Process improvements and automation are the leading tools in productivity gains for the AP process. This means that AP is evolving from a manual, clerical “cost-center” process to a touchless, automated and analytical process that enables cost reductions. Today’s AP department also provides the data for better cash management and the intelligence for savings through enhanced visibility of the purchasing process resulting in overall improvements.
AP provides several benefits—from performing due diligence-related activities to supplier setup and timely invoice processing, reinforcing payment processing terms, and customer service.
The AP department plays a critical role within an organization as it is the last point of control before payment is made and sent to a supplier. The AP profession isn't necessarily a stepping stone to a career path of an accounting professional. Today’s AP professional is now considered an analyst and an influencer of the direction of their company’s P2P process since data is readily available.
For at least three decades, many companies have been focused on reducing costs and improving productivity in their corporate transaction processing areas. These companies focused on traditional “back office” processes such as accounts payable (AP), payroll, travel and entertainment (T&E), fixed asset accounting, and accounts receivable (AR).
There’s been a trend toward transitioning financial transaction processes to financial management centers. Today, companies are focused on process improvements and automation initiatives to garner additional efficiencies and cost reduction opportunities.
Many companies look upon centralization and are moving to shared services-approach as a step before considering automation. This is because centralizing the AP process and implementing a shared services model can identify best practices that help eliminate process inefficiencies.
Digital Equipment Corporation took a futuristic approach to improving the productivity of their financial transaction processes. DEC established several manufacturing plants across the United States. Each plant was supported by a separate general ledger and standalone accounts payable and T&E processes.
Inefficiencies were recognized and 28 general ledgers and financial transaction processes were consolidated into four financial management centers. The financial management centers were eventually transited to a single U.S. shared service center in the mid-1990s. DEC was eventually purchased by Compaq Computer Corporation in 1998. Compaq was later acquired by Hewlett Packard in 2002.
The concept of consolidating financial transaction processing that DEC started in 1987 and transitioned to Compaq was truly realized with the integration into Hewlett Packard’s shared service center model, as noted in the article “HP's Journey to Shared Services Finance & Accounting Success,” by Dian Schaffhauser. In the article, Schaffhauser noted that HP was able to transition 1,200 finance roles into the HP infrastructure within only 18 months. This allowed all financial processes to move to a common platform with a cost savings of approximately 50 percent.
The movement of the AP process to a shared services center creates an opportunity to allocate transaction processing costs back to the organization. The allocation model places an additional focus on cost, since business units will question any increase. This model also places an emphasis on reporting and metrics since savvy business units may ask for additional value-added services such as spend analysis and purchase order compliance. Automating the AP process provides organizations with the tools to better analyze spending and compliance.
The AP process is evolving from a manual, clerical “cost-center” process to an automated and analytic process that enables visibility to the spending for the organization and highlights opportunities for AP cost reduction through strategic sourcing and other initiatives.
The AP process continues to be the backbone of all organizations. Today’s technology options provide several alternatives for automation.
The challenge is to select the focus for automation, develop the business case, and select the best solution provider to team with your company. Lastly, it’s critical to define and provide the critical skills that the new AP analyst will need to be successful in today’s environment. These skills will include an immediate Excel knowledge base, financial analysis, problem-solving, knowledge of financial ratios, and foundational six sigma skills.