Mar 25 2021
Revenue Generation in Accounts Payable
Every organization has an Accounts Payable (AP) function, which is required to make sure bills are paid correctly and on-time. AP is typically viewed as a cost center and through the improvement of processes and systems, such as ERP – there has been some reduction in the running cost of an AP function. To help reduce the constraints imposed by a minimal staff, AP Managers are always looking for tools and techniques to help reduce the time and cost involved, even further.
Many Finance leaders have taken an alternative approach, which helps to alleviate the pressure to continuously reduce costs in AP by looking for ways to generate revenue for the organization - to help transform AP from a cost center to a profit center.
One way of generating revenue through the AP function, comes in the form of vendor credits. An AP department is only as good as the data within their business systems. Due to large volumes and time constraints, there are times when receiving may miss putting items into the ERP system.
Let us say, that a pallet of widgets might be received, but one box on the pallet gets returned but no one records this within the system. Not being aware of this, the company assumes the cost for the entire pallet and the full payment is processed by AP. Almost 40% of vendor credits that we identify for customers are due to returned merchandise. There are various other categories of vendor statement credits such as discounts, rebates, etc. Even if your records are right 99.9% of the time that 0.1% adds up to $1Million in errors for every $1Billion you spend.
Due to the fact the items are not recorded in the ERP system, the only way these credits can be found and claimed is through examination and research of vendor statements. Prior to the age of ERP systems, vendors would normally send in a statement of account each month and AP would reconcile their books against these statements. Now with automated technology and a light AP department, vendors are told that all required information about billing, payments, and credits will be pushed to them through the company’s ERP system. This means that unclaimed credits just sit in the vendor’s system, for years.
To find, substantiate, and claim these credits – the AP department must either (a) hire additional employees, (b) hire a third-party firm, or (c) leverage technology automation to find, research and claim these credits. The time involved might seem daunting and the percentage of loss involved might seem small, but the payback is worth it.
We work with many organizations that have literally added millions of dollars to their bottom line by engaging with us to generate revenue in AP. One past client of ours, a VP of Shared Services spoke at a conference years ago stating that he had received his bonus 10 years in a row. He credited Glantus with helping him achieve this bonus 7 out of 10 of those years, due to the recovery of statement credits. So, think about it – you never what is there, until you look. You just may be able to turn your AP cost center into an AP profit center.