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The Problem With Localized Accounts Payable

When a company has a number of subsidiaries, it may allow each of them to operate separate accounts payable processes. If so, the company as a whole is likely to pay more to operate payables, since the payables infrastructure is duplicated several times over.

Overview of the Payment Factory

The situation can be improved considerably by installing a payment factory. This is an accounts payable function that has been centralized for an entire organization. Such a system may have the following features:

Robust software to handle large transaction volumes
Ability to accept incoming payment information in many formats
Inbound document digitization
Online form for supplier entry of invoices
Workflow management system to handle document approvals

The system has the following benefits:

Better prediction of cash outflows for centralized cash forecasting
More efficient payables processing
Higher volume with fewer banks, resulting in lower transaction fees
More control over when cash outflows occur
Netting of payments between subsidiaries
Route payments through in-country accounts to avoid foreign transaction fees to suppliers located outside the country

However, a payment factory also has the following problems, which must be explored before installing the system:

Expensive software and related systems
Takes payment control away from subsidiaries
Terminates some banking relationships that may have been in place for years
Workflow management of approvals must be accessible in all participating subsidiaries

Podcast

A discussion of accounts payable best practices is available on Episode 81 of the Accounting Best Practices podcast. Listen Now.