Leveraging Existing Assets: Accounts Payable and Receivable Shared Service Model
Sharing is caring – at least that’s what I tell my toddler twin boys. With multiples, there are a lot of things you can’t share. You can’t share high chairs, car seats, and we certainly don’t share cribs. There is a lot you can share, though. We share clothes, our Elmo tickle hands, “Mr Brown can Moo can You?” book and our favourite toy of all time, the Leap Frog Fridge Number, and Letter DJ Radio.
Corporate finance professionals, similar to parents of multiples, are currently looking at what can’t be shared within their organisations – and, more importantly, what can be shared. In other words, a shared services model for various functions – specifically operating several finance functions under the same umbrella. Traditionally, finance functions have operated independently: accounts receivable (A/R), accounts payable (A/P), lockbox, etc. In many organisations, these functions run under separate silos with different management teams, budgets, expenditures and, sometimes, different technology systems. In today’s economy, this model is no longer sustainable.
As evidence of this trend, TAWPI, an association for payments and document management professionals, and International Accounts Payable Professionals (IAPP) conducted a survey looking at document management trends, best practices and technology roll-out of over 300 organisations, with over half of the respondents indicating a convergence of their payments and document management functions (see Figure 1). Other research groups, such as Deloitte and Touche and the Hackett Group, have validated this convergence trend, showing a 50% increase in the use of shared services over the past three years alone.
Organisations with mid- to large- volume document and A/R processing centres are generally better positioned for integrating A/R and A/P functionality, particularly when it comes to the automation of invoices. Banking and finance and service bureau organisations, identified in the results of the TAWPI & IAPP 2009 Document Management Benchmark Study, are leading the way with invoice capture; education, government, healthcare, retail, and utilities are all or partially doing some type of invoice capture (see Figure 2).
Leading A/R organisations continue to evolve from data entry to data capture, with data mining used more and more in a variety of applications. This is in addition to front-end auto classification, where documents can enter the system intermingled, and software logic sorts and routes them into different processing/handling streams. This application provided by leading capture software vendors is particularly important when processing a variety of document types including invoice processing.
Understandably, A/R and A/P departments have more responsibilities than just processing invoices. However, when you are looking at processing a significant number of invoices, savings can be seen almost immediately with some type of convergence of departments and/or upgraded systems. Industry and analyst firms estimate the average cost of processing one invoice is anywhere between US$10 to US$12, which includes direct labour and indirect labour costs, with other estimates coming in as high as US$20 to US$60 per invoice. Whichever cost you choose on this cost analysis spectrum, you can see why organisations are looking to optimise this process.
Intelligent hardware scanners, for example Opex, allows operators to use a touch screen to create a job type, drop a batch header ticket in with a batch number and scan the batch, creating a complete audit trail of the invoices processed. This is one way in which organisations are cutting their manual handling of invoices by 25% to 50%. Front-end capture solution providers in the industry, for example Kofax, can take those automated invoices, classify, sort, and validate against your business system and approve invoices online with an electronic workflow. At first glance, the price tag for new hardware and software classification platforms can look expensive, but in a scenario where an organisation is processing 30,000 invoices per year, the return on investment (ROI) is in the ballpark of over US$100,000.
You may already be able to leverage the assets (hardware/software) within your organisation. Usually A/R operations already have the hardware and software within their facilities that can be enhanced and upgraded at a lower cost, and folded into the invoice processing process.
Clearly, ageing systems require upgrades and capital expenditures to simply meet market, compliance and competitive positions. The reality, though, is that internal competition for technology resources and capital dollars exists in all firms. If the document workflow in question is not a key component of an overall firm’s main lines of business, it does not always get the development dollars needed, regardless of the efficiencies that could be gained. This makes it imperative that strong, solid business cases are developed, and this is an area where vendors can provide significant assistance. Regardless, with the economic climate as it is today and the potential cost savings associated with a shared service or hybrid model between A/P and A/R departments, organisations will seriously need to take into consideration this business case moving forward.
As my toddler boys get older, I will need to make future financial decisions of what the kids can share (their first car?) and what they can’t share (a college education), but for now the goal is to simply teach them to share, which has been quite a challenge in itself.