Accounts Payable - 32% reduction in processing time; 95% error reduction!

Accounts Payable Process Improvement

Background

Our client is a provider of industrial services with locations across the US.  The client operates a shared services center at its headquarters locations.  Accounts Payable (AP) for the entire country are processed at this location.

The Challenge

Our client was experiencing a number of issues related to its AP Process:

• Payments took too long to process (29 days vs. the required 20 days)
• Disruption of service
• Late fees
• Duplication of effort (e.g. follow-up, duplicate billings, etc.)
• Mistakes with payments were made over 20% of the time.  These included paying the wrong amount, the wrong payee, duplicate payments.

Our Approach

We engaged with our client to map the relevant processes and detailed data for the prior 6 months.  Based upon our analysis, we determined the following common causes of delays and errors:

• Delays were driven by duplicate inspection and redundant processes
• Re-work caused by flaws in the process
• Un-even volumes drove spikes at the end of the month and the quarter (20% increase at the end of the month and 40% at the end of quarter).  These spikes overwhelmed the staff and lead to mistakes and delays.

Our Solution

We worked with the client team to design and implement an improved future-state process.

• Implemented scanning to transmit invoices from the field locations to the AP team.
• Standardized the payment approval process to eliminate redundant process steps.
• Worked with vendors and internal customers to level out the volume of checks processes by changing invoice cycles.
• Developed process metrics to track production and performance on a daily basis.

The Results

We worked with the client to implement the new procedures and studied the results over the 30-60-90 day implementation cycle. The results were impressive:

• Payment lead-time was reduced from 29 days to 20 days (time from receipt to the ability to process for payment)
• Observed error rate reduced from 20+% to less than 1%
• 32% reduction in processing time per invoice, led to a reduction of overtime in the department from 22% to 11%