Changing the CFO’s Perception of AP

By R. Edwin Pearce

Historically, if you asked a CFO to tell you the first thing that popped into their mind when you mention accounts payable (AP) processing, they likely would have responded with some variation of “cost center.” The fact is, as a percentage of revenue, the costs associated with AP processing typically represent a small blip on the radar of most companies. But as companies have tightened their spending as a result of the recent economic downturn, that blip is now a significant opportunity.

More than 75 percent of AP departments report into the CFO, according to various studies. With CFOs keenly interested in cost containment and improved cash management, AP leaders would be well served to find ways to deliver strategic benefits to the organization. Notably, 56 percent of CFOs believe AP represents a more strategic opportunity for improvements than it did two years ago.

One reason CFOs are changing their tune on AP is that they are seeking ways to avoid further layoffs, while weathering the recession. To this end, most are tightening controls over employee spending and placing greater emphasis on measuring and monitoring the company’s financial health.

These types of activities are clearly in the AP department’s wheelhouse.

CFOs are looking past the traditional paper-encumbered stereotype of AP and focusing more closely on the tremendous amount of financial data that flows through AP. From this perspective, they see AP as a means to improving working capital management, reducing supply chain risk, and greatly reducing the incidence of fraud. Most importantly, CFOs recognize that AP can help a company improve its cash position by extending days payables outstanding, avoiding late payments, capturing early-pay and volume discounts, and ensuring that payments and orders are compliant with contracts.

At many companies, AP no longer is merely a back-office transaction function where efficiency and low cost of operations are the only requisites for success; AP processes are being more tightly linked with treasury functions to help maximize working capital management. This is part of an overall move to align core processes across business functions to support corporate strategic initiatives.

While this increased corporate standing is good news for AP departments, they must also be ready for CFOs to more closely assess their performance based on key criteria such as costs, service delivery, error rates, timeliness of responses to inquiries, compliance, and vendor relationships.

This makes it imperative that AP departments continue their automation initiatives. Not only does automation help AP departments improve on-time payment performance, reduce errors, slash costs and enable greater visibility into financial data. But it also delivers the quantifiable data on process performance that CFOs will require as AP evolves into more strategic partner for their organization.

R. Edwin Pearce is executive vice president of sales and corporate development for eGistics, Inc., a provider of e-document solutions. He can be reached at 214-256-4607 or via epearce@egisticsinc.com.