It’s no secret that AP departments are viewed as cost centers. Operational and not strategic, a necessary administration function. Typically, this translates into organizations making a minimal investment in AP – just enough to keep it operating, in compliance, and out of trouble. If this negative perception surrounds an AP department, if becomes particularly difficult for AP leaders to get the level of attention they need and the investment required to make changes for a significant impact.

When AP seeks to move from being a cost center to a profit center, they may find themselves caught in the middle – trying to realize significant value for the organization, while being viewed as a necessary overhead.

The state of AP today:

  • Cost Center Label. That label reflects a relatively diminished view of the department compared to areas or divisions that generate revenue. AP may be under-appreciated, overlooked and therefore underleveraged. This is a lost opportunity.
  • Historical Failure to Invest Beyond the Minimum. Investment in APIs typically provided when it is necessary to comply with government rules, tax requirements or to support new payment types. These required changes absorb all available funding. After compliance, the competition for additional funding is won by profit-generating areas and cost-reduction efforts.
  • Intent to Spend. There is some good news that this attitude of minimal spending has been changing. Intent to spend significantly for payments remains elevated at 27%. While this certainly reflects new payment types that have been developing, it also reflects, in some measure, an improved view of what AP can do for the organization.

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  • Focus on Expense Management. Many AP projects have been justified by expense savings and not linked to key organizational financial goals in the past. This is a recipe for ongoing rejection, frustration or partial funding. Providing cost savings is quite helpful. It just isn’t enough.

Treasury, in conjunction with AP, needs to establish the link between vital corporate goals and AP’s role. To help facilitate this change in organizational thinking, Treasury can provide the financial data to support the initiative in the form of liquidity gains, working capital improvements and return or profitability. Treasury’s effort and support in this area can be the driving force that helps AP break free from being viewed solely as a cost center within an organization and pave the way for real, meaningful change.

Posted by Craig Jeffery

Craig Jeffery, Managing Partner of Strategic Treasurer, has 20+ years of financial and treasury experience as a practitioner and as a consultant helping organizations craft realistic goals and achieve significant benefits quickly.