This article is reprinted/republished by the express written permission of IOMA (The Institute of Management & Administration). ©2009; for more information about IOMA publications visit www.ioma.com

 

Does top management see your AP department as a revenue generator? Probably not. Even so, conscientious AP pros tell us they are saving several percentage points in costs—and every penny goes straight to the bottom line. Of course, not every one of the following ideas will be suitable for every company. But there should be one or more that can be implemented without too big a fuss.

Here are 12 of the most often-cited ways AP can save cash:

1. Get vendor statements
2. Take all discounts
3. Insist on good POs
4. Consider p-cards
5. Let AP charge it
6. Hire a bounty hunter
7. Never pay late fees
8. Check math
9. Don’t pay early
10. Don’t pay for unordered goods
11. Look for quantity discounts
12. Check deposits

 

1. Get vendor statements

Request a quarterly statement from all large vendors. Also, once a year, make the same request for all accounts you believe are either inactive or relatively inactive. Indicate in no uncertain terms that you want all activity included on the statement. Many vendors will neglect to include amounts they believe are owed to you unless specifically directed to include them. Review these statements carefully to discover if any credits are being held by your vendors. If so, demand that these amounts be remitted to your company immediately.

2. Take all discounts

Take all discounts offered, even if paying late. Many suppliers allow this practice. Of course, just how late you can be will vary—you’ll just have to test it out. Historically, two-thirds of vendors allowed you to be up to seven days late and still take the discount. In these tough times, however, that grace period has certainly shrunk.

3. Insist on good POs

Enforce the requirement that purchasing fill out purchase orders completely and correctly. Then, do a careful review and match. That is, review those POs carefully against the vendors’ invoices to make sure the vendor is not charging for items it is supposed to pay for, such as freight or insurance. Also, review the invoice carefully to ensure that the payment terms indicated on the invoice are the same as the ones the purchasing manager agreed to.

4. Consider p-cards

Seriously consider implementing a purchasing card (p-card) program, if one does not exist at your company. Such programs can make a serious dent in the number of small-dollar invoices flowing through the AP department. Also, banks and card issuers offer rebates based on the amount of transactions that flow through the cards.

5. Let AP charge it

Some companies have taken the corporate p-card approach one step further and have issued a card to the AP manager to pay for any small invoice in those cases where the vendor accepts a credit card. Those companies with a large number of subscriptions, or similar small-dollar invoices, might find a p-card in AP very helpful.

6. Hire a bounty hunter

Consider bringing in a post-audit or profit recovery firm, even if you think there is no chance of making duplicate or erroneous payments. Why? These firms charge their clients only a percentage of the amounts recovered, so it will cost your company nothing if you made no payment mistakes. Additionally, you will get a "free" appraisal of your systems and procedures, as the best firms will also identify any weaknesses in your systems and procedures.

7. Never pay late fees

As with discounts, many vendors will let you pay late without charging late fees. Again, however, today’s cash crunch may make this tougher to get away with, so you’ll just have to test the waters.

8. Check math

Check the math on every invoice. You might be surprised to discover how many contain errors.

9. Don’t pay early

Never allow an invoice to be paid before the discount date just so a staffer can get it off of his or her desk. While a clean desk is generally a good thing, it should not cost a company in terms of lost investment income or increased borrowing expense.

10. Don’t pay for unordered goods

Don’t pay for any goods or services that were not ordered. Some fraudsters send small-dollar invoices to large accounts payable departments knowing that a good number of them will be paid without being checked. The typical goods invoiced under such schemes include toner and paper for copier machines, light bulbs, and help-wanted advertisements. Occasionally the goods are actually mailed to the company, but are typically of very low quality and drastically overpriced.

11. Look for quantity discounts

When several different individuals order the same item from the same vendor, the company may be entitled to quantity discounts that are not being taken. Review records, and work with the purchasing department to determine if this is applicable at your company.

12. Check deposits

Occasionally, vendors require deposits when goods are ordered or if there are special circumstances involved. Make sure credit for these deposits is included on the final invoice or is otherwise returned to the company.

 

Final Point

As with any other accomplishment, the AP manager should not only complete the project, but make sure that management knows about it and is aware of the cost savings generated.

Many AP professionals are reluctant to toot their own horn and end up not getting the full credit they deserve for their accomplishments. Once a cost-savings project is completed or up and running, take the time to analyze the savings and put that information in a memo you can give to your boss. That way, not only will your company benefit, but it will put you and your staff in a more favorable light at review time.
Good Luck!

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