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Paths to Improvement in Accounts Payable

The View from Finance

A report prepared by CFO Research Services in collaboration with Ariba

Paths to Improvement in Accounts Payable


The View from Finance

A report prepared by CFO Research Services in collaboration with Ariba

Paths to Improvement in Accounts Payable: The View from Finance is published by CFO Publishing Corp., 253 Summer Street, Boston, MA 02210. Please direct inquiries to Jane Coulter at 617-345-9700, ext. 211 or janecoulter@cfo.com. CFO Research Services and Ariba developed the hypotheses for this research jointly. Ariba funded the research and publication of our findings. We would like to acknowledge Ashish Deshpande, Joe Fox, Drew Hofler, and Rob Mihalko for their contributions and support. At CFO Research Services, Celina Rogers directed the research and wrote the report. CFO Research Services is the sponsored research group within CFO Publishing Corporation, which produces CFO magazine in the United States, Europe, Asia, and China. CFO Publishing is part of The Economist Group. March 2008 Copyright 2008 CFO Publishing Corp., which is solely responsible for its content. All rights reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without written permission.

Contents
A broader view of accounts payable About this report Plans and priorities in accounts payable Contribution to the bottom line Paths to improvement Accounts payable performance Risks in accounts payable Mitigating risksAdvice from the front lines Balancing efficiency and control Sponsors perspective 2 2 3

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Paths to Improvement in Accounts Payable


A broader view of accounts payable
In recent years, CFO Research Services has documented finances efforts to drive cost, complexity, risk, and error from its routine transaction processes. Weve found that streamlined business processes, often paired with improved technology systems for transaction processing, are the foundation of many of these efforts. Weve also found that finances path to progress in this area is often characterized by gradual, sustained improvement there is no single magic bullet that will reduce costs, increase efficiency, and eliminate risk. We undertook this study to explore accounts payable, an area of back-office processing where improvements are often viewed through the lens of efficiency: processing more invoices with shorter cycle times, using fewer employee hours, and with greater accuracy. Our study reveals that, although finance executives certainly recognize and value these benefits, their interest in AP management extends beyond process efficiencies to include broader issues, such as cash management, contract compliance, and managing relationships with key suppliers. Our survey of senior finance executives in North America explores finance executives interests, problems, and plans in the management of accounts payable. Respondents to our survey were also eager to describe the paths to improvement in accounts payable that have helped them achieve good results. In light of recent reports indicating a slowdown in U.S. economic growth, companies may seek improvements in back-office processing even more urgently in the coming months, as they work to preserve healthy margins and to improve liquidity. For, as the results of this survey demonstrate, the finance functions top priorities over the coming year are closely connected with the desire to increase finances support for the bottom line.
About this report In February 2008, CFO Research Services (a unit of CFO Publishing Corp.) conducted a survey among senior finance executives in North America to examine their views on accounts payable. We gathered a total of 186 responses from senior finance executives from a broad cross-section of company segments, as follows: Annual revenue Less than $100 million $100 million-$250 million $250 million-$500 million $500 million-$1 billion $1 billion-$5 billion $5 billion+ Titles Chief financial officer Controller Director of finance VP of finance EVP or SVP of finance Treasurer Other (including CEO, president, or managing director)

5% 35% 20% 11% 17% 12%

35% 27% 16% 11% 3% 3% 6%

Respondents work for companies in nearly every industry. The manufacturing, wholesale and retail trade, financial services, and chemicals/energy/utilities industries are particularly well represented. Note: Percentages may not total 100 percent, due to rounding.

Finance executives interest in AP management extends beyond process efficiencies to include broader issues, including cash management and managing relationships with key suppliers.

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The View from Finance


Plans and priorities in accounts payable Contribution to the bottom line
We asked respondents to tell us about their companies priorities for improvement in finance over the next year. We found that finance activities that contribute directly to the bottom linecost management and decision supportare top priorities in finance. (See Figure 1.) Half of all respondents say that cost management is a high priority, followed closely by decision support and business analysis (48 percent). In contrast, respondents are least likely to cite regulatory compliance as a high priority for improvement. These results reflect, of course, the heavy investment in time, resources, and attention that companies have made in this area in recent years. After several years of effort and heavy investment to meet enhanced compliance standards, companies are becoming freer to turn their attention to value-adding activities that will contribute to the bottom line.

Finance activities that contribute directly to the bottom linecost management and decision supportare top priorities in finance.

Figure 1. Finance activities that contribute directly to the bottom line will be top priorities in finance over the next year. In your opinion, how much will your company focus on improving the following finance activities over the next year?

Cost management Decision support/Business analysis

Planning, budgeting, and forecasting

Working capital management Financial reporting Transaction processing Regulatory compliance 0 High priority for improvement 20 40 60 80 100%

Mid-level priority for improvement Percentage of respondents

Low priority for improvement

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Paths to Improvement in Accounts Payable

Figure 2. Respondents most often cite reducing costs, increasing efficiency, and obtaining greater control as high priorities for improvement in accounts payable. In your opinion, how much will your company focus on improving the following areas in accounts payable over the next year?

Cost of AP (expending fewer resources while maintaining performance)

Efficiency in AP (processing invoices faster, managing days payable outstanding) Control over AP (optimizing payment timing/financing)

Accuracy of AP (making correct payments in accordance with contract terms) Information from AP (providing visibility into actual payments vs. contract terms, improved reporting) 0 High priority for improvement 20 40 60 80 100%

Mid-level priority for improvement Percentage of respondents

Low priority for improvement

We also asked respondents to tell us about their priorities for improvement in accounts payable, in particular. We queried them on their priorities with respect to five critical dimensions of AP performance: cost, efficiency, control, accuracy, and information. We found that priorities for improvement in AP are in line with finances overall priorities: Respondents most often say that reducing the cost of AP, improving AP processing efficiency (including improvements to APs contribution to working capital management), and increasing control over AP are high priorities for improvement. (See Figure 2.)

Paths to improvement. Respondents most often cite process and technology improvements as the best ways to improve these critical dimensions of accounts payable performance. In most areas, respondents say that process improvements are the best method to improve AP performance. (See Figure 3, next page.) A substantial number of respondents, however, say that improved technology is the best way to improve performance in APand a solid majority (69 percent) cite improved technology as the best way to improve information from AP. Far fewer respondents cite either shared services or outsourcing as the best way to improve AP performance in any area. Its important to note, however, that respondents were asked to choose the best improvement paths in each area. Even though many respondents didnt say that a given improvement method is the best, that doesnt necessarily mean they dont believe that path would be helpful. Indeed, open-ended responses show that finance executives intend to pursue a variety of AP improvement paths, including process and technology improvements, outsourcing, shared services, and centralization of AP activities. (See sidebar, next page.)

Respondents most often say that reducing the cost of AP, improving AP processing efficiency (including improvements to APs contribution to working capital management), and increasing control over AP are high priorities for improvement.

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The View from Finance


Figure 3. Process and technology improvements are most often cited as the best ways to improve aspects of AP performance. In your opinion, what are the best ways for companies to improve accounts payable performance in the following areas? Process improvements New/Improved technology systems Outsourcing Shared services

Accuracy of AP

66% 61% 60% 44% 32%

31% 34% 32% 35% 69%

2% 3% 3% 10% 2%

7% 14% 11% 18% 2%

Efficiency in AP

Control over AP

Cost of AP

Information from AP

Percentage saying each improvement method is one of the best ways to improve an area of AP

In their own wordsAccounts payable improvement plans We asked respondents to tell us, in their own words, about areas where their companies plan to make improvements in accounts payable over the next year. Their overwhelming response is evidence of the importance of AP performance in many finance organizations, and the challenge of improving it. Respondents often mention automation of AP processes as an area where their companies plan to seek improvementincluding efforts to introduce invoice scanning, electronic invoicing and payment, automatic generation of purchase orders, and electronic approvals. Many respondents write that their organizations are working toward paperless processing in AP. In particular, open-ended responses indicate an interest in moving to a paperless environment for externally-facing AP processes especially processes that involve interaction with outside vendors. Responses show that at least some of the challenge in migrating to paperless processes involves persuading vendors to adopt them. Were attempting to have vendors submit electronic invoices that can be uploaded into our system, writes one respondent, suggesting that the organizations movement to paperless invoicing is not an entirely independent decision. Respondents also mention plans for IT improvements that would support movement to electronic scanning and processing, such as adding document and record storage capacity. Respondents often refer to ongoing efforts to improve technology systems for AP, many of which involve improvements to their ERP systems. Our company doesnt know how to improve, writes one respondent. It only knows how to make things worse. Were in the process of identifying a new ERP vendor and hope to gain a lot of efficiency from a new set of tools. Were currently drowning in paper due to the dinosaur of a system that were saddled with! But responses hint at the organizational and other challenges of improving technology systems for AP in the context of ERP improvements: Were developing an in-house ERP system that will focus on our accounts payable. To date, the focus has been on creating a mirror of what we have, which is not the right thing to do. I, however, am in charge of AP and not in charge of the ERP system developmentconflicting interests. The need to avoid duplicating weak processes or controls in new technology systems (or, indeed, in new outsourcing or sharedservices arrangements) is one of the reasons companies are pursuing process improvements, finance executives say. In most cases, process improvements, where mentioned, are discussed as a precursor to automation, outsourcing, or shared-services initiatives. Respondents also cite standardization of IT systems as an important precursor both to further automation and to a migration to shared services. Despite the overwhelming emphasis on technology improvement initiatives in open-ended responses, many respondents also take a broad management perspective of their plans to improve accounts payable. Respondents mention plans to improve invoice validation and matching, as well as other improvement plans that touch on issues that, in the past, have customarily fallen under the umbrella of the procurement function: optimizing information for management decision making, improving payment terms, and conducting reviews of highfrequency vendors to assess their importance in terms of organizational strategy. These responses may well be evidence of a movement away from isolating the accounts payable department from the procurement function, and a movement toward a more integrated procure-to-pay environment.

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Paths to Improvement in Accounts Payable

Figure 4. Although most respondents say their companies have automated AP processes at least to some degree, nearly half of all respondents say at least some of their internal AP processes are manual. Which of the following statements best describes your company's IT systems for internal accounts payable processing?

Accounts payable processes are primarily manual with little use of automation Accounts payable processes are somewhat automated with some use of manual processes Accounts payable processes are primarily automated and tightly integrated with some other transaction-processing systems, such as ERP Accounts payable processes are highly automated and tightly integrated with all other financial processes and systems 0 10 20 30 Percentage of respondents 40 50%

Survey results show that there is room for further automation at many companies. Only 14 percent of respondents say their companys IT systems for AP processes are automated to the highest degreeand nearly half of all respondents (49 percent) say at least some of their companies AP processes are manual. (See Figure 4.) This may help to explain the high level of interest in technology improvements that respondents express in open-ended responses.

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The View from Finance


Accounts payable performance
How well are companies performing in accounts payable? Survey results show that, in general, companies are executing basic accounts payable activities well. Good performance in basic activities like receiving invoices, reconciling them with purchase orders, and issuing payments is certainly to be expected; companies that execute the basics of AP very poorly probably would not expect to remain in business for long. But finance executives see room for improvement in their companies AP performancenot only for higher-value activities such as producing information to support decision making and timing payments optimally, but also for activities such as matching payments to contract terms, directing payments to the right places and accounts, and documenting transactions. We asked respondents how often their companies experience a variety of problems in accounts payable. A solid majority (62 percent) say that the management reporting they receive from AP is at least occasionally insufficient to support decision making. Other problems that respondents cite frequently include difficulty reconciling payments with purchase orders or invoices, and insufficiently transparent external reporting on payables. (See Figure 5.) A surprisingly high number of respondents say their AP departments at least occasionally have problems with poor transaction documentation (43 percent), misdirected payments (39 percent), and overpayment against contract terms (37 percent).

Figure 5. Respondents most often report problems in AP with management reporting to support decision making. How often, if ever, does your company experience the following problems in accounts payable?

Management reporting on payables insufficient to support decision making Paying suppliers early/ahead of terms (i.e., before the invoice comes due) Difficulty consolidating/reconciling payments with purchase orders and/or invoices External reporting on payables insufficiently transparent Number of exceptions in a given month exceeds APs capacity to resolve them Account delinquency due to underpayment or late payment Closing cycle extended due to AP issues Poor documentation of transactions (duplicate invoices, misnumbered checks) Misdirected payments (e.g., payment sent to incorrect address/account) Overpayment against contract terms 0 Often 20 40 Occasionally 60 Rarely/Never 80 100% Don't know

Percentage of respondents

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Paths to Improvement in Accounts Payable


Figure 6. A substantial number of respondents identify room for improvement in APs performance across a variety of cash management objectives. In your opinion, how well does the accounts payable function at your company support the following cash management objectives?

Securing discounts from vendors by documenting early payments Extracting maximum value from negotiated contract terms Contributing to working capital management efforts (in particular, days payable outstanding) Taking advantage of vendor discounts for early payment Optimizing the companys use of financing for accounts payable 0 Room for improvement 20 40 60 80 100%

Adequate performance Percentage of respondents

Excellent performance

We also asked respondents how well the accounts payable function at their company supports a variety of cash management objectivesall of which require control and precision in the handling of individual transactions, as well as visibility into broader transaction patterns. While most respondents say their AP departments performance is at least adequate across all of these objectives, relatively few say their AP departments are performing exceptionally well. Respondents are most likely to identify room for improvement in securing discounts from vendors by documenting early paymentsan area where a high degree of control over the timing of transactions, solid reporting on transaction activity, and the ability to communicate with vendors all come into play. A substantial number of respondents identify room for improvement in APs performance across all of these cash management objectives, suggesting that many companies may be able to increase the availability of shortterm cashand realize some hard-dollar savings through vendor discounts and rebatesby refining reporting, control, and communication in accounts payable. (Interestingly, respondents are most likely to report excellent performance in taking advantage of the vendor discounts for early payment that theyve already securedbut theyre also most likely to see room for improvement in actually securing those discounts.) (See Figure 6.)

Many AP departments have relatively little technology support when interacting with outside suppliers. Highly repeatable, mostly internal AP activities are most likely to take place in a genuinely paperless environment, in which processes are primarily electronic with only minimal (if any) use of paper documentation. But more outward-facing AP activities, such as receiving invoices and dispute resolution, are most likely to be performed through manual processes, with primarily paper-based documentation. (See Figure 7, next page.)

More outward-facing AP activities, such as receiving invoices and dispute resolution, are most likely to be performed through manual processes.

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Figure 7. Highly repeatable, internally focused AP processes are most likely to be paperless. To what extent are the following accounts payable processes paperless at your company?

Preparing purchase orders

Submitting requisitions

Approving purchases

Approving payments

Creating, storing, and managing contracts with vendors

Receiving and validating invoices

Interacting with suppliers (including queries, dispute resolution)

Identifying and selecting vendors

0 Primarily electronic with occasional use of paper documents

20

40

60

80

100%

Combination of paper-based and electronic documentation Percentage of respondents

Primarily paper-based documentation

Risks in accounts payable. How serious are shortfalls in accounts payable performance? We sought to gauge the broader impact of problems in accounts payable by asking respondents to estimate the degree of risk associated with AP. Again, these risks appear to be particularly acute when dealing with external suppliers. (See Figure 8, next page.) A substantial number of respondents (41 percent) say their companies face at least some risk of losing favorable payment terms with suppliers due to late payment or nonpayment of invoices and 39 percent of respondents say they face at least a moderate risk of disrupting the supply of key inputs due to late payment or nonpayment of invoices. Other areas where a substantial number of respondents identify at least a moderate level of exposure include the risk of systematic error in tax payments (40 percent) and the risk of fraudulent activity (38 percent).

Risks associated with accounts payable appear to be particularly acute when dealing with external suppliers.

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Paths to Improvement in Accounts Payable


Figure 8. Disruption in supplier relationships, systematic errors in tax, and fraud are the risks respondents cite most frequently. Please evaluate the following risks associated with accounts payable.

Losing favorable payment terms with suppliers due to late payment/ nonpayment of invoices Systematic nonpayment/ inaccurate payment of tax Disrupting supply of key inputs or services due to late payment/nonpayment of invoices

Fraudulent activity Systematic overpayment for defective/ undelivered products or services Material weakness under Sarbanes-Oxley due to weaknesses in controls for AP Substantial delay in month-end, quarter-end, or year-end close

Systematic overpayment of invoices Restatement due to errors in accounts payable reporting 0 20 Substantial risk 40 60 Moderate risk Percentage of respondents 80 100% Little or no risk

While survey results indicate, overall, a level of performance in accounts payable thats commensurate with its position as a critical business process, respondents nevertheless identify some areas of weakness. Respondents often identify relative weakness, for example, in areas where accounts payable deals with external suppliers. This certainly makes senseits more difficult to control externally facing processes than it is to control entirely internal processes. Extracting the greatest value from vendor relationships requires a high level of control over transaction timing, detailed reporting and analysis on payments, and dynamic communication with suppliers. The same set of competencies, however, can also help to mitigate the risks respondents most often see in AP.

Mitigating risksAdvice from the front lines. We asked respondents to tell us about the efforts their companies plan to undertake in the next year to mitigate the risks posed by poor performance in accounts payable. Unsurprisinglyin light of survey results indicating that respondents view a combination of process and technology improvements as the best way to improve AP performancerespondents AP risk-mitigation plans most often center on simplification and further automation of AP processes. (See Figure 9, next page.) A substantial number of respondentsmore than one-thirdplan to conduct a formal risk review of AP processes in the next year.

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Figure 9. Companies are most likely to undertake efforts to simplify and automate processes to mitigate risks associated with AP. What efforts to mitigate risks in accounts payable, if any, does your company plan to undertake over the next year?

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Simplify AP processes across the enterprise

Automate AP processes

Formal risk review for AP processes

Centralize AP processes

Outsource AP processes 0 10 20 30 40 50%

Percentage of respondents saying their companies plan to undertake an effort to mitigate risk over the next year

We also asked an open-ended question inviting respondents to offer advice to peers who are interested in reducing the risks posed by poor performance in accounts payable. Amid a wide variety of suggestions, much of their advice falls squarely within a familiar paradigm of improvement: people, processes, and systems.

Much of respondents advice for mitigating risks associated with AP fit within a familiar paradigm of improvement: people, processes, and systems.
Respondents emphasize the importance of hiring and developing highly skilled employees in accounts payable. One respondentwho probably plans to focus more on the people front than on the systems frontrecommends hiring good people with excellent keyboarding skills. Another respondent writes, Hire seasoned, detail-oriented accounts payable staff, and dont overextend their workloads. Other respondents advise their peers to focus on staff accountability in APin some cases, paired with enforcement. Hold people accountable for their duties at every level within the

organization, writes one respondent. Random internal audits should be implemented. Respondents also recognize the importance of training and continuous improvement for accounts payable staff, as well as the value of feedback from those who are on the front lines. One respondent recommends periodic staff meetings to evaluate improvements recommended by staff. The respondent continues, Review errors with staff in order to avoid them in the future, and implement a new process, if needed. Document all errors and ensure that all errors are signed-off by a manager, who will retrain and make sure that the individual understands the process. Broader organizational changes such as centralizing accounts payable in a single corporate office may also help to reduce risk, according to respondents.

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Paths to Improvement in Accounts Payable


Respondents also describe a wide variety of process improvements to stave off risk in accounts payable. Several respondents recommend standardizing processes across the business. Process standardization, one respondent writes, provides for one process, one level of reporting, consistency, and the ability to build a bench of experts. Other respondents emphasize the importance of reviewing and, if necessary, strengthening controls. Stringent variance reporting, hand-signed checks, and multiple levels of approval for payments are some of the more specific recommendations. Where processes are primarily manual, respondents recognize the need for intensive management oversight to minimize risk: Management oversight is crucial in a manually intensive system like ours. Tear into red flags and make sure you have satisfactory answers. Whether processes remain manual or are eventually automated, finance executives emphasize that strict adherence to processes is essential. Process, process, process manual or automated, you have to adhere to process, writes one respondent. Respondents offer many recommendations for technology improvements to minimize AP risk, often in combination with improvements to processes and controls. Several respondents advise their peers to move to a paperless environment in AP to minimize risk; others describe specific areas for automation. Implement a good, automated Web-based platform for electronic scanning, reviews, and approvals, says one respondent. Use online, real-time matching of invoice, purchase order, and delivery receiptsuse automation to the greatest extent possible, another respondent writes. Implement an automated requisitioning system that provides for purchase orders and proper payment authority, and prevents overpayments, writes a third. Continuous improvement is a prominent theme in open-ended responses, and finance executives recommendations to others pursuing staff development, process improvements, stronger controls, and new technology often mention the need to absorb structured feedback and make changes. Respondents suggest, for example, developing formal metrics to measure AP performance and making adjustments to respond when performance falls short. Even when an area of accounts payable is documented, streamlined, and automated, survey responses suggest that finances work still isnt done. Identify the areas where your IT system will work against you, one respondent advises. For example, does the system limit the length of invoice numbers, and therefore leave open the opportunity for duplicate payments? The need for this level of management attention and even vigilance echoes throughout the open-ended responses to our surveysuggesting that the details, details, details in accounts payable, as one respondent writes, still pose a significant challenge in finance.

Continuous improvement is a prominent theme in open-ended responses.


Much of the advice geared toward process improvement, however, seems to anticipate that process changes will serve as a basis for further automation. Establish manual controls first, then automated controls, writes one respondent. Automate as much as possible, and conduct a formal Sarbanes-Oxley-type review of AP processes, another writes. Process improvements need to be implemented prior to IT improvements in order to minimize risk, says a respondent. Process improvement should focus on both efficiency and improved controls.

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The View from Finance


Balancing efficiency and control
Amid their many suggestions for improvement in accounts payable, finance executives responding to our survey also sound a note of caution: Be careful, they write, not to sacrifice control for cost savings. You cant minimize cost at the risk of allowing lax controls, a respondent writes. At the same time, other open-ended responses suggest a different warning: Complete control (and a corresponding elimination of risk), they write, comes at the cost of efficiency. These dual warnings are evidence of the complex balance that many accounts payable departments seek to strike: a balance between low cost and high efficiency, on the one hand, and a high degree of control and low risk on the other. In this study, we found that finance executives plan to pursue a combination of process and technology improvements to improve accounts payable. Why not rely only on one or the other? Because pursuing both helps companies preserve the right balance. Improving processes enhances control and reduces risk; automating them creates efficiency and reduces costs.

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Finance executives seek to strike a balance in AP between low cost and high efficiency, on the one hand, and a high degree of control and low risk on the other.

Finance executives tell us in this study that they plan to move forward on the path of continuous improvement, even in light of finance executives broadly positive view of their companies accounts payable performance. Survey results suggest pockets of weakness in accounts payable, particularly with respect to processes and systems for external interactions (such as identifying new vendors, resolving disputes, and negotiating for early-payment discounts) that require detailed spending analysis and dynamic communication with suppliers. The pressure to make progress in these areas will only increase, as finance takes a less narrow view of APs contribution to the finance functions broader objectives. As companies seek to improve these and other aspects of their AP performance, the results of this study suggest that many finance executives plan to alternate between process and technology improvements and that many finance organizations are currently improving processes in preparation for new and improved technology systems.

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Sponsors Perspective
Which path should you take?
CFOs are echoing what Ariba is hearing in the market: I Priorities for improvement in AP are in line with finances overall priorities: reducing costs, improving APs contribution to working capital management efforts, and increasing control over AP I Companies are following a variety of approaches to improve their AP processes I However, only very few are able to fully experience the benefits of optimizing AP processes. So the question remains: Which path should you take toward improving accounts payable at your company? Ariba has assisted many customers in successfully transforming their accounts payable processes. Here are some of the steps, in our experience, that best-practice companies take to improve accounts payable: Build a business case by examining your current structure. Specifically, identify areas for cost takeout and value-add. At Ariba, weve observed that AP process optimization presents the following opportunities:
I

About Ariba Ariba, Inc. is a leading provider of electronic invoicing and payment solutions to assist companies of any size realize rapid and sustainable bottom line results. Ariba successfully serves customers in diverse industries such as consumer products, energy, financial services, manufacturing, public sector, higher education, telecommunications, transportation, and more. For more information Call Ariba at 1-866-77ARIBA (1-866-772-7422)

cost savings in a very short time frame by simplifying processes, which reduces or eliminates paper, reduces support calls from suppliers, and so on. Ensure controls through automation. CFOs say that critical accounts payable processes such as invoice validation and matching are still only partially automated, or remain largely manual. Leveraging technology to automate workflows and ensure compliance for all invoicesincluding non-PO based invoicesrepresents a significant cost savings opportunity. Technology improvements yield savings not only through improved productivity, but also by ensuring that payments accurately reflect contract terms. Extract value from supply-chain financing. Reduced invoice processing cycle time opens up opportunities to earn substantial returns through early payment discounts (e.g., a standard contract term that provides a 2 percent discount, if payment is made within 10 days of the invoice date, can result in an APR of 36.5 percent). Opportunities can also arise for dynamic discounts when suppliers with a need for cash trade discounts for early payment. If a suppliers discounts arent competitive, or if a supplier does not offer a discount, then the company can still lower the cost of capital and extend days payable outstanding by using bank-neutral supply-chain financing. Establish a procuretopay vision. Procurement and AP represent two sides of the same transaction. Process improvements across P2P processes create accountability for the end-to-end, procure-to-pay process. This helps drive further cost savings due to efficiency gains and a reduction in maverick spending. This research clearly demonstrates that priorities for improvement in AP are in line with finances broad priorities. Companies seeking to further their broad objectives through improvements in accounts payable should build a business case based on all the opportunities presented by AP automation. By promoting alignment between technology and stakeholders, and between internal as well as external processes, companies will realize the greatest possible gains through their AP improvement efforts.

Dramatic reduction in invoice and payment processing costs, coupled with gains in productivity An end to savings leakage by ensuring compliance for PO-based as well as non-PO based invoices The ability to unlock cash confined in payables from reduced invoice processing cycle time and improved visibility. Some examples weve observed of cash management benefits through AP improvement include securing discounts from early payments and lowering the cost of capital through bank-neutral supply chain financing.

Align stakeholders. CFOs in this study indicate that it will take a combination of process and technology improvements to optimize performance. In Aribas experience, alignment of stakeholders such as procurement and IT, in addition to AP and finance, is one key to success. Simplify processes. Simplify internal- and externalfacing AP processes through basic invoice automation and supplier visibility. Companies are able to realize

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