Accounts Payable News^®

Other Departments can generate core business - but if AP fails, Business Fails

How a company manages its Accounts Payable procedures affects two very important areas of an organisation’s business: cash flow and supplier relationships.  These two factors become increasingly important to the future profitability of an organisation in an economic climate such as the present.  A fully functioning cash flow is crucial to the smooth turning of the economic wheel.  Companies which apply best practices, manage accounts payable so that the process both contributes positively to the cash flow, and supports mutually beneficial relationships with suppliers.

A company with smooth running, streamlined accounts payable operations is able to save money by processing invoices with a minimum number of staff and with a low cost of materials.  In order to do this effectively many companies have adopted an automated approach, which has enabled accounts payable departments to closely monitor their cash flow, and in some cases, to extract useful metrics.

The cash flow can be controlled by minimizing late payment costs such as late payment penalties, interest charges and lost-prompt payment discounts – and by adhering to efficient best practice operations.  According to an accounts payable study sponsored by the American Institute of CPAs, the average billion dollar company processes 12,500 invoices per accounts payable employee annually, at a cost of $3.55 per invoice.  However, the world’s best finance and accounting departments process invoices at a cost of only $0.35 each, thereby saving $40,000 per employee, which is higher than their average annual salary.

The other important side of accounts payable to remember is supplier relations.  What happens in the accounts payable department can make or break business relationships.  It doesn’t matter how much hand holding and smooth talking a client account manager does, if the supplier’s bills are not paid on time, or are consistently riddled with errors – that supplier will lose faith in his account and become reluctant to continue to do business which could in turn impact on customer service.  Implementing best practices helps a company manage its accounts payable activities with multiple goals in mind:

1. To pay invoices on a predetermined schedule of the company’s choosing
2. To ensure the accuracy and authenticity of invoices that the company pays
3. To process accounts payable paperwork with a minimum of handling and expense.

An efficient team of professionals who are aware of their responsibilities in relation to best practice and compliance, can add significant value to their organisation’s bottom line.  When this is accompanied by a fully automated approach to accounts payable, the department becomes one of the most important and key areas in generating and maintaining business within the whole organisation.