Benchmarking Report Finds Weakness When AP and Procurement Are Separate

The “2015 Financial Leaders’ Benchmarking Report - Global Essential Insight from AP, P2P and Shared Services,” was published very recently by APEX Analytix. The report highlights the outcomes of a survey carried out by the company targeting respondents across five continents. It gives data-based and analysed results of current priorities, performance and areas for improvement.

It demonstrates how Accounts Payable has evolved rapidly technologically since the 1980s: from being transactionally focused, decentralised and with homegrown systems on mainframes in 1980, to centralisation, shared services, eInvoicing, and the start of end-to-end procure-to-pay by 2000, through to fully integrated P2P AP partnerships with audit, finance cross-system reporting, transparency, global processes, governance, continuous monitoring and control processes and supplier portals by 2015.

Even though AP has become a more strategic function within P2P and global financial shared services, many AP professionals still need to ask some pertinent questions about their own AP responsibilities and operations. The report set out to answer these questions, such as: How do we compare to our peers? How do we compare to best practice? What opportunities exist to improve further?

The survey respondents included almost 20 percent from Fortune 100 businesses, and companies from Fortune 250 and Fortune 500 businesses representing global leaders in finance, healthcare, entertainment, technology and aviation. The results drill down into many areas with quite surprising top-line findings, including: 45 percent of AP organisations do not track if they are capturing all available discounts from suppliers, whilst 64 percent fail to report on monthly cash discount performance to senior leadership.

And under key operating metrics it finds that while 80 percent of respondents are capable of accepting electronic data interchange submissions and 72 percent system feeds, only slightly more than 50 percent are equipped to receive and process web invoices, and just 40 percent could process Evaluated Receipts Settlement/self-billing.

But what we found most interesting was the section that discusses Payables controls and adherence to best practice, and the situation between the Accounts Payables and Procurement departments or functions.

In terms of payables controls, the figures vary widely, from 98 percent stating they have a controls/compliance function within payables, and 80 percent boasting invoice coding standards to ensure consistent entry of invoice numbers, right down to only 16 percent saying yes to reconciling contract price variances each month. “Of much greater concern though,” says the report, “is the number of areas of payment control practice where significant numbers of respondents don’t report adhering to good practice.” So there is plenty of room for improvement. You can see the full spectrum of the results in the report here.

It also finds that “the need for automation of the AP process is becoming more and more essential to avoid fraud and mismanagement and simply handle the volume of invoices being processed.”

Another area highlighted for improvement is the way in which a typical AP organisation’s responsibilities are apportioned within the procure-to-pay operation and how procurement and AP are linked, or not: 46 percent have separate functions under separate leadership, in just 15 percent there is a combined procure-to-pay function operating under a common procure-to-pay leadership, and in 39 percent separate functions operate within a P2P alliance. Clearly, among all the progression, there is still room for AP to rethink its relationships with other functions.

What the report finds worrying is the stated 46 percent with separate functions operating under separate leadership. “Under such a structure – a supposedly end-to-end procure-to-pay function managed as individual sub-functions – it is not inconceivable that opportunities exist for operational weaknesses and organisational misalignments to creep in.”

There is also ambiguity over which department should take control over making sure that invoiced prices, terms and rebates are in compliance with contracts and negotiated agreements. “In 62 percent of organisations, this responsibility resides with procurement, while in less than one-fifth (17 percent) of organisations, it lies with the AP operation. In 14 percent of organisations it lies with the department that originally ordered the goods and services in question, which seems less than optimal, and in over one in 20 (7 percent) of organisations the responsibility lies elsewhere."

Whilst there are pros and cons around the issue of whether AP should actually report into Procurement, it would seem clear that Procurement should own the ultimate responsibility for making sure suppliers meet the terms of the contract. AP can play a positive role in highlighting errors and playing their part in running a robust process and systems, but Procurement needs to step up to this issue.

A recurring theme through the report, unsurprisingly, is the scope for a recovery audit and continuous monitoring capabilities to identify potentially recoverable expenditure. Again, Procurement and AP need to collaborate to drive that sort of activity.

Many other findings are covered in the benchmarking report, including Supplier Use of Portals, Cash Management and Risk Management, and it concludes with a section on what has been learnt and opportunities for improvement. You can download the whole report here Global Essential Insight from AP, P2P and Shared Services

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