What is Shared Services AP?

Q: What is Shared Services AP?

Shared Services AP centralizes accounts payable functions to improve efficiency, reduce costs, and enhance financial control by standardizing processes and leveraging automation.

Definition

Shared Services Accounts Payable (AP) refers to the consolidation of accounts payable functions across an organization’s various business units into a central service center. This operating model is designed to improve efficiency, reduce costs, and ensure consistency in processing payments, managing invoices, and maintaining financial controls. By centralizing AP tasks—such as vendor management, invoice approvals, and payment processing—companies can standardize processes, leverage economies of scale, and enhance visibility and compliance. Shared Services AP is often supported by automation tools like Robotic Process Automation (RPA) to further streamline operations.

How Shared Services AP Works

The core principle of a Shared Services AP model is to centralize all AP activities into one unit or function, which serves multiple business units or departments. Here's how it works:

Centralized Invoice Processing: Invoices from various departments or business units are collected and processed in one central location, ensuring that they follow a standardized process. This centralization allows for more consistent and efficient handling of invoices.
Standardized Approval Workflows: The AP team uses predefined approval workflows to ensure that all invoices are reviewed and approved according to company policy. These workflows can be automated with systems like RPA in Shared Services to reduce manual effort.
Payment Scheduling and Execution: Payments to vendors are processed centrally, ensuring that the organization takes advantage of favorable payment terms and avoids late payment penalties.
Reconciliation and Reporting: Centralized reconciliation of accounts is conducted to ensure that payments are accurately recorded and that financial records are up to date. Centralized reporting allows for better financial visibility and oversight.

Applications of Shared Services AP in Finance

Shared Services AP can be applied across various financial processes to drive efficiency and cost savings:

Vendor Governance (Shared Services View): A shared services model helps centralize vendor management, allowing for better control over vendor relationships, payment terms, and performance monitoring. This streamlining of processes enhances compliance and reduces the risk of errors.
Expense Management: By centralizing accounts payable, organizations can better manage expenses across departments and ensure consistent application of corporate expense policies. This leads to improved financial forecasting and budget control.
Cash Flow Management: A Shared Services AP model allows for better tracking of cash flows across multiple units of the business, providing greater insight into overall financial health and liquidity.
Operational Risk Management: Centralizing the AP function ensures that controls are standardized, reducing the risk of fraud and errors that could arise from decentralized processes.

Advantages of Shared Services AP

Implementing a Shared Services AP model offers several advantages for organizations:

Cost Efficiency: By consolidating accounts payable functions, organizations can reduce operational costs related to maintaining multiple AP departments across business units. Shared services also enable the company to optimize resource allocation and leverage economies of scale.
Improved Control and Compliance: A centralized AP model helps standardize procedures, making it easier to implement and enforce compliance policies, internal controls, and audit requirements across the organization.
Enhanced Transparency and Visibility: Centralizing the AP function improves financial transparency, providing better visibility into outstanding payments, liabilities, and cash flow. This makes it easier to track financial performance across departments.
Increased Efficiency and Speed: With standardized processes and automation tools like automation rate in Shared Services, AP tasks are completed faster, reducing processing times for invoices and payments. This allows businesses to benefit from early payment discounts and improve vendor relationships.

Best Practices for Implementing Shared Services AP

To successfully implement a Shared Services AP model, organizations should consider these best practices:

Leverage Technology and Automation: Utilize automation tools such as RPA and machine learning to automate repetitive tasks like invoice matching and approval, reducing manual effort and improving processing speed.
Establish Clear Service Level Agreements (SLAs): Define SLAs that outline the expected timelines for processing invoices and making payments. This ensures accountability and sets clear expectations for performance.
Ensure Strong Vendor Relationships: Maintain open lines of communication with vendors to address payment issues, resolve discrepancies, and negotiate favorable terms. Strong vendor relationships enhance the success of a Shared Services AP model.
Regularly Review and Optimize Processes: Continuously assess and refine AP processes to identify areas for improvement, such as eliminating bottlenecks, improving efficiency, and reducing costs.

Summary

The Shared Services AP model centralizes the accounts payable function, streamlining processes such as invoice processing, payment execution, and vendor management. By consolidating these tasks into one function, organizations can improve efficiency, reduce costs, and enhance financial control. Leveraging technologies like RPA in Shared Services and automation ensures that the AP function operates at peak efficiency, driving better financial outcomes and improving vendor relationships. By implementing best practices and continuously optimizing workflows, businesses can maximize the benefits of a Shared Services AP model to enhance their financial performance.