Centralized AP 101 – Everything You Need to Know
Business is changing. What worked in the past no longer flies in today’s urgent and complex ecosystem. When it comes to Accounts Payable (AP), there is often a lot of pressure to get things done right (and quickly). For organizations with more than one legal entity, one strategic way to improve efficiency and reduce errors is to use a centralized AP team (a.k.a. Shared Services).
While some multi-entity organizations benefit from separate AP teams for each entity, consolidating your payment processes can offer greater efficiency, control, and visibility. A unified approach can also help reduce costs, minimize redundancies, and create a smoother, more scalable AP operation for both leadership and day-to-day teams.
Centralized AP also supports smoother vendor relationship management and improved cash flow visibility. If you’re looking to improve or maintain the financial health and agility of the organizations you manage, keeping your Accounts Payable processes in one team can be a strategic and cost-saving advantage.
What is the Difference Between Decentralized & Centralized AP?
Decentralized AP means each legal entity under a parent organization manages its own accounts payable processes through a dedicated AP team. This approach can work for large organizations with multiple entities that want to handle different vendor relationships and payment terms separately.
Decentralization can offer teams flexibility to handle location specific payment needs and requirements. Where decentralized AP can stumble however, is in areas of efficiency and consistency. Efforts may be duplicated across teams, and inconsistent payment processing approaches may affect vendor relationships. Keeping AP processes disparate can also make it tricky to get a full and accurate picture of your organization’s health.
On the other hand, centralized AP takes a unified approach where one team manages all vendor relationships, processes invoices, and maintains payment records for all departments or legal entities within a group of related organizations.
The benefits related to centralizing AP processes are extensive, including reduced redundancies and errors, improved efficiencies in cash flow and vendor management, and greater clarity and control over your organization’s finances.
Let’s Take a Deeper Look into The Benefits of Centralized AP
Improved Efficiency & Streamline Processes: With everything in one place and managed by a single department, the AP team can work together to strategically develop procedures and automations that make processes more efficient. While reducing potential redundancies, one unified team can save valuable time by removing the need for multiple and potentially discordant systems. Example: Imagine you have several locations that work with one vendor. If all payments are processed in one team, you will save valuable time processing payments. Alternatively, each individual location will process multiple payments separately, potentially duplicating the work.
Enhanced Control & Financial Visibility: Centralized accounts payable offers greater clarity and visibility into the financial obligations for all the organizations you manage. You’ll also enjoy increased control over business finances with real-time invoice tracking and cash outflow management.
Cost Savings & Reduced Errors: Centralizing your AP operations can give you greater leverage when negotiating payment discounts. It also helps reduce errors by limiting the number of people involved in the payment process.
A multi-location business, like a group of restaurants with separate legal entities, is a great example of where centralized AP can have a positive impact and potentially lead to cost savings.
When AP is managed centrally, the organization can clearly show its total spend across all locations, which may help negotiate early payment discounts. In contrast, if each location handles AP independently, vendors might not recognize the full value of the relationship and may be less likely to offer discounts. Centralizing AP gives your business a stronger negotiating position, especially when a vendor is waiting on a high volume of payments.Encourages Stronger Vendor Relationships and Payment Accuracy: With a centralized AP team, your organization has a greater opportunity to build and maintain relationships with important vendors. A centralized process can help reduce the likelihood of missing payment dates. It’s also easier to keep consistent records for all accounts payable data when everything is in one place. This is usually harder in a decentralized environment. Ensuring strong relationships with key vendors and keeping payment processing running smoothly is a strong benefit to centralization.
Improves Compliance & Auditability: With a single AP team operating in one location, it’s easier to coordinate training and clarify best practices. It’s also more straightforward to create clear spending reports and keep track of vendors and compliance information with a centralized system, making sure your books are ready for an audit if needed.
Reduces Manual Labour: Manual and repetitive tasks are often the bane of accounts payable teams. With a centralized system, teams can more easily utilize automation to reduce manual tasks like check printing or approvals, and free up the team to provide more strategic support for the organizations you manage. Strategically implementing automation such as an integrated AP solution as part of your centralized accounts payable processes can increase efficiency and reduce overall business costs even further.
How to Implement a Centralized Accounts Payable System
While the initial time and cost of setting up or transitioning to a Centralized AP system can be high, the overall benefits outweigh the temporary drawbacks.
Identify Opportunities to Streamline Your Processes and Save Time:
Whether you’re just starting to centralize or already there, it’s always worth stepping back to review how your processes are working. Start by taking a closer look at your current AP workflows, especially if you're managing payments across multiple entities or business units. Where are the inefficiencies? Are manual tasks slowing things down? Are siloed systems creating bottlenecks?
Understanding what’s working (and what isn’t) will highlight key opportunities for improvement. Just as important, it may show how much smoother your operations could run with a centralized approach.
Explore AP Automation & Cloud-Based Solutions:
Next, if you aren’t using automation or cloud-based AP solutions, it’s a great time to investigate options to streamline your AP processes. Look for a solution that integrates directly with your ERP software to get maximum benefit. AP automation can streamline approval workflows, digitize invoice processing and support remote payments, giving vendors more options while reducing your dependency on checks. You can even automate vendor validation for added security and compliance.
Be prepared for financial adjustments and a learning curve as your team embraces new technologies but also get ready to enjoy greater ease and control in your AP processes once the transition is complete.
Get Ready to Enjoy the Benefits of Centralized AP!
With Centralized AP, organizations with multi-entities, teams, or locations can take advantage of streamlined processes, reduced redundancy and errors, and increased visibility into organizational finances. When combined with automation from an integrated ERP solution, your organization is likely to enjoy numerous cost and time saving benefits. While the decision to shift from decentralized AP to a centralized, unified model should not be taken lightly, many organizations will see positive results from this approach.
Interested in exploring AP automation or how centralized AP can work for you? Talk to our support team to learn more!
