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The CFO’s Guide to Strategic Accounts Payable

The CFO’s Guide to Strategic Accounts Payable

Authors: Vice President of Treasury Services Product Strategy Jason Hagan & Matt Carrico, Director, Product Management

Many business leaders aspire to enable their internal teams to spend less time on tactical activities and more time on strategic initiatives that drive the company to increase the efficiency of workflows. This generally allows the company to produce additional revenue, reduce operating costs and improve the bottom line.

CFOs at mid-size businesses that strive to achieve this mission—by elevating the activities of their accounts payable (AP) staff to the strategic level—can generate several key benefits for their companies. AP teams that work more efficiently can effectively manage short-term cash flow. They can also focus on nurturing vendor relationships so that the company has greater flexibility to negotiate the delaying of invoice payments when needed.

More efficient AP teams can also focus their efforts on streamlining accounting audits and making sure the company’s AP processes conform to corporate policies and industry regulations. All of these benefits ultimately combine to positively influence the company financials—by helping create stronger P&L statements.

Why Your Accounting Team Is Stuck In the World of “Number Crunching”

A key factor in helping CFOs elevate the activities of the AP staff to the strategic level is their ability to reduce the amount of time the team spends on tactical tasks, such as receiving vendor invoices and cutting paper checks. Many mid-size companies still handle AP processes using outdated manual methods.

Consider the typical workflow:

  1. Vendor invoices arrive in hard copy format via the mail or get printed from email attachments.
  2. The information is then manually entered into the AP system.

This approach not only requires an excessive amount of the time, but also is prone to errors from data that is input incorrectly—thus causing additional manual intervention to correct the errors down the road.

In addition to the front-line staff getting bogged down, AP inefficiencies can reach into the management level as well. Department heads may need to sign off on hard-copy payment approvals, and the CFO then needs to sign off on checks being cut. The methodical process eventually makes its way back to the front lines, where the AP staff has to manually cut and mail paper checks.

The business then has to assume checks have already cleared the books, even though the process may actually take several days or longer depending on the speed of the mail and how quickly receiving vendors deposit their checks. This unnecessarily ties up company cash flow that can be put to better use.

Just Because It Isn’t Broke, Improvements Can Still Deliver Value

Despite being fully aware of inefficient AP processes, CFOs often put fixing the problem on the back burner. In some cases, they are unaware that technologies exist to easily automate the entire process—from invoice receipt to department approvals, the CFO approval and the issuing of the checks.

In other cases, CFOs think the process to deploy an automated AP solution will create too much work. Or, they may be apprehensive that the solution will be too difficult or even impossible to integrate with their accounting system. And since many manual AP processes essentially do work, although inefficiently, CFOs are content with not fixing something that they think isn’t broke. They choose instead to prioritize other accounting activities and do not realize the value of the strategic benefits when AP processes are automated.

AP Automation: Easier To Deploy Than Many CFOs Realize

Deploying an automated, end-to-end AP solution at a growing middle-market company is actually easier than many CFOs realize and can pay for itself in just a few months. The leading solutions integrate smoothly with a bi-directional sync to existing accounting systems. In addition to automating invoice and payment processing, CFOs gain the ability to process checks and electronic payments directly from business bank accounts.

By automating AP workflows, CFOs help their companies enhance business process efficiencies across all four steps of the invoice payment process—Capture, Approval, Payment Authorization and Payment Execution. Here’s a rundown of the key capabilities to look for in an AP automation solution:

  1. Invoice Capture: Automating the extraction of invoice data, assigning meaning to the data, and verifying the data is accurate requires a combination of optical character recognition technologies AND human intervention. Relying on optimal character recognition alone is not enough—even with the best technologies, one out of every 10 characters will not be accurately lifted.
  2. Invoice Approval: This is the first of two necessary steps to approve and authorize invoice payments. After each invoice is electronically entered, it should be automatically routed to the person that requested the vendor’s products or services. They can then confirm the legitimacy of the invoice and if it’s time to pay the vendor.
  3. Payment Authorization: Following the approval step, the invoice should then flow to the CFO to authorize the bank funds for paying the invoice and to determine the date when the payment will be sent. By enforcing and segregating the approval and authorization steps, the process protects the company against fraudulent and invalid invoices, whether created by internal personnel or external vendors.
  4. Payment Execution: After proper authorization is given, the solution should send the check or ACH payment information automatically to the designated bank for payment to the vendor on the date approved by the CFO. This eliminates the need for AP personnel to print and mail checks. Just as importantly, the CFO knows the precise date on which the funds will clear the company bank account.

Automation and enforcement are major keys to the four-step process described above. Once invoices are entered into the system, the workflows for approval, authorization and payment should occur automatically. Payments must also not be allowed until proper authorization by the CFO has been given, and the CFO cannot authorize payments until proper departmental approvals have been given. The CFO and AP staff should also be able to monitor the progress of invoice processing to make sure payments are executed within the preferred time window.

The Benefits of Automated AP Processing

CFOs that automate AP processing realize several tangible benefits for their businesses in comparison to those who rely on manual processes:

  • Creates cost savings — lowers processing costs by reducing the amount of time needed on manually processing invoices and checks.
  • Increases efficiency — enables online invoice and payment approvals, eliminates manual check issuance and simplifies electronic payments.
  • Helps control outgoing cash — allows vendor payments to be precisely timed, ensuring payments reach vendors in the shortest time possible and confirming when payments are received.
  • Improves internal accounting controls — segregates processing duties, enforces dual approvals, maintains approval audit trails and generates alerts to ensure proper control monitoring.
  • Optimizes working capital — gives CFOs the ability to analyze when to take advantage of vendor invoice discounts in exchange for early payments and to know the latest possible payment deadlines without incurring a penalty.
  • Keeps invoices organized — guarantees pristine accounting records by ensuring payments are reconciled and records are prepared for audits.
  • Maximizes short-term cash flow — creates longer average payable periods and allows the company to optimize trade credits to free funds up for operations and capital expenditures.

By leveraging automated AP processing, CFOs can also reduce payment risks. The leading solutions provide two-factor authentication and payment verification, the ability to set payment limits and integration with bank positive pay services. These security measures may help defend against cyberattacks and mitigate the extent of any breaches that might occur.

Moving Your Finance and Account Teams Beyond Number Crunching

By utilizing an automated AP processing solution to elevate AP staff activities to the strategic level, CFOs can move beyond the traditional role of crunching P&L and general ledger numbers, and play a key role in driving their company's future. Business innovation—that combines proactively managing vendor relationships, increasing control over cash flow and closely monitoring the AP process—enables CFOs to partner more closely with their CEOs. CFOs can then help set the stage to transform the business to better handle future financial challenges.

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About the Authors

Jason Hagan leads Wholesale payments strategy and product development for First National Bank of Omaha. He joined the bank in 2013 to develop and implement the bank’s payments and partnership strategy. Jason also leads the Wholesale Bank Investment process.

Matt Carrico leads First National Bank of Omaha’s effort to help business owners improve their cash flow, as well as their accounts payable and receivable efficiency. Matt has 15 years of sales and strategy experience.