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[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

  1. 1. From Tactical to Strategic — A Shift in the Understanding of Accounts Payable
  2. 2. 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
  3. 3. Agenda • Introduction • Role of finance in the modern company • A/P: The Tactical changes • A/P: The move to strategic • Summary Slide 3 ©2012 Financial Operations Networks LLC
  4. 4. 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 ©2012 Financial Operations Networks LLC
  5. 5. 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 ©2012 Financial Operations Networks LLC
  6. 6. 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 ©2012 Financial Operations Networks LLC
  7. 7. 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 ©2012 Financial Operations Networks LLC
  8. 8. 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 ©2012 Financial Operations Networks LLC
  9. 9. 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 ©2012 Financial Operations Networks LLC
  10. 10. 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 ©2012 Financial Operations Networks LLC
  11. 11. 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 ©2012 Financial Operations Networks LLC
  12. 12. The Tactical Elements of an Evolving Accounts Payable Slide 12 ©2012 Financial Operations Networks LLC
  13. 13. 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 ©2012 Financial Operations Networks LLC
  14. 14. 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 ©2012 Financial Operations Networks LLC
  15. 15. 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 ©2012 Financial Operations Networks LLC
  16. 16. 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 ©2012 Financial Operations Networks LLC
  17. 17. Automation (Cont’d.) • Portal – Vendor inquiries – Invoice creation Slide 17 ©2012 Financial Operations Networks LLC
  18. 18. 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 ©2012 Financial Operations Networks LLC
  19. 19. 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 ©2012 Financial Operations Networks LLC
  20. 20. 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 ©2012 Financial Operations Networks LLC
  21. 21. 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 ©2012 Financial Operations Networks LLC
  22. 22. 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 ©2012 Financial Operations Networks LLC
  23. 23. 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 ©2012 Financial Operations Networks LLC
  24. 24. 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 ©2012 Financial Operations Networks LLC
  25. 25. Solution The time has come to move from a purely tactical view to a strategic one. Slide 25 ©2012 Financial Operations Networks LLC
  26. 26. 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 ©2012 Financial Operations Networks LLC
  27. 27. 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 ©2012 Financial Operations Networks LLC
  28. 28. 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 ©2012 Financial Operations Networks LLC
  29. 29. 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 ©2012 Financial Operations Networks LLC
  30. 30. 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 ©2012 Financial Operations Networks LLC
  31. 31. 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 ©2012 Financial Operations Networks LLC
  32. 32. Discount Example Slide 32 ©2012 Financial Operations Networks LLC
  33. 33. 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 ©2012 Financial Operations Networks LLC
  34. 34. 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 ©2012 Financial Operations Networks LLC Status
  35. 35. 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 ©2012 Financial Operations Networks LLC
  36. 36. Slide 36 ©2012 Financial Operations Networks LLC
  37. 37. Thank You! For further information on this topic, contact The Accounts Payable Network 2100 RiverEdge Parkway, Suite 1010 Atlanta, GA 30328 Contact: 866-827-6389 770-984-1184