New Research: Today’s AP Organizations Need to Do More to Minimize Risk

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All fields evolve, but accounts payable (AP) has undergone truly big changes in the past four decades, moving from being a set of decentralized, manual processes to a strategic organization working alongside procurement and other functions, not to mention the important value AP can provide in risk management.

Today’s AP organizations represent a wide range of performances, according to APEX Analytix’s 2017 Financial Leaders’ Benchmarking Report, which surveyed Global 1000 businesses across numerous industries.

Here are a few statistics that shed light on what a typical AP organization looks like today. The vast majority (93%) of the surveyed AP organizations work closely with their businesses’ procurement functions, with 46% also partnered with internal audit and 37% with regulatory compliance.

Half only support one geographical area, but 38% support three or more. One out of 10 can support at least five languages, and nearly one in five can support an impressive 11 or more languages.

However, many AP organizations can do a better job at minimizing risks and protecting the business from potential fraud. Nearly three-quarters do not monitor “quick pay” invoices that are paid within 10 days of receipt, and 52% do not issue days payable outstanding reports to senior leadership.

Source: APEX Analytix

As the graph above shows, a number of critical risk management best practices are not being implemented in a significant percentage of AP organizations. Two-thirds do not verify VAT numbers prior to payment, and half do not screen to make sure that vendors are not on prohibited vendor lists prior to payment.

There’s an interesting pattern when it comes to the best practice of regularly assessing high-risk vendors. While 39% of AP organizations review these vendors continuously in order to minimize the chances that the risks will be passed on to the business, 15% do not conduct reviews at all. This suggests that there may be a wide gulf between high-performing and low-performing AP organizations.

Some AP organizations can also get better at knowing how they can improve. Eighteen percent do not track their on-time payment performance. Only 35% can say that they pay invoices on time at least 90% of the time.

For invoices, electronic is of course the most efficient way to go, so it’s not surprising that high-performing AP organizations process on average 93% of their invoices electronically, compared with 64% for the average performer. For payment, the figures are similar. Average performers pay 67% of invoices electronically, whereas high performers pay 90% of invoices electronically.

When it comes to payables controls, 95% have some sort of internal controls and compliance function in place. Roughly half also have more sophisticated controls, such as a system for tracking refund checks or an internal payables scorecard.

However, a mere 14% reconcile contract price variances every month, and only 40% track or prevent after-the-fact purchase orders, or POs that are issued after the transaction has already taken place.

So how can you get your AP organization to become a high-performing one, or at least start on that path? Here are a few of the recommendations that APEX gives:

  • Don’t have too many standard payment terms. Thirty percent have 40 or more, but five or less is optimal.
  • Aim to process and pay as many invoices electronically as possible.
  • Reconcile price variances monthly (if not more often).
  • Have a supplier portal in place and use it for purposes such as dynamic discounting.

Check out the report for yourself!

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Voices (2)

  1. bitter and twisted:

    AP should be taken over by Purchasing. Its just the tail to our dog after all.

  2. Katalin Brennan:

    Good summary article about the state of AP organizations. It is sad however, that AP folks pay so little attention to risk. Having been on both AP and Procurement sides, sometimes simultaneously, I can suggest that the two functions are motivated differently. In many cases, Procurement is concerned with receiving products and services better/cheaper/faster while AP’s only concern is to do as much as needed to not loose the vendor relationship.

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