As we think about the entire ePayables Framework (i.e., Receive, Process and Pay), it is during the “Pay” phase of the process that AP can work closely with treasury and finance to develop more sophisticated payment strategies and implement processes to optimize working capital (however, it should be noted that the efficiency and accuracy of the first two phases also plays a big part).
Traditionally what we have seen in organizations is that AP and treasury functions operated in silos with no collaboration and poor visibility into each other’s data, activities and requirements. AP would have been (and still is for many) operating a largely paper based system, making it very difficult to extract key information that is relevant to treasury and at the same time treasury would have been forecasting cash flows based on inaccurate and out of date data.
This is changing, organizations are beginning to see the need for collaboration and information sharing throughout the organization and one of the most effective ways of elevating the level of visibility is through automation. It is only when the AP process is migrated off paper, onto a more automated solution that captures and records data accurately and allows for reporting and analysis that significant improvements within AP can be seen. And not only that, automation allows the AP function to become more strategic as opposed to the traditional back office tactical function.
To better understand how AP can collaborate with and support the objectives of the treasury, let’s take a look at what treasury is most concerned with (especially in this economy). I would think that the following are fairly high priority:
- Conserving liquidity
- Establishing greater control over the timing of cash outflows
- Ensuring process efficiency
- Figuring out the best use of enterprise cash
Given the above objectives, the following are some ways in which AP can support treasury, improve collaboration and have a real impact on cash management:
- Take advantage of automated solutions to improve efficiency, effectiveness and accuracy (e.g., eInvoicing, self-service supplier portals, scan and capture for suppliers still submitting paper, etc)
- Continuously improving process efficiency – e.g., reducing invoice cycle times, increasing the percentage of invoices processed straight-through, increasing the percentage of eInvoices, etc
- Ensure real-time, accurate invoice/payment data and forecasting – e.g., what liabilities are coming due? Or, which ones offer early payment discounts?
Enterprises that enjoy good collaboration between AP and treasury are at an advantage when considering supply chain finance solutions (such as those offered by Syncada and its banking partners or Kyriba) or dynamic discounting solutions (such as those from ADP or Taulia).
The value of AP and the benefits of automation and improved collaboration have been proven and here is a great example from an interview conducted for our report:
“Due to the changes made in AP, we have been able to introduce more efficiency and impact key financial metrics. As a result of our AP initiative we were able to improve DPO by 5 days representing $9MM in unlocked working capital per day” – Director of Finance at a large food and beverage manufacturer
