SDCExec.com |

Accounts Payable's Influence

People don't always think of Accounts Payable (AP) as a strategic department within a company. Like other important infrastructure functions, it is most obvious when it doesn't perform flawlessly. With an industry average 1.8 percent error rate, however, a company processing 10,000 invoices a month can disrupt the services provided by nearly 200 suppliers a month.

The main task of the AP department is to pay valid claims in an accurate and timely way. To do that, the AP staff must make sure that invoices are collected, routed, reviewed, approved and ultimately paid. And it must execute these tasks at the least total operational cost.

Purchasing departments expect that AP is consistent with their payment processing cycles. If a Purchasing manager cannot accurately predict how long it will take the company to pay an invoice, then negotiating early pay discount terms with suppliers is of no value. The Finance organization can leverage the company's credit to directly lower the costs of goods by increasing the discounts earned by early payments. For suppliers that fail to submit invoices electronically, many companies have increased their working capital by extending these payment cycles.

The conclusion is that Purchasing, Finance and company financial performance are affected by the performance of AP. Therefore, paying invoices must be predictable, timely and accurate.

The Problem is Paper

With thousands of suppliers sending thousands of invoices on a monthly basis, achieving the above goals can be a challenging task for even the best companies.

Most companies still process an overwhelming number of paper invoices. Teams of AP clerks manually enter invoices into an AP system — a time-consuming, error-prone process. Some companies choose to improve the process with scanning solutions including optical character recognition (OCR). These solutions have helped but require continuous maintenance due to inaccuracies.

Paper invoices also create friction among trading relationships. Because the paper process is inconsistent, supplier calls and e-mails to follow up on invoice status are commonplace. Many companies have tried to tackle the problem with a solution called electronic data interchange (EDI), which has been around for over 25 years.