How to align AP operations with the CFO agenda of improving profits by shifting the mindset of AP as value center versus cost center
In a world of near endless advancements in enterprise technology and automation, the accounts payable (AP) department can sometimes be an afterthought. AP management leaders are told to cut costs which typically translates to reducing headcount. In fact, according to a recent report by the CNBC Global CFO Council, 60 percent of big US corporations say they will cut headcount in 2020. But focusing on headcount reduction alone might be a too narrow view in the bigger business picture.
I’d like to make the case that the means to achieve actual improvements is through changing how AP is viewed in the organization as well as within the accounting department. A good starting point is to think of the AP department as a stand-alone business that needs its own vision and mission in support of the larger organization to showcase its unique value.
Establishing a Strategic Vision and Mission for AP
This strategic vision and mission for AP needs to come from the top down. It’s important to ensure AP isn’t overlooked as a value center. Start by thinking in terms of why a CFO would invest in AP; AP leadership has the responsibility of protecting the company’s cash and providing timely and accurate financial data to the financial statements. Those are the first and foremost responsibilities of AP leadership, and the importance of these activities should be emphasized to corporate finance leaders and the CFO.
The AP leader needs to account for every part of their “business,” marking what their value to the organization is and how they provide that value. How much time does it take for AP to deliver their “goods” to the business? What are the bottlenecks or cracks in the system that slow down the process?
Next, it’s important to establish a mission for the AP team. This requires a focusing on cash versus debt. Centering efforts for improvements that enable the organization to gain more value from the AP function, not on headcount or invoices. This mission redirects the AP team away from focusing on the reactive “back office” way of the past, to focusing on improving the value AP can deliver to the business. That mission may look something like the following:
“To build a cohesive relationship with procurement and suppliers to develop a compliant purchasing and payment strategy for goods and services to meet the needs of the organization while making a positive impact to the bottom line and protecting the cash, supporting cash management and reporting accurate, timely data to the financial statements.”
From there, it’s important to think about what the CFO’s agenda includes – which revolves around profit – and align the AP department’s vision. After all, profit is likely the driving force behind the initial push to reduce AP’s headcount. But this knee-jerk reaction is a common and short-sighted mistake. Reducing headcount is a one-time benefit that pales in comparison to the profits obtained through elevating AP’s mission. Tangible, and repeatable benefits such as reaping discount opportunities, improved spend management and budget control, card rebates, cost avoidance on penalties and fines, are among the countless other benefits that come from an efficient AP process.
Finance Departments Sharpen Focus for 2020
The Hackett Group recently issued a report that speaks to finance departments’ agenda for 2020. According to the report authors, cost reduction remains at the top of the agenda for the coming year, reflecting concerns about a potential economic slowdown or recession. However, organizations’ aspirations to become the lowest cost operator is not a viable strategy given the landscape of rapid market dynamics and global competition. To this end, study authors argue, finance must also support enterprise growth strategies by expanding its role as a strategic advisor to the business.
Many organizations struggle with the business case for making investments in AP automation. The road to success begins with shifting the perception of the role of AP, both internally within the department and externally with other areas of the business, and this begins by setting the agenda and clearly communicating it via the mission. By bolstering AP’s value to the organization and making it clear that its role is instrumental to the bottom line, AP leaders can transcend to a new era where they are empowered to create a positive return on investment. What’s more, they can build a coalition where the organization can now support the enterprise growth strategies through process efficiencies, and more importantly, by driving improved revenues and cash flow.