Cutting costs is an essential part of staying competitive for any organization. While the current recession makes reducing costs all the more important, businesses should never stop looking for new efficiencies, regardless of the economic climate.
In accounts payable, finding places to cut costs can be extremely difficult considering the primary responsibility of AP is to pay bills. However, there are many ways AP can help their organization cut costs. AP can use its wealth of payment data to help the organization reduce spending.
A recent article published on CFO.com features methods that some companies have implemented to cut their costs. Many of these techniques require knowing exactly how much an organization pays for its goods and services – information that AP can provide.
For example, one company featured in the article, XN Financial Services, recently discovered that business travelers to Canada were racking up large cell phone bills due to international rates. Many employees regularly travel to XN’s Canadian arm and use their company cell phones, which can double the phone bill.
The head of the company’s finance division realized that for just a few extra dollars a month, they could purchase the phone company’s international plan. According to CFO.com, the move is expected to save thousands of dollars a year. In addition, the company analyzed their hotel spend in Montreal and found that switching hotels would save them $75 per visit.
These savings could only be realized through spend analysis, which is one of the AP department’s most powerful weapons. AP can analyze spend data to look for opportunities to renegotiate rates, consolidate vendors, or identify offered discounts that were never captured.
There are many other strategies AP departments can adopt to help their organization reduce costs. The following suggestions are provided courtesy of The Accounts Payable Network’s “50 Ways to Cut Costs in AP” resource. These include:
- Adopt P-card Settlement. Paying AP invoices with purchasing cards allowed Huntsville, Ala.-based Teledyne to receive a rebate large enough to cover the salaries of its entire AP department. Teledyne pays $15 million annually with p-card.
- Look for uncollected credits. A slowdown is business is a great time to look for credits. According to TAPN consultant Judy Bicking, many organizations have uncollected credit memos and cash advances.
- Save Time with Automated Workflow. Karen Apps with Gate Petroleum says that workflow allowed her team to reduce the time it takes to approve an invoice from more than two weeks to less than one.
- Adopt e-Payment. The average cost of processing an ACH disbursement is $1.38, according to TAPN benchmark data. In contrast, the cost of processing a check is $5.14.
- Enlist Sourcing. Getting vendors to send electronic invoices and offer discounts starts with sourcing. Work with procurement to promote both initiatives with suppliers when building the contract. When AP and purchasing communicate together, vendors know what the organization expects.
Implementing these and other cost-cutting initiatives can help your AP department trim the fat wherever possible. It’s important to remember that these best practices aren’t just ideal for a recessionary time. Once things rebound (fingers tightly crossed) it’s still important for AP to identify ways to reduce expenses. This kind of initiative goes a long way towards improving AP’s image throughout the organization.