Due to its transactional nature and subtle complexity—often overlooked by the uninitiated—Accounts Payable (AP) Managers spend a significant portion of their time focused on improving operational efficiency. As critical as it is, the hectic nature of this work can obscure the fact that Accounts Payable is strategically positioned within the organization to promote value creation by leveraging its vantage point and by extending the scope of its capabilities and services.
One way to assess the value-generating potential of an internal organization—such as AP—is to map its influence on related functions. The more influence it has, the more valuable it can be. But this influence position is not static; by better understanding its environment, a function can strategically develop the capabilities and services that better serve the organization as a whole.
The figure below illustrates this concept in the context of Accounts Payable and its potential influence on procurement and treasury.
Labor arbitrage is near the origin because while it can effectively reduce the cost of running AP, it hardly influences any other area.
Moving northeast we run into Cycle Time Reduction and Quality Improvement. Clearly these areas concern Accounts Payable, but these improvements also benefit Procurement and Treasury. A shorter payables processing cycle time enables better working capital management as well as better term compliance. Higher process quality reduces errors and rework, supporting better processing in adjacent areas and reduced error-driven dispute resolution and other disruptions in adjacent areas.
Up one more level and we encounter more directly influencing themes such as Term Compliance, Automation and Pricing Intelligence. Incidentally, Term Compliance is a benefit enabled in part by Cycle Time Reduction and Quality Improvement. While not a hard rule, it is common for the higher level capabilities and services to be dependent on top performance at more basic levels. Without a short enough cycle time, term compliance would be hard to attain. Others complement each other. Successful automation depends on a high quality process design, but efficient actual quality might only be attainable through automation.
Pricing intelligence is a good example of a higher end service provided by Accounts Payable that is enabled by an effective and efficient operation and directly benefits procurement—and treasury indirectly though higher margins and a better term structure. Even in environments with multiple legacy systems, pricing information is a necessary input to the Payables function, and therefore it is in a privileged position to identify vendor consolidation opportunities, multi-term agreements with the same supplier or price differentials for the similar commodities.
Start adding value today, by expanding your Accounts Payable influence circle.