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Why Are Firms Leaving AP Out in the Cold?

Anthony Loiacono October 19, 2016

Finance is one of the areas of legal business that benefits most from business process management (BPM), but the accounts payable and international payments areas are often left out of streamlining projects. Efficiency gains and cash flow improvement are among the easiest and most immediate to attain in AP and international payments. So why is AP last on the list? BPM and workflow tools are designed to drive up efficiency and reduce profitability leakage by focusing on the automation of work and efficient presentation of resources and reporting. AP international payments have often been viewed as a purely reactive clerical and transaction-oriented process – which may have mistakenly put them outside a process management initiative. Moreover, engaging an international exchange provider is often considered low priority, which also pulls it out of any process improvement journey.

Firms tend to rely on existing bank relationships, which means mandatory depository requirements, fees, purchasing currency as a hedging mechanism, and secondary exchange providers. The benefit of working directly with a bank is security, but that security comes with a price. And that security doesn’t improve processes, because firms are still left with the job of manually processing information, keeping up with minimum balances, and making sure financials get entered into the billing system.

Today’s rapidly growing international legal market has created a rich climate for increasing firm revenue and global reach. But it also taxes internal resources that already have too many projects and too little time. The best law firms (in finance terms) automate their way to brilliance.

In April 2010, APQC, a resource for business benchmarking, in conjunction with International Accounts Payable Professionals and PRGX, conducted a survey on links between business performance, accounts payable practices, and organizational demographics. The study confirmed that ”top performers” automate central processes by ”using multiple methods to process invoices”, and as a result, these organizations performed more efficiently.

The road to becoming a top performer lies in leveraging the firm’s banking relationships with BPM technology and built-in workflow tools. Such an approach increases efficiency by taking advantage of competitive exchange rates, processing directly from international invoices, streamlining workflow through an integrated data exchange, maintaining a secure environment, and handling the entire international accounts payable process from start to finish. BPM/workflow integrates the full process into a single step that automatically processes invoices, with controls to eliminate duplicates when submitting invoices in multiple formats. A dedicated service provider sorts, processes, and stores each invoice while extracting data fields as needed for the financial and billing systems.

BPM also can help hugely with reporting (a particular issue for those in finance charged with the COFA role). Many firms scramble to get financial reports together, adding yet another burden to AP. BPM tools provide reporting as an added feature, so that reports can be easily available online, delivered in spreadsheets, included in month-end packages, or integrated into the billing system. So, BPM tools and an international payment provider will save time and money and introduce new efficiencies for AP. As the process is simplified, the average time per payment is shortened, improving cash flow. What about the international exchange advantages of an international payments provider?

International exchange rates are volatile, and a secure international payment provider can lock in rates in advance of payment. This means you’ll know the precise converted cost of the international payable, so you can bill the client the right currency amount, eliminating re-billing, exchange losses, or late vendor payments, when rates fluctuate. Payment is received faster, and less time is spent on administration.

But you need a plan to go down this road. Make sure you work with a secure and experienced international payment provider. Do due diligence on the range of services offered and know which can be customized for your firm. Consider your current processes to determine potential efficiency gains and the savings potential of BPM. Assess the cost of wire transfers, ancillary services, and minimum requirements to use bank services. Keep in mind that international transactions begin and end with a bank.

A good international payment provider will be able to transition you to their system quickly and efficiently. Ongoing support and a customized single point of access to upload data and view dashboards should be available. An ideal relationship includes no FX wire fees; annual fees; or exclusive, long-term contracts.

The AP/international payments process offers one of the best opportunities for an immediate impact on the firm’s cash cycle. Instead of being an afterthought, it should be at the top of the priority list when applying BPM tools and workflow solutions to your firm.