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3 Huge Costs to Cut Out of Your AP System

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Q3 US Economic Results


Recent US Economic data indicates that the US economy grew at a 2% annual rate for the third quarter.  While better than the tepid results of the second quarter’s staggering 1.2% annual growth rate, the number has still been labeled lackluster and underwhelming.  In a blog post from the WSJ on 10/26/2012, U.S. GDP Growth: Slam Dunk on a 3 Foot Hoop,  Kathleen Madigan writes, “Even when beating expectations, the U.S. economy looks underwhelming.  Real gross domestic product grew at a 2% annual rate in the third quarter, a bit better than the 1.8% advance projected. But investors and economists were unimpressed, and fundamentals suggest growth won’t pick up in the near term.”  That’s somewhat unnerving given the prolonged period in which the US economy has sputtered and consistently delivered unenviable results.  With that said, it continues to underscore the value and priority that winning organizations need to take in order to ensure positive outcomes in maintaining their profit margins.

Counting the Costs

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One of the primary ways that we endeavor to do this is through process re-engineering.  Inefficient and poorly managed processes lead to a bevy of issues that end up costing you dearly.   

What types of costs you say…? I’m glad you asked. For starters:

  1. Cost of the process

    What are the cost components from a labor, systems, communication, & facilities perspective that are required to sustain the process and drive it forward?  - Without looking at these with a hard eye and under a focused lens, you can lose ground in the opportunity to trim excess out of the equation.

  2. Opportunity costs

    What penalties are imposed for a slow process or missed deadline?  What discounts are missed because of an inability to turn a deliverable around quickly?  This is a cost type that has the potential to be a double negative, somewhat akin to a 6 point swing in basketball (Mrs. Madigan started the basketball analogy so I’ve got to run with it), when your ace shooting guard bricks a three, only to see the opponents team get the ball and drain a three-ball on you.  Not only do you miss the opportunity to score points (capturing discounts, completing process prior to a deadline), but you have points scored against you when you blow it (late fees, penalties).

  3. Intangible costs

    What costs impact your personnel or organizational morale?  Arduous, burdened processes tend to negatively impact those on whom the process rests.  In the case of transactional documents, processors, supervisors, and managers, can be severely affected by inefficient and painful processes.  This is often self-evident with high levels of turnover in these types of roles as job satisfaction tends to wane in the face of monotonous, soul-crushing repetition, and additional pressurization from being required to do more with less resources.


Accounts Payable as a Primo Example



A prime example of this is a poorly managed and manual Accounts Payable process.

Every one of these points can be brought to bear in this process and made completely relatable.

With that said, now is the time for all good men (and women) to come to the aid of the party (or their company, whatever works for you).

By embracing a philosophy of continuous improvement or at least being willing to assess where you’re at today and review it against relevant benchmark information, you can establish a basis for determining what stinks, what’s decent, and what’s great with respect to your findings.  With that in hand, you can set your compass heading to improve and begin the process of looking for ways to create efficiencies and rid yourself of underperformance. 

Change can be tough…but change can be worth it…and that is the item you have to contend with and determine what is worth changing in my process and where can we get compelling and sustainable victories from all three of those costing perspectives.

If more companies do this, especially with respect to AP, they’ll reap the rewards that process efficiency delivers…cost reductions, profitability gains, visibility to the process, ease of burden on staff…the list goes on.

More importantly to the macro situation that the US is faced with, baseline improvements to the operations side of the house will help improve the profitability of our economy as a whole and get us back on track to being the driving economic engine of the free world.  This may not have the same glamour associated with increasing sales revenues, but the endgame is often the same, where Revenues-Expenses= Profit

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