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Unveiling the Benefits of Accounts Payable within an Organization

March 22, 2012

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• Introduction

• Major Benefits

• Other Benefits

• Conclusion

• Questions

Agenda

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• Role of AP in organization

• Importance of AP

• Benefits of AP Automation

• Other Benefits

Introduction

25.5%

24.3%18.3%

15.9%

10.0%6.0%

Better Visibility and reporting

Lower Costs

Faster Turnaround

Fewer Errors

No Benefit Gained

Better Management of Working Capital

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Major Benefits of Accounts Payable

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• Facilitates Centralization

• Allows for ‘real time’ status of invoice

• Improves approval and dispute resolution

• Increases customer service

• Backlog management

• Identifies control or audit issues

Improved Visibility

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• All invoices accounted for in tool

• Proper accrual recorded at month-end

• Invoices available for review

• Facilitates the audit process

Accounting Process

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• Invoices captured immediately

• Invoices handled one-time

• Helps balance peak demand

• Visibility to disputed invoices

• Reduces time-to-enter

• Allows for the development of AP Rep metrics

Improved Productivity

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• Bottleneck Management

• Invoice queues optimally structured

• Management of peak volumes

• Flexible among AP team

• Reporting available

• Published metrics

Workload Balance

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• Interface to current ERP system

• Automated matching of PO based invoices

• Online G/L coding of invoices

• Allows team to focus on root cause, corrective action, and streamlining processes

• Links established to supporting documentation

Efficiencies with ERP System

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• Avoids degradation of reputation

• Enhances departmental productivity

• Minimizes duplicate processing and payments

• Improves Customer Satisfaction

Improved Quality

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• Reduction of credit holds

• Avoids potential price increase

• Favorable for development of long-term

relationships

Supplier Satisfaction

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• Increased accuracy of backlog reporting

• Provides for ‘true’ volume of backlog

• Visibility to potential bottleneck

• Facilitates root cause and corrective action

Backlog Reporting

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• Starting point for best-in-class

• Phases of invoice scanning and workflow

• Successful completion of each phase

• Overall goal

Best-in-class

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• Allows for one central point for processing

• Enhances visibility

• Standardization of processes

Globalization/Centralization

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The globalization and centralization of the accounts payable

process will provide all of the following benefits except:

a) One center point of processing

b) Guarantee that the cost-per-invoice will decrease

c) Facilitate the standardization of polices and procedures

d) Enhanced Visibility

Polling Question #1

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The globalization and centralization of the accounts payable

process will provide all of the following benefits except:

a) One center point of processing

b) Guarantee that the cost-per-invoice will decrease

c) Facilitate the standardization of polices and procedures

d) Enhanced Visibility

Polling Question #1

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• Compare ‘apples-to-apples’

• Efficiencies gained for reduction of data entry

• Integration into ERP systems

• Reduction of disputes

Lower cost per invoice

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• Real-time access to invoices

• Efficiencies from electronic storage

• Month-end accrual process

• Supporting Documentation

• Establishment of business rules

• Identification of duplicate payments

Audit and Compliance

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• Due diligence – vendor setup

• Rounded amount invoices

• PO Compliance

• Invoices below an approval amount

• Utilization of positive pay

• Check requests

Fraud Prevention

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• Eliminates lost invoices

• Provides visibility

• Workflow

• Allows for quick response from AP Team

• Real-time access to invoices

• Facilitates dispute resolution

Customer Service

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Other Benefits of Accounts Payable

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• Analytical versus transactional thinkers

• ‘Soft’ skills training

• Reward and recognition

The People

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Hiring the people with the required level of competency will

provide all of the following benefits except:

a) Focus on analysis and exception handling

b) Increased level of customer service

c) Efficiencies gained through reduction of headcount

d) Increased volume related to data entry

Polling Question #2

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Hiring the people with the required level of competency will

provide all of the following benefits except:

a) Focus on analysis and exception handling

b) Increased level of customer service

c) Efficiencies gained through reduction of headcount

d) Increased volume related to data entry

Polling Question #2

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• Analytical thinkers

• Identify “true” cause

• “How can we do this process more efficient?”

• Streamline processed related to disputes, overpayments, duplicate payments, and payment to wrong vendor.

Root Cause and Corrective Action

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• Three components of working capital: inventory, accounts payable, accounts receivable

• Flexing payment terms and timing of payment runs

• Payment terms based on actual receipt of product

• Critical expenses

• Supply Chain Finance (SCF)

Improved Working Capital

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• Formula used to analyze discount strategy:

• Scenario: A vendor provides a 1.5% discount if paid within 10 days:

Managing Discounts

Discount Total Period

100% - Discount Days Saved

Effective Annual Rate of Return Formula

1.5% 365

100% - 1.5% (30 - 10)

Rate of Return 27.8%

Effective Annual Rate of Return Formula

1.5% 10, net 30

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• Invoice sent direct to requisitioner

• Critical payments such as utilities, tax,

lease and rent

• Working capital strategy communicated

with supplier

Prevents Late Payments

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• Debit balances result in overpayment to supplier

• Timely follow-up for debit balances

• Escheatment or unclaimed property

• Uncleared checks address within 30 days of issuance

• EFT’s eliminate escheatment

Debit Balance/Escheatment

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Debt balances and the escheatment process, should be managed

through all of the following techniques except:

a) Timely follow-up with the supplier

b) Decreased amount of EFT’s

c) Resolve uncleared checks, 30 days after issuance

d) Handle escheatment process per the state regulations

Polling Question #3

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Debt balances and the escheatment process, should be managed

through all of the following techniques except:

a) Timely follow-up with the supplier

b) Decreased amount of EFT’s

c) Resolve uncleared checks, 30 days after issuance

d) Handle escheatment process per the state regulations

Polling Question #3

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• Established controls for invoice processing

• Aligned with Generally Accepted Accounting Principles

• Tied to the Foreign Corrupt Practices Act (FCPA)

• Support documentation including approvals

Due Diligence

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• Strong partnership with purchasing and operations

• Work together to resolve disputes and to develop corrective actions

• Communicate working capital plan to Treasury

Improved Teamwork

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• Supporting Documentation

• Out-of-cycle check requests

• Positive pay files

• Real-time access to invoices

• Procurement Card statements, reports, and receipts

• Travel and Entertainment statements, reports, and receipts

Green Solutions

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• Cost Per Invoice

• % of disputes

• Cycle time to process

• % of discounts taken

• % of electronic invoices

• # of duplicate payments

• # of late payments

• Invoices processed per FTE

• # of electronic payments

Metrics

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• Importance of the accounts payable function

• Analytical versus transactional thinkers

• Total working capital

• Automation and technological solutions

• Streamline and efficient processes

• AP is the last stop prior to a payment being sent to a supplier

Conclusion

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Questions?

It’s time to Let Go and Gain Control. Automate your Accounts Payable.

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