Over the past three years, CFOs developed a fine taste for productivity gains. And my most recent research shows they are looking for more 1. Surprisingly, some are turning, once again, to the basic transaction-oriented processes such as accounts receivable (AR) and accounts payable (AP). Why? Haven’t these processes already been made as slick as can be?
APQC’s Open Standards Benchmarking shows that, indeed, there are ample opportunities to reduce costs. Let’s look at AR, for example. Consider Figures 1 and 2 below. These perspectives involve:
- the average size of the staff needed to get invoices out to customers over the course of a year and
- the relative productivity of the individual full-time equivalent (FTE).
[2] The top quartile is the performance level above which 25% of all responses occur. The bottom quartile is the performance level above which 75% of all responses occur. The median is the middle value in a set of values that are arranged in ascending or descending order.
The gaps between the top and bottom performers are staggering. How do the top performers do it? The answer, in short, is that the pioneers (who are in the minority at the moment) cut way back on the number of invoices they present to customers using paper. The good news for those who want to move up the maturity curve is that there is plenty of opportunity to reap cost-savings here. Approximately 86 percent of organizations who participated in a third-party survey reported that they submit invoices today in paper form3. Seventy percent report sending invoices via email or fax. Either way, there is a lot of paper handling, envelope stuffing, file uploading, or scanning involved.
With labor costs representing the biggest contributor to the overall cost of financial
Beyond cut-backs
Finance organizations that are truly committed to continuous process improvement aim higher than headcount reduction. The end-game is to liberate talented staff from routine, low-value chores and apply them instead to analytical tasks that can make a difference to business performance. One example: liberating AR people so they can better understand the root causes of payment-pattern aberrations. AR aging can tell you when customers are past due, but that exercise won’t explain why payments are sometimes held back. If you can assign people to isolate the root causes of recurring payment halts, you may find that there are things that there are things your organization can do differently to prevent them.
For a closer look at AR process performance, you can download this APQC
[3]. A survey conducted in January 2012 by OB10, a global e-invoicing network, and The Institute of Financial Operations, a not-for-profit, guidance-setting association for the accounts payable and the accounts receivable profession.