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Five Ways A/P Can Add Operating and Strategic Value
Hint: Look under new stones
by Joseph Collins, Director of Value Development, APEX Analytix, Inc.
These days, companies of all sizes are looking everywhere for opportunities to become more efficient and productive. It's easy to think that there's not much more you can do, and you've already picked all the "low hanging fruit." But that is not so. Here are five ways you can add operating and strategic value.
Accounts Payable (A/P) tends to be an assembly-line sort of operation, and it is easy for employees to focus on their part of it and lose sight of the big picture. Someone might assume "I handle payments" or "I enter invoices" and not think beyond that.
One way to drive operating efficiency through the organization is to help people get out of their rut and think about ways to operate more efficiently. Consider this approach cross-pollination.
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Have your data entry team sit down with your payments team and explain how things work. Just explaining how the process works to someone else can trigger new ideas. Chances are, the team that's not familiar with how you do things will ask, "Why do you do that?" and "Why do you hand off here and not there?" or "Why not do it this way?"
You can find potential efficiencies simply by sharing your processes with groups outside the process itself, to gain some external perspective from within the organization. Consider doing the same with purchasing teams as well.
A major advantage, in addition to fresh perspective, is that A/P becomes less siloed. You and your staff gain an appreciation for what happens upstream and downstream. And that makes the whole operation smoother.
Two: Challenge your workforce
A good idea is a good idea; it doesn't matter whether it comes from the chief financial officer (CFO) or someone in the mail room. So set up "challenges" for your payables team. For example, "I challenge you to come up with a way that we can get rid of this paper," or "I challenge you to find ways that we can be more efficient." Establish the broad topics and let your teams come up with ideas that tie back to them.
It's an excellent way to motivate your team and to fire them up. At the same time, you never know what brainchildren may be out there. People may have ideas in their heads that they aren't sharing because they think of themselves as "just an employee" or that "no one cares about my opinion."
Reaching out to your team to let them know their ideas matter has a high payoff. It's even more effective if the people who come up with the ideas get to share them directly with the CFO over lunch. That way they get both positive exposure and valuable feedback. That leads directly to the third point, which is ...
Three: Have a tiered reward program
Consider broad-based recognition aimed at your entire workgroup or department, in addition to individual rewards. For example, consider saying something like, "If our group can save $5,000 dollars through process efficiencies this year, we'll have a party for the whole department at the end of the year. And if you save $10,000 through process efficiencies, I'll give you all Friday off."
This tiered approach is an excellent way to reward the entire group or department for working together to achieve efficiency goals. As team leader, you are responsible for achieving measurable efficiencies and increasing productivity in your organization. So you should be willing to share in the tangible rewards you get for achieving those objectives.
Four: Look under new stones
If you want to add more bottom-line value, consider going further than the standard payables recovery audit everyone knows about. Depending on the type of industry you are in, consider a tax audit, an escheatment audit, a media advertising audit or a freight recovery audit.
There are a lot of opportunities to go after dollars just waiting for you to go after and recover. That's an important trend, especially these days when it is harder than ever to drive in new revenue or find more expenses to cut. If you have paid money out, and you can go out and get it back, those dollars go straight to the bottom line. There's a huge cash impact to that.
One area where you can recover a lot of money is in contract compliance. A/P might pay a single invoice through a one-time mistake, like a data entry error. But with a contract, there's often a much longer timeframe. A purchase order entered incorrectly could last for months, and all the invoices against that P.O. would be wrong as well. There's a high potential for error, and a solid opportunity for you to recover paid-out monies. It's not uncommon for a contract compliance audit to uncover errors that amount to 2.5 percent of the total spend.
The area to target with the highest payoff varies by industry, of course, and depends on things like check vs. automated clearing house (ACH) volume and contract complexity. It's best to conduct a front-end needs analysis to determine where you are likely to get the biggest bang for your buck.
Five: Proactive fraud detection
It's no secret that fraud has increased dramatically, and that payables is particularly vulnerable to scam artists. In response, many companies are looking back over historical data to ensure that there are no "skeletons in the closet."
Some organizations are taking that vigilance a step further, implementing "on the fly" fraud detection. After all, a clean bill of health for prior-period transactions is no guarantee of future results. Some kind of skullduggery could surface at any time.
That's why implementing ongoing, proactive fraud monitoring in A/P is a great way to add value, in the sense that you protect against loss of share value, reputation and brand.
An early warning system can be of great help in protecting the company. In a recent fraud case at a major retailer, a top executive set up a phony freight expediting company and approved about $600,000 in payments before APEX Analytix FirstStrike technology raised red flags. The invoices were all within the executive's approval authority, and no one thought to question them until APEX found anomalies that warranted a deeper investigation.
Proactive fraud detection has another payoff, in the sense that you can spot suspect transactions early -- before cutting the check -- as opposed to trying to recover dollars paid out to fraudsters after the fact, which is far more difficult.
Joseph Collins, senior director of value development at APEX Analytix, leads a team dedicated to increasing knowledge and expertise of best practices, emerging trends and world-class methodologies in the finance and disbursement industry. Prior to APEX, Joseph worked for six years at Alcatel-Lucent as the global process owner of accounts payable, payroll, SOX controls and global metrics. In 2007, Joseph earned his MBA in global business management from the University of Phoenix.