With the ongoing lagging economy, companies are continuing their aggressive pursuit of reducing overall costs and looking for any opportunities that would provide even a greater return on working capital. One area that has gotten a lot of attention in the past several years is Accounts Payable (AP) or, more specifically, electronic invoicing (sometimes referred to as invoice automation or supplier enablement) and discount management.
Leading companies have implemented solutions that have significantly lowered their AP costs (some as low as $2.00 per invoice), earned greater returns on their early payment discounts and developed even tighter supplier relationships through these initiatives. These companies have achieved these results by working with their suppliers to improve their procurement and AP processes while also, at times, exploiting their lower cost of capital (relative to their supply base) to support improved early payment discount attainment. These results and changes have become more prevalent as a broader base of electronic invoicing software providers has developed; now including ERP suppliers, financial institutions and independent software companies. This has created a great environment for companies to improve their AP processes.
How to determine if you have Payables Opportunities?
The best way to determine if you have a payables opportunity is to initially focus on assessing the current AP organization, including processes employed and the technolog(ies) being leveraged to receive and process invoices. I have provided a table below that shows different areas with the identifiers of opportunity and their operational impact. In addition, there are several benchmarking studies that can be used to compare your current AP costs to industry averages. The challenge with those studies is to be able to get a good comparable cost basis to compare against your company's cost.
One item to not forget is the impact that the invoicing process has on suppliers, procurement, tax and the treasury function. These business functions work in collaboration with AP and any changes can help or support their processes.
Once you understand your opportunities where do you go?
Based on the results of your assessment, you should focus on how you're going to address these opportunities. You should talk to your ERP supplier, bank and supply base to understand what's available and the costs. In most cases, you should develop a business case based on your assessment and vendor discussions that you can use to justify implementing these opportunities.
Achieving Value through Payables
In summary, companies have a great opportunity to achieve additional value through payables. After a proper assessment, companies can leverage new and existing tools and business processes that can both lower AP costs while improving the return on their working capital.