Friday Rant: An Enemy of Treasury, Procurement: Time to Blow Up A/P (Diagnostic Included!!)

Accounts payable is a wretched function. It's mere existence, to pay vendors, strikes of something begging to be automated or absorbed into another function. And that would be if it did it right. All too often, AP organizations do a horrible job at forecasting liabilities -- they simply don't have access to the information necessary to forecast specific payment dates, let alone to enable suppliers to take advantage of early payment programs that could, theoretically, turn the function into an asset. Secretly, it's not only treasury that dislikes AP or must deal with its ineptness. It's also procurement, who must face the aloof AP wrath of not having any visibility into the black hole of when their strategic suppliers will actually be paid, agreed upon terms or not.

Taken as the function AP has historically been, it's the quintessential cost center in the business. If the idiots in Office Space did not work in AP, they should have. No doubt, AP had the chance to step up to the plate and off the parody of the big screen. It could have -- and should have -- taken a lead at tying eProcurement, direct materials requisitioning and electronic invoicing together into a common and integrated process.

Yet rather, it was dragged partially comatose into the e-era. In the best of cases, AP Directors committed ritual samurai suicide by tearing out their own corporate innards and pushing AP into either a shared services or outsourced environment (willingly or otherwise) while ideally fixing broken processes first (a noble goal, but see below -- it rarely happens). More important, don't believe for a minute that either option represented above is "progress" or fixes the problem -- it just means sending it to people who don't understand the same contextual English as native speakers but might know how to manipulate Excel just a tad better. Both options usually contribute to our trade deficit as well, but don't get me started.

In short, most companies have done a horrible job at overseeing AP, and when it comes time to improve the function, they merely build a new wall and toss it over rather than examining it from the ground-up to redefine what it could be and could do. Here's a quick litmus test that will tell you whether or not it's time to blow up your AP function and start from scratch. If you answer "no" to more than a few questions, use the TNT...

  • If you have moved to a shared services center or gone with a BPO provider, did you go through a process re-engineering exercise before doing the human capital shuffle?
  • Have you achieved other synergies and benefits from AP initiatives in the past decade other than reducing labor costs?
  • Have you reduced the number of duplicate payments on a year-over-year basis in the past three years? This question assumes you know about the number of duplicate payments -- if you don't have a process to systematically identify duplicate payments or avoid them in the first place, give yourself two "no" checks
  • Has your organization been able to reduce its AP headcount by 50% or more through automation initiatives and process improvement?
  • Is AP capable of forecasting liabilities (partially or complete) before a supplier issues an invoice?
  • Have you invested in an electronic-invoicing solution separate from a eProcurement platform? Or said differently, have you purchased an e-invoicing platform that: A) covers all spend, not just indirect; B) includes internal automation tools separate from connectivity, supplier self-service and basic exception management?
  • Has AP taken the lead in investigating more than one supply chain finance option (e.g., bank-based, treasury-based, dynamic discounting software)?

Be liberal in your scoring. Yet if you've failed the above diagnostic, don't be shy. It's time scorch your AP earth and start from scratch. Next week, we'll offer another rant on the subject: A Five Step Plan to Turning Accounts Payable Into Supply Chain Finance

Editors Note: If you work in AP and took offense to this rant, we're sorry. If you're reading this, it's highly unlikely any of this vitriol and hyperbole was aimed at anyone like you. However, many of your peers at other companies, who don't know sites like Spend Matters from an old, unpaid invoice that someone made it's way into the men's room, deserve what's coming to them.

Jason Busch

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