Centralized AP 101 – Everything You Need to Know
Business is changing. What worked in the past no longer flies in today’s urgent and complex ecosystem. When it comes to Accounts Payable (AP), there is often a lot of pressure to get things done right (and quickly). One strategic way to improve efficiency and reduce errors is to use a centralized AP model.
While some organizations enjoy benefits from decentralized AP processing, there are many reasons to keep your payment processes all in one place.
Curious about how centralized AP can help your business? Centralizing your business AP processes can help you cut costs while prioritizing financial control and efficiency. Centralized AP also supports smoother vendor relationship management and improved cash flow visibility.
If you’re looking to improve or maintain your organization’s financial health and agility, keeping your Accounts Payable processes in one location can be a strategic and cost-saving advantage.
What is the Difference Between Decentralized & Centralized AP?
Decentralized AP is an approach where accounts payable processes are managed either from multiple different locations or from different departments or teams within an organization. This approach can work for large organizations with multiple geographic locations who want to handle different vendor relationships and payment terms separately.
Decentralization can offer teams flexibility to handle location specific payment needs and requirements. Where decentralized AP can stumble however, is in areas of efficiency and consistency. Efforts may be duplicated across teams, and inconsistent payment processing approaches may affect vendor relationships. Keeping AP processes disparate can also make it tricky to get a full and accurate picture of your organization’s health.
On the other hand, centralized AP takes a unified approach where one team is responsible for managing all vendor relationships, processing invoices, and maintaining payments records for all departments within the organization.
The benefits related to centralizing AP processes are extensive, including reduced redundancies and errors, improved efficiencies in cash flow and vendor management, and greater clarity and control over your organization’s finances.
Let’s Take a Deeper Look into The Benefits of Centralized AP
Improved Efficiency & Streamline Processes: With everything in one place and managed by a single department, your AP team can work together to strategically develop procedures and automations that make payment processes more efficient. While reducing potential redundancies, one unified team can save valuable time by removing the need for multiple and potentially discordant systems. Example: Imagine you have several locations that work with one vendor. If all payments are processed in one location, your team will save valuable time processing payments. Alternatively, each individual location will process multiple payments separately, potentially duplicating the work.
Enhanced Control & Financial Visibility: Centralized accounts payable offers greater clarity and visibility into your organization’s financial obligations and cash flow. You’ll also enjoy increased control of business finances with real-time invoice tracking and cash outflow.
Cost Savings & Reduced Errors: When operating within a centralized AP model, your organization may be able to negotiate vendor discounts. In addition, processing AP in one location can reduce the likelihood of errors by decreasing the number of individuals involved in payment processing.
Example: Restaurants with multiple locations are a good example where centralized AP may support discounts with suppliers due to combined volume of sales. If the organization is using a decentralized AP model, the individual restaurants may not be able to secure discounts despite the business providing substantial income to the vendor or supplier. However, when taking a centralized approach to AP, the same organization can clearly show the volume of business they are providing across multiple locations to the vendor. This approach may result in cost savings or at least offer an opportunity to negotiate.
Encourages Stronger Vendor Relationships and Payment Accuracy: With a centralized AP department, your team has a greater opportunity to build and maintain relationships with important vendors. Plus, your team is less likely to accidentally miss payments! It’s easier to keep consistent records for all accounts payable data when everything is in one place. Ensuring strong relationships with key vendors and keeping payment processing running smoothly is a key benefit to centralization.
Improved Processes, Compliance & Auditability: With your AP team in one place, it’s easier to coordinate training and clarify best practices. It’s also more straightforward to create clear spending reports and keep track of vendors and compliance information with a centralized system, making sure your books are ready for an audit if needed.
Reduced Manual Labour: Manual and repetitive tasks are often the bane of accounts payable teams. With a centralized system, teams can more easily utilize automation to reduce manual tasks like check printing or approvals, and free up the team to provide more strategic support for the organization. Strategically implementing automation such as an integrated AP solution as part of your centralized accounts payable processes can increase efficiency and reduce overall business costs even further.
How to Implement a Centralized Accounts Payable System
While the initial time and cost of setting up or transitioning to a Centralized AP system can be high, the overall benefits outweigh the temporary drawbacks.
Get Clear on What’s Working & What’s Lacking in Your Current System:
We recommend starting with an evaluation of your existing AP processes. Explore your organization’s pain points around payments and take a closer look at your technology infrastructure to get an idea of what's working and what isn’t. Look out for inefficiencies, unnecessary manual labor, any bottlenecks or challenges that may be addressed by centralizing your accounts payable. This will help clarify your reasons for shifting to a centralized system if you decide it’s right for your organization.
Need help? Book an AP health check with one of our experts here.
Explore AP Automation & Cloud-Based Solutions:
Next, if you aren’t using automation or cloud-based AP solutions, it’s a great time to investigate options to streamline your AP processes. Look for a solution that integrates directly with your ERP software to get maximum benefit. AP automation can improve your approval workflows, enhance invoice processing in the cloud, and support remote payment options to provide alternate payment types for vendors, reducing your dependency on checks, and even automated vendor validation. Be prepared for financial adjustments and a learning curve as your team embraces new technologies. But, also get ready to enjoy greater ease and control in your AP processes once the transition is complete.
Prepare for Change:
While the upfront costs associated with shifting to and investing in a centralized AP approach and implementing new software solutions can be significant, it’s likely that your organization will see long-term benefits and cost savings as a result of the change. We recommend taking the time to consider your organization's goals and capabilities prior to making the shift.
You may encounter some resistance or apprehension from your team. This is why it’s important to create a clear communications and change management plan to help everyone involved navigate the transitional period and account for potential challenges throughout the process. Share timelines and clear expectations for everyone involved and explain the benefits that will come as a result of the change. Clarity is vital during this process.
Get Ready to Enjoy the Benefits of Centralized AP!
With centralized AP, your organization can take advantage of streamlined processes, reduced redundancy and errors, and increased visibility into organizational finances. When combined with automation from an integrated ERP solution, your organization is likely to enjoy numerous cost-saving benefits. While the decision to shift from decentralized AP to a centralized, unified model should not be taken lightly, many organizations will see positive results from this approach.
Interested in exploring AP automation or how centralized AP can work for your organization? Talk to our support team to learn more!
