labor—time that could be better used on spend analysis, forecasting, or supply chain financing.
● Only 30% of companies use automation to assist with accounts payable invoice processing.
● On average, 50% of early payment discounts from suppliers are missed by healthcare organizations due to their struggles to execute payments in a timely manner.
Automating the AP function can address these problems by providing visibility to each and every invoice, streamlining inputs and approvals, and getting suppliers paid on time with their preferred payment method. This enables healthcare organizations to reduce unnecessary costs, take advantage of supplier discounts, and avoid late penalties. Here’s how.
Accelerated invoice capture and approvals
Without AP automation tools, capturing an invoice is a manual process which involves opening mail, scanning, and/or keying information into the accounting system. For providers that order large quantities of medical supplies and other goods, this can mean copying lines and lines of information from multi-page invoices. Then, on top of that, invoices are often collated and emailed to department heads for approval—a process that is even more challenging for healthcare organizations with multiple locations or entities.
With AP automation, healthcare providers can capture any invoice in digital form–including line-level detail–and automatically check for duplicates in the system, saving time and manual effort and eliminating entry errors and other unnecessary headaches. They can also digitize the invoice information, helping make more accurate spending forecasts and improving their long-term financial planning via easy historical and anticipated spend reporting.
The approval process can also be automated. Invoices can be instantly routed to the appropriate personnel for easy review and approval, with scheduled reminders. AP teams can also configure multiple approval tiers and routing logic based on specific attributes, e.g., amount, vendor, department, location, etc.
Digitized payments
Handling paper checks presents a number of logistical challenges for healthcare providers — multiple people handling, printing, approving, signing and mailing out paper checks, not to mention the additional costs and lack of control over cash flow.
In addition to cost savings, digital payments provide healthcare organizations with greater control over when they pay a supplier, and how it impacts cash flow. There is also the reduced risk of fraud. According to the 2021 AFP Payments Fraud and Control Survey Report, 66% of companies paying by check experienced real or attempted fraud, compared to digital payment methods such as ACH debits (34%) and Virtual Cards (3%).
Virtual Cards are an increasingly popular payment method that use unique 16-digit numbers created solely for a single-use transaction, and authorized for a specific amount. Payments can be made from anywhere and they are highly secure for both payer and payee. Their wide acceptance makes them as convenient as any other payment form and providers that use the cards can take advantage of valuable rebates to generate extra cash.
AP analytics
AP automation can also unlock valuable insights into AP workflows, cash flow, and supplier relationships. Dashboards can provide real-time visibility into every aspect of the AP process and enable users to track metrics such as invoice aging, discounts, rebates earned, and payment mix. As a result, accounting managers spend less time seeking data and processing reports, and more time analyzing the impact of AP on their business. At the same time, healthcare finance leaders are able to leverage that visibility to optimize working capital, negotiate better terms with suppliers, and align their AP activities with strategic priorities.
As healthcare providers look to drive new efficiencies in their business operations, automating back-office finance processes like accounts payable present big opportunities. Not only in cost savings and supplier discounts, but also in freeing up staff to focus on higher-value activities that deliver more impact for the healthcare organization.
About the author: Vijay Ramnathan is the president of MineralTree, a company specializing in AP and payment automation for middle-market and enterprise-level companies. A self-professed fintech and payments geek, Vijay has spent over 20 years in the space including strategic leadership and operational roles at companies including US Bank, Fifth Third Bank, and COMDATA/Fleetcor.
There is a lot of focus on finance in healthcare these days. And for good reason. According to a recent report from the American Hospital Association, more than one third of hospitals in the US maintained negative operating margins in 2021. In total, providers lost $54 billion. Let that settle for a bit.
To help stem these losses, and prior year’s, hospitals and other healthcare providers have been investing in revenue cycle management with the goal of making it easier for patients to pay their increasing share of healthcare expenses in a timely fashion. Appropriately, the emphasis has been on digital; offering more convenient digital payment methods not only helps the patients, it also streamlines the reconciliation process on the backend and reduces operating costs and the burden on finance staff. All these things benefit the bottom line.
Another other area of healthcare finance that gets less attention is accounts payable (AP). Like any function in a healthcare organization, there are costs with paying suppliers (beyond the payments being made.) For example, what is the process for approving an invoice and what does it cost from a time and resource perspective? How many invoices does the AP department process in an average month? What percentage of payments are still made by check and what does it cost to print, sign, stuff, seal, and mail those payments?
Here are some staggering statistics:
● According to Ardent Partners, the average cost in 2020 to process a single invoice – including labor, overhead and technology – was $10.89. A lot of that cost represents staff labor—time that could be better used on spend analysis, forecasting, or supply chain financing.
● Only 30% of companies use automation to assist with accounts payable invoice processing.
● On average, 50% of early payment discounts from suppliers are missed by healthcare organizations due to their struggles to execute payments in a timely manner.
Automating the AP function can address these problems by providing visibility to each and every invoice, streamlining inputs and approvals, and getting suppliers paid on time with their preferred payment method. This enables healthcare organizations to reduce unnecessary costs, take advantage of supplier discounts, and avoid late penalties. Here’s how.
Accelerated invoice capture and approvals
Without AP automation tools, capturing an invoice is a manual process which involves opening mail, scanning, and/or keying information into the accounting system. For providers that order large quantities of medical supplies and other goods, this can mean copying lines and lines of information from multi-page invoices. Then, on top of that, invoices are often collated and emailed to department heads for approval—a process that is even more challenging for healthcare organizations with multiple locations or entities.
With AP automation, healthcare providers can capture any invoice in digital form–including line-level detail–and automatically check for duplicates in the system, saving time and manual effort and eliminating entry errors and other unnecessary headaches. They can also digitize the invoice information, helping make more accurate spending forecasts and improving their long-term financial planning via easy historical and anticipated spend reporting.
The approval process can also be automated. Invoices can be instantly routed to the appropriate personnel for easy review and approval, with scheduled reminders. AP teams can also configure multiple approval tiers and routing logic based on specific attributes, e.g., amount, vendor, department, location, etc.
Digitized payments
Handling paper checks presents a number of logistical challenges for healthcare providers — multiple people handling, printing, approving, signing and mailing out paper checks, not to mention the additional costs and lack of control over cash flow.
In addition to cost savings, digital payments provide healthcare organizations with greater control over when they pay a supplier, and how it impacts cash flow. There is also the reduced risk of fraud. According to the 2021 AFP Payments Fraud and Control Survey Report, 66% of companies paying by check experienced real or attempted fraud, compared to digital payment methods such as ACH debits (34%) and Virtual Cards (3%).
Virtual Cards are an increasingly popular payment method that use unique 16-digit numbers created solely for a single-use transaction, and authorized for a specific amount. Payments can be made from anywhere and they are highly secure for both payer and payee. Their wide acceptance makes them as convenient as any other payment form and providers that use the cards can take advantage of valuable rebates to generate extra cash.
AP analytics
AP automation can also unlock valuable insights into AP workflows, cash flow, and supplier relationships. Dashboards can provide real-time visibility into every aspect of the AP process and enable users to track metrics such as invoice aging, discounts, rebates earned, and payment mix. As a result, accounting managers spend less time seeking data and processing reports, and more time analyzing the impact of AP on their business. At the same time, healthcare finance leaders are able to leverage that visibility to optimize working capital, negotiate better terms with suppliers, and align their AP activities with strategic priorities.
As healthcare providers look to drive new efficiencies in their business operations, automating back-office finance processes like accounts payable present big opportunities. Not only in cost savings and supplier discounts, but also in freeing up staff to focus on higher-value activities that deliver more impact for the healthcare organization.
About the author: Vijay Ramnathan is the president of MineralTree, a company specializing in AP and payment automation for middle-market and enterprise-level companies. A self-professed fintech and payments geek, Vijay has spent over 20 years in the space including strategic leadership and operational roles at companies including US Bank, Fifth Third Bank, and COMDATA/Fleetcor.