Transcript Slide 1

© 2012 Financial Operations Networks LLC
AP’s Changing Role:
From Tactical to Strategic;
From Bill-Payer to Supporting
Partner; From Cost Center to
Working Capital Contributor
About Your Presenter
David W. Hay
AP & Procure-to-Pay Consultant
David retired from a 40-year career spanning International Banking,
Finance and Computer Services and Outsourcing. Most recently, David
served as the Director of Shared Services Business Services Outsourcing,
for Hewlett-Packard. He was formerly marketing manager for e-payments
and financial services for Global eXchange Services (GXS), where he was
responsible for the strategic direction and development of GXS's online
invoicing and payment solutions for B2B e-commerce on a worldwide basis
and has served on GE Capital's initiative to create a GE Center of
Excellence for e-billing.
David has worked with GE Capital, GE Medical Systems and GE Industrial
Systems. As a member of key focus groups and task forces, he helped the
GE businesses with their EDI and e-commerce initiatives. In his 24 years of
GE experience, he held several key management positions in financial
services, e-commerce and sales & marketing. A former international
banker, David has more than 35 years of experience in the financial and ecommerce industries.
David is a regular speaker at accounts payable and payment conferences.
www.TheAPNetwork.com
Agenda
• Introduction
• Rise of the CFO
• Secrets of the Best Performing Companies
• Benefits of a Strategic Approach
• Summary
www.TheAPNetwork.com
Introduction
• In many companies the role of AP has changed
dramatically over the last few years.
― The economic downturn, government regulation,
outsourcing, technology and uncertainty about the future
have greatly increased the role of Finance and AP within
corporations
― According to a recent study* the recent downturn has
enhanced the finance function in 72% of companies with
12% claiming they were already highly influential
*CFO Research and Expense Reduction Analysts
www.TheAPNetwork.com
Key Concerns of the CFO
That Impact AP
• About the economy
― Consumer demand
― Federal government policies
― Price pressure
• About their own companies
― Ability to maintain margins
― Ability to forecast results
― Working Capital Management
― And # 5
www.TheAPNetwork.com
Managing IT Systems
Outsourcing
• Companies are moving from being vertically
integrated to horizontal
― Cost of goods sold increased from 10% to up to 80%
― Resulting in a large increase in the number of suppliers and
$ volume handled by AP
― Thanks to globalization many of the suppliers are offshore
adding to the complexity
• Currency and credit issues, transportation and tax issues complicate
AP
www.TheAPNetwork.com
Technology
• ERPs, EDI, the internet and the World Wide Web
have changed the way we do business at a greater
pace than ever before
― Customers, internal operations and suppliers can all be
linked globally in a seamless e-supply chain
― The contribution to the bottom line from productivity gains
have outstripped sales gains for many companies
• Increasingly, the finance department is responsible
for technology
www.TheAPNetwork.com
Technology (Cont’d.)
• Since the introduction of ERP systems the CFO has
gained in influence over IT
― In 42% of companies the CIO reports to the CFO
― This figure rises to 60% in companies with revenues
between $50 and $250 million
• CFOs alone authorize 26% of all IT investments,
CIOs alone only 5%
• Over the next six months IT budgets will stay flat or
decrease for 60% of companies
Source; CFO Magazine Dec 2011
www.TheAPNetwork.com
Productivity
According to the November 2011 issue of CFO
Magazine, worker productivity has increased by more
than 50% between 2009 and 2011
A recent study of CFOs, and other executives, by
Deloitte asked “what are the top three reasons behind
the rise in productivity at your company?”
And the top reasons are:
www.TheAPNetwork.com
Top Reasons for
Productivity Rise
www.TheAPNetwork.com
Regulation
• Sarbanes-Oxley Act
― Results in increased control over financial operations,
corporations are required to document processes to assure
compliance with sound business practices
― CFO (and CEO) has to “sign off” on accuracy of financial
documents
• OFAC
― Companies are required to comply with all aspects of the
Patriot Act with regard to who they do business with, i.e.,
vendors
• FCPA Foreign Corrupt Practices Act
― Applies to a companies to customers and vendors
www.TheAPNetwork.com
View from the Top
• In an interview with CFO magazine, Mark Goodburn,
Vice Chairman of KPMG, was asked about the
impact of Sarbanes-Oxley, and he said, “Companies
have shifted their focus to things like ‘[What] do we
get if [we are] automated versus handling it
manually?’”
www.TheAPNetwork.com
So What Does
This Mean for AP?
• To meet regulatory requirements CFO’s are
demanding accurate, immediate access to financial
information
• Complete transparency into the whole process
• Lower cost and increased productivity
www.TheAPNetwork.com
Benefits of Automation
Most companies automate to reduce costs through
head count reduction and process improvement.
www.TheAPNetwork.com
Productivity Gains in AP
Process change and automation have had a major
impact on the costs and productivity in AP.
www.TheAPNetwork.com
Automations Effect on Costs
Costs have come down greatly
over the last few years
2011
2009
Cost
Cycle
Time
Cost
Cycle
Time
Best in class
$2.05
4
$3.47
3
Median
$5.41
10
$16.91
15
Laggards
$10.26
25
$36.51
33
www.TheAPNetwork.com
However
• Cycle times have not changed as much as cost for
most companies
• The best-performing companies obtain costs per
invoice in the range of $0.75 to $1.25
― This is achieved through the complete automation of the
process.
• Long cycle times mean only the best performers can
obtain discounts
There is still room for improvement
www.TheAPNetwork.com
The Problem
• Many companies have automated only a few
processes, such as e-invoicing
• Scanning is often still a back-end process
• The approval process is still manual with an image
used instead of paper
• Little or no use of automated workflow or matching
www.TheAPNetwork.com
Invoice by Type
www.TheAPNetwork.com
Effect of Changes
in Mail Delivery
• According to The Hackett Group proposed changes
to the delivery time of first-class mail could cost a
U.S. company with $10 Billion in revenue $100
million in working capital
• SMEs in particular will be effected as they have been
slow to adopt e-invoicing and e-payments
www.TheAPNetwork.com
Why do the best-performing
companies achieve significantly
better results?
www.TheAPNetwork.com
Move from
Tactical to Strategic
It is the combination of the automated solutions with
process change that return the best results.
• AP and Purchasing work to improve the complete
purchase to pay cycle
• Centralization of AP into a shared service
environment
• PO distribution, front-end scanning, e-invoicing,
workflow and payments integrated into a complete
solution
www.TheAPNetwork.com
Secrets of the
Top Performers
• Significantly higher use of POs
― AP and purchasing work together to improve process
― Invoices that match with a PO can be paid without further
approvals required, reducing cycle time
― Reduced errors as buyer, vendor and AP are all working
from the same information
― Use blanket POs or contracts for regular buys
www.TheAPNetwork.com
Secrets of the
Top Performers (Cont’d.)
• Utilize machine to machine e-invoicing
― Many methods available, EDI, XML, HTML and File
Transfer
• Use a portal to allow small players to create invoices
on line, or “flip” purchase orders
• Use workflow for internal matching and resolution
• Move to e-payments
www.TheAPNetwork.com
Secrets of the
Top Performers (Cont’d.)
• Workflow
― Removing people from the Process through the use of
automated matching and approvals
• Add accounting codes to the invoice automatically
One company study showed 50% error rates on invoices where
buyer/requestor added the account info
― Use “negative approvals” where PO or receiving info is not
available
www.TheAPNetwork.com
Secrets of the
Top Performers (Cont’d.)
―Set up rules for automatic approvals
• Set up blanket POs in the system
• Auto pay all routine invoices such as rent, utilities and
indirect spend from trusted vendors that fall within $ limits
—Audit after payment for compliance
• Auto pay all discount available invoices
—Approve or audit after approval
www.TheAPNetwork.com
Secrets of the
Top Performers (Cont’d.)
• Use a portal to communicate with vendors
―Deliver POs
―Receive Invoices
―Distribute Remittance advices
―Handle Vendor Queries
• Eliminate phone calls and IVR
www.TheAPNetwork.com
Secrets of the
Top Performers (Cont’d.)
Why do some companies achieve
significantly better results?
― Focus on the top 20% of suppliers
• They often generate 80% of the transactions
• They may be receiving e-POs and issuing e-invoices to other
customers
― Aim for 100% PO issuance with this group
• Request PO line # on invoice
—Allows for accurate line-item matching
www.TheAPNetwork.com
Secrets of the
Top Performers (Cont’d.)
Companies with the best cycle times can
target discount capture
• Discounts
― 2 /10 net 30 can return more than 35%. One major
corporate estimated a $200 million addition to the bottom
line from discounts
• Offer discounts as an alternative to extended terms. One company
offered 1.5 / 15 or 60 days.
www.TheAPNetwork.com
Early Payment Discount Capture
Yields Lucrative Annualized Returns
Example: Typical 2/10 Net 30 on $100 Invoice
Option 1: Pay $100 on Day 30
Option 2: Pay $98 on Day 10
$98 + Interest
= $100
$100 minus Interest
= $99.73 @ 5%/yr Interest
$100
$98
20 days
Day 0
Day 10
20 days
Day 30
Day 0
Day
i 

FV  PV 1 

10
 365
i 

100  981 

 365
i  0.3689
$2 Interest over 20
days implies Interest
Rate of 37%/yr!!!
www.TheAPNetwork.com
20
20
Day 30
Automation Benefits
Go Beyond Cost
• Automation allows for the data to be visible from the
moment of entry
― Accruals can be accurately made
― Invoices can be tracked by AP, purchasing and vendors
from entry through to payment
• The auditors of one failing UK company found 50,000 invoices that
had not been entered or accrued
― Finance can accurately forecast cash requirements
― Management can track progress against goals
www.TheAPNetwork.com
Better Vendor Pricing
• Spend analysis
― Allows for better pricing through volume discounts
• Companies are often buying the same product from the same vendors
at different prices
― Reduce the number of vendors
― Supply Standardization
• For Example buying less expensive pens, paper etc.
Lets look at an example
www.TheAPNetwork.com
Benefit Example
• Our sample company has:
― Sales of $250 million
― Profit before tax $25 million
― Cost of goods purchased, 45% of revenue
• Many companies achieve a 10% reduction in price
paid for goods and services.
― In this example if 10% reduction is on only 50% of spend
the return to the bottom line is $5.6 million
www.TheAPNetwork.com
Visibility
• Management has complete visibility into the process
― Accurate accruals can be made
― Cash requirements can be forecast
― Spend analysis van be obtained in real time
― Improved audit capabilities
• And above all performance to goals can be met
www.TheAPNetwork.com
Digital Cockpits
Can Be Simple …
Accurate view of your key business metrics
www.TheAPNetwork.com
Implementation of a
Vendor Program
• Survey the vendors
― Large ones and utilities are often using EDI
― Vendors may be signed up with a network
― May be using Checkfree for EIP
• Work with your solution provider – they have “ramp
teams” that will help bring vendors online.
― You must work closely with the “ramp team”
www.TheAPNetwork.com
Negotiating with Vendors
• Remind vendors that
― They can cut six to eight days of processing time by moving
to e-invoicing and e-payment
― E-invoicing reduces processing errors and delays
― E-payment/e-RA allows vendor to more accurately apply
cash
― Vendors can benefit from faster payments through
discounts
www.TheAPNetwork.com
How Do We
Negotiate Change?
• Price increase
― Negotiate the price change by saying “I can only increase
price if you will help me reduce costs by moving to einvoicing and e-payment (EIP)”
• New contract / New PO / New vendors
― Make e-invoicing and e-payment part of the contract
• Changes in payment terms
― If vendor wants % terms, only agree if EIP used
― One company’s terms are 1.5 net 15 or 60 days
www.TheAPNetwork.com
Summary
Paper Based
Automated
• $3 - $93.00 per
invoice/payment
• $0.75- $1.50 invoice/payment
• 20-45 day elapsed
processing time
• Trade discount
capture difficult
• 75% of all calls to
AP status calls
• 80% of all calls from
internal employees
www.TheAPNetwork.com
• Process time reduced
to 1-3 days
• Trade discount
capture possible
• Bottom line gains from improved
vendor management and pricing
• Reduced error handling
© 2012 Financial Operations Networks LLC
Thank You!
For further information on this topic, contact
The Accounts Payable Network
2100 RiverEdge Parkway, Suite 1010
Atlanta, GA 30328
Contact: [email protected]
866-827-6389
770-984-1184
www.TheAPNetwork.com