How AP Got Its Groove Back

With external funding tight and sales flat or declining at most firms, more corporate executives are looking internally to identify ways in which they can squeeze cash from operations -- or at least get a better handle on its flow. When you can't look to sales to replenish the corporate coffers, you need to be better stewards of the cash you've already brought in, says Thomas Bohn, executive director and chief executive officer with the International Accounts Payable Professionals (IAPP), an Orlando-based industry association.

Accounts payable (AP) is one area that's gaining attention. With the right AP setup, companies can better manage cash flow and liquidity, says Steve Mianowski, senior director of finance shared services with Broadridge Financial Solutions, a $1.6 billion solutions provider based in Lake Success, New York. They also can cut costs from the process.

The key, of course, is getting the right setup. Companies need operations that they can trust, as well as easy, immediate access to updated, accurate information. State-of-the-art AP departments are moving to a range of electronic processes, says Duncan Jones, a senior analyst with Forrester. Ideally, the supplier would send the invoice as a data file or an XML transmission. Once the customer received it, the data would electronically move into its AP and accounting systems, and the invoice would be routed, approved, and paid electronically. Neither customer nor vendor would generate paper.

To be sure, most AP departments have far to go before they come close to this ideal. In fact, 69 percent of invoices still are paper, according to several hundred respondents to the 2008 IAPP Member Benchmarking Survey.

At this point, leading firms are automating about 80 percent of their invoices, says Kurt Albertson, director of advisory services with The Hackett Group in Atlanta. This compares with about 20 percent for other firms.

As part of their efforts to automate the AP process, a number of firms are centralizing operations, with some implementing shared services centers. Moving to either an outsourced AP service provider or an in-house finance and accounting shared services center can cut AP costs by 40-plus percent, but only if tools like imaging and workflow solutions are introduced, and if the company hasn't significantly improved its accounts payable process, says Greg Sheppard, senior vice president of sales with NextProcess, LP, an Irving, Texas-based provider of accounts payable solutions.

Consider Broadridge's experience. After its spin-off from payroll processor ADP in 2007, management had about 6 months to create its own financial infrastructure, including an AP department. (During the transition, they relied on services from ADP.)

While the tight time frame was a challenge, it also provided an opportunity to design a process from the ground up. The long-term goal: "We want electronic in, electronic out, and no paper in the middle," Mianowski says.

As a starting point, Broadridge opened open a shared services center in India. About 95,000 paper invoices are received each year by Mianowski's department in New York. A handful of employees scan and electronically transmit the images to seven employees in India. These workers electronically check and enter the data on PO-based invoices into the system and route non-PO invoices for approval.

Centralizing the receipt of invoices is one key to an effective AP process, says Rakesh Shukla, co-founder of 170 Systems, Inc., a provider of financial solutions based in Bedford, Mass. In this way, management knows which bills are coming due and can track invoices throughout the approval process. Companies that instruct suppliers to send invoices directly to the approving manager lose all visibility, Shukla notes.

At Broadridge, Mianowski and his team are working to transition from paper to electronic invoices. Currently, about 5,000 invoices each year come in via email in PDF format. The image is automatically lifted and placed in a workflow system from 170 Systems. Mianowski is working with suppliers to boost this number.

Mianowski also will introduce an electronic invoicing system later this year, so that the invoice information will flow right into Broadridge's ERP system. Once the system is up and running, Mianowski expects to convert about 25 percent of invoice volume to electronic transmission within about 6 months. "The future is in data, and our secondary method of image capture and data punch will eventually be a very small percentage of our business," he says.

At the other end of the process, Mianowski is moving from paper to electronic payments. Within the next several months, Broadridge will settle about half of its larger invoices via ACH, and that number should jump to 80 percent over the next year. While these invoices account for just 20 percent of invoice volume, Mianowski says that his first priority is managing cash flow. With ACH, Broadridge will be in a better position to obtain term extensions, since the transactions settle immediately. "We'll get transactional efficiency over time as we gradually convert and begin to enroll new suppliers into ACH," he notes.

When the payment is sent, Broadridge also will electronically send the detail supporting it. This should cut supplier inquiries, Mianowski notes. "We want to reduce the noise in the process."