[Webinar] From Tactical to Strategic: A Shift in the Understanding of Accounts Payable

From Tactical to Strategic —

A Shift in the Understanding of

Accounts Payable

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©2012 Financial Operations Networks LLC

About Your Presenter

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 has held

several key management positions in financial services, e-commerce and sales and

marketing. A former international banker, David has more than 35 years of experience

in the financial and e-commerce industries.

David consults on payment best practices and is a regular speaker at accounts

payable and payment conferences.

David Hay, Consultant

Former Director, Shared Services, Hewlett-Packard Company

Former Manager for E-payments and Financial Services, GE Global eXchange Services

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Agenda

• Introduction

• Role of finance in the modern company

• A/P: The Tactical changes

• A/P: The move to strategic

• Summary

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From Tactical to Strategic

• Business in the 21st century has changed

dramatically, companies have moved from

vertically integrated operations to horizontal with

a global supply chain.

• In the post-Enron era, government regulation

greatly impacts the operation of the finance

department.

• In today’s tough economy companies can no

longer rely only on rising revenues to increase

profits.

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From Tactical to Strategic (Cont’d.)

• These changes have greatly increased the role

of finance in companies, replacing marketing

and sales in the hierarchy within a corporation.

• In a recent survey by CFO research, 84% of

companies report the standing of finance

functions has increased or is already highly

influential at their companies.

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The Role of the CFO

• The role of the CFO has increased in

importance; he or she is now seen as

preeminent in a company.

• CFO Magazine surveys CFOs every six months

to find out their top concerns.

The key concerns are:

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Key Concerns of the CFO

• 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

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How Does this Affect AP?

These changes affect AP in the following ways:

• Outsourcing and the global supply chain

– AP now has to deal with many more suppliers as

internal functions from the cafeteria to manufacturing

are outsourced.

– The suppliers are no longer local, AP now has to

contend with foreign currencies, VAT tax and legal

requirements, both domestic (OFAC) and foreign.

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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 have to sign off on accuracy of

financial documents.

– AP has to be able to supply accurate timely

information to management.

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Regulation (Cont’d.)

• OFAC

– Companies are required to comply with various

government regulations with regard to blocked parties

and sanctioned countries, entities and individuals, i.e.

vendors.

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The Role of AP is Changing

• No longer seen as paper pushers and bill

payers, they are now key players in helping the

CFO meet his goals.

However:

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The Tactical Elements

of an Evolving Accounts Payable

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First Step: Process Change

• Many tools available: six sigma, benchmarking

and industry studies

• Automation: Automate the whole PO-to-Pay

process.

– Automate workflow and matching to eliminate manual

processes.

• Visibility: Give all AP internal and external

customers access to all relevant information.

• Look for ways to increase profits through better

spend analysis and spend management.

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Best-in-Class Companies

Best-in-class companies gain the greatest return

by automating the PO-to-Pay process.

• Ability to accurately accrue and forecast cash

requirements

– PO sets up a contingent accrual

• Accurate tracking of cost vs. budgets

– G/L and CC codes can be taken from PO and added

to invoice

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Best-in-Class Companies (Cont’d.)

• Ability to offer or capture discounts

– This can give the greatest return

• Reduced processing costs

– Allows for centralization (Shared Service Centers)

• Improved customer/supplier relations

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Automation

• Once the process change has been decided

upon, now it is time to automate.

• Key elements

– Invoice scanning

– E-invoicing

– Workflow • Routing for approval

• Matching

• ERP updating

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Automation (Cont’d.)

• Portal

– Vendor inquiries

– Invoice creation

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Automation Benefits

Go Beyond Cost (Strategic View)

• 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.

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Solution Selection

• Key Considerations:

– Build for today and tomorrow

– Scalability • Do you have monthly or seasonal fluctuations to consider?

• Are you allowing for Merger & Acquisition activity?

– Consider short-term options as part of the long-term

solution • E.g. Use scanning while automating invoice or payment

processing

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Solution Selection (Cont’d.)

• Utilize Cloud Computing/Software-as-a-Service

(SaaS)

– For smaller companies this can be a complete

solution; for larger companies can be utilized as a

component, i.e. payments or e-invoicing.

– Can be an interim solution while staging a full

automation program

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The Cloud

• The “cloud” is another name for SaaS and

comes in a variety of flavors:

• Public Cloud

– Available to all, minimum security, used extensively

for social networking

• Private Cloud

– Used by a single company, data stays within the

firewall

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Business Drivers for Cloud Adoption

Overall Cost of IT Infrastructure

45%

Competitive Advantage

31%

Inflexibility of current infrastructure

19%

Need to support Additional users or

Services

13%

Source: Aberdeen Group

Why the Cloud?

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What’s Working

• According to the November 2011 issue of CFO

magazine, worker productivity has increased by

more than 50% between 2009 and 2011

• A recent Deloitte study of CFOs and other

executives asked, “What are the top reasons

behind the rise in productivity at your company?”

And the top reasons are:

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Top Reasons for

Productivity Rise

Improvements in business process

62%

Improvements in technology

50%

More hours Worked

37%

Better morale or teamwork

31%

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Solution

The time has come to move from a

purely tactical view to a strategic one.

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Pressure on Margins

• The top concerns of the CFO

– Price pressure on both sales and purchases

– Cost pressures from all sides both internal and

external

– Wall street demands for increased return

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How AP can Affect Margins

• Analyze spend at the vendor and commodity

level to decrease COGS

• Manage cash

– Obtain discounts where possible, reduce late

payments and manage DPO

– Pay according to terms, avoid early payments

• Reduce internal costs and improve productivity

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Vendor Management

• First step is to clean up the vendor master file.

– Eliminate duplicates, i.e. IBM, I.B.M., International

Business Machines, or HP, Compaq, EDS

• Remove all closed or dormant vendors.

• Actively work with vendors to introduce process

change and automation.

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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:

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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 a 10% reduction is achieved on

only 50% of spend, the return to the bottom line is

$5.6 million

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Discount Capture/

Cash Management

• Discounts

– 2 /10 net 30 can return over 35%. One major

corporation achieved 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.

• Eliminate late payments

– Use workflow and passive approvals to eliminate

delays • One major company spent $1.2 million on late payments

• Pay on terms, not early

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Discount Example

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Visibility

• Two key goals of the CFO are working capital

management and the ability to forecast results

• AP is now in a position to give management all

the information it needs when it needs it.

– Accurate accruals can be made

– Cash requirements known

– Detailed spend information is available on demand

– Performance against goals measured

– Audit costs reduced

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Visibility…

Red/Yellow/Green tolerances set by Administrator

Today’s Date; Jan 26th 2012

Trade Discount Acquisition: 75% 85% 70%

Cycle Time (Avg. Days): 12 days 10 days 8 days

Discrepant Invoices: 300 220 200

Number of Processed Invoices: 20,000 27,500 19,000

Supplier System Utilization: Click Here

Invoice Match and Pay

Accurate view of your key business metrics

Metric Description Last Month MTD Target Status

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Summary

• Strategic view of AP

– Adding value, helping the C-suite improve margins

through: • Better supplier management and pricing

• Discount capture

• Lower costs

• Better productivity

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Thank You!

The Accounts Payable Network

2100 RiverEdge Parkway, Suite 1010

Atlanta, GA 30328

Contact: [email protected]

866-827-6389

770-984-1184

www.TheAPNetwork.com

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