Boardroom Chatter: Cost Reduction – Accounts Payable

Charlotte Sutton
Charlotte Sutton,
Over lunch, the CEO, CFO & CPO of a large corporation were chewing the fat. Topic: Cost reduction.
Turning their attention to Accounts Payable (AP), the CEO asks the CFO what the current state-of-play is? On the back of a napkin the CFO works out:
  • 70,000 invoices processed per year
  • 15 FTE in AP
  • 220 working days
  • = 21 invoices processed per FTE, per day
“That doesn’t sound good” said the CEO.  The CFO is tasked to undertake an audit and report back.

A week later: the report lands on the CEO’s desk with a thud. The highlights:
  • On average, it costs $35 to process a single invoice and takes well-over 30 days (whereas for top performers it costs $3.47 and takes 2.9 days, according to analysts). 
The interesting (but scary!) stuff:
  • AP is currently receiving invoices in the most inefficient manner: regular mail and paper. 
  • AP clerks have to physically match invoices with physical POs (if there are any), goods receipt notes and other documents that cause delays.
  • There are a high number of errors and discrepancies to deal with. 
  • "Problem" invoices are sent out of Finance by interoffice mail to managers (the expensive people) for issue resolution.
  • Duplicate and rogue invoices are being paid as there is “just pay them” attitide. 
  • For approvals, AP clerks send paper invoices out for a physical signature or worse still hold paper invoices back in finance and ask approvers to come and sign them.
  • On complex invoice categories, AP creates extra work for Procurement by insisting on “after-the-fact” POs so they can still do a three-way match – this keeps the ERP system happy but delays processing without noticeable improvement in control.
  • There are a high percentage of calls coming into AP from vendors enquiring about invoice status. AP waste time speaking with vendors AR departments because payment isn’t on time.
The board members get together to brain-storm ideas on how to make changes. On a whiteboard they draw up a ‘wish list’:
  • Most or all invoices are electronic
  • Invoice data is intelligently captured and extracted
  • High percentage of purchase orders with automated handling
  • Minimal-to-no staff handling vendor payment inquiries
  • Totally paperless processes with no storage issues
  • Global access to all documents and data
  • No issue with overpayments or late-payments
  • Cash-flow benefits from early-pay discounts and vendor negotiations
  • Hands-free exception-handling; high degree of automation
This situation is not uncommon. Do you recognize the same challenges within your organization?

PROACTIS, a leading supplier of spend control & eProcurement solutions, provides the capabilities to address these issues. To learn more click here.

Alternatively, download this guide that looks at how to formulate and execute a strategy to automate invoice processing: AP: How to Cut Costs and Improve Invoice Processing Efficiency.
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