[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

About Your Presenter
David Hay, Consultant
Former Director, Shared Services, Hewlett-Packard Company
Former Manager for E-payments and Financial Services, GE Global eXchange Services
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.

Slide 2
©2012 Financial Operations Networks LLC

Agenda
• Introduction
• Role of finance in the modern company
• A/P: The Tactical changes
• A/P: The move to strategic
• Summary

Slide 3

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.
Slide 4

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.

Slide 5

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:

Slide 6

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

Slide 7

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.

Slide 8

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.

Slide 9

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.

Slide 10

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:

Slide 11

The Tactical Elements
of an Evolving Accounts Payable

Slide 12

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.
Slide 13

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

Slide 14

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

Slide 15

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

Slide 16

Automation (Cont’d.)
• Portal
– Vendor inquiries
– Invoice creation

Slide 17

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.

Slide 18

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

Slide 19

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

Slide 20

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

Slide 21

Why the Cloud?
Business Drivers for Cloud Adoption

45%

Overall Cost of IT Infrastructure

31%

Competitive Advantage

19%

Inflexibility of current infrastructure

Need to support Additional users or
Services

13%

Source: Aberdeen Group

Slide 22

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:
Slide 23

Top Reasons for
Productivity Rise
Improvements in
business process

62%

Improvements in
technology

50%

37%
More hours Worked

Better morale or
teamwork

31%

Slide 24

Solution

The time has come to move from a
purely tactical view to a strategic one.

Slide 25

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

Slide 26

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

Slide 27

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.

Slide 28

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:

Slide 29

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

Slide 30

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
Slide 31

Discount Example

Slide 32

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

Slide 33

Visibility…
Today’s Date; Jan 26th 2012

Invoice Match and Pay

Metric Description

Last Month

Number of Processed Invoices:

70%

10 days

8 days

300

Discrepant Invoices:

85%

12 days

Cycle Time (Avg. Days):

Target

75%

Trade Discount Acquisition:

MTD

220

200

20,000

27,500

19,000

Supplier System Utilization:

Click Here

Red/Yellow/Green tolerances set by Administrator

Accurate view of your key business metrics

Slide 34

Status

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

Slide 35

Thank You!

For further information on this topic, contact
The Accounts Payable Network
2100 RiverEdge Parkway, Suite 1010
Atlanta, GA 30328
Contact: MemberCare@TheAPNetwork.com
866-827-6389
770-984-1184
www.TheAPNetwork.com

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

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