Simply put, payment execution is the process of initiating payments, whether by check, ACH, wire or card.  Increasingly, companies are looking to outsource this portion of their A/P processing.  Payment initiation is time consuming, labor intensive and expensive (in the case of checks) and certainly meets the definition of a non-core business function.  In an era of hyper competition, outsourcing permits an organization to redirect its resources, most often people resources, from non-core activities toward those which add greater value.   

Your organization may require a business case before approval to outsource a particular function.  A compelling business case captures both the quantitative and qualitative benefits of a proposed initiative.  Costing models, risk analysis, capital costs and payback periods are key components to a business case and represent the quantitative analysis.  Business case reviewers will also be interested in a qualitative analysis, i.e., the impact on the business in areas that are more difficult to quantify. 

Here are some business goals to consider as you build your case to outsource your payment function.

1)  Increase Revenue.  Make the case for turning your A/P cost center into a revenue center by earning rebates from payments made via virtual cards, one-time use card numbers generated for a specific payment for a specific dollar amount.

2)  Reduce Cost. Use an ROI calculator to determine your potential savings.

3)  Improve Vendor Adoption and Acceptance of Electronic Payments.  An ROI model will calculate your savings or revenue if x percentage of your suppliers agree to accept electronic payments.  But how will you convert them?  Running a successful vendor enrollment campaign is time consuming and not core to your business.  Explain how an outsourced vendor with a dedicated campaign staff can facilitate rapid adoption.    

4)  Strengthen Vendor Relationships.  An outsourced solution that offers a robust and user-friendly vendor portal can make it a win-win for you and your suppliers.  Features such as advanced payment notifications, electronic delivery of remittance information and a searchable archive of payment history are greatly appreciated by suppliers.  Strong vendor relationships can lead to better pricing and better terms.

5)  Improve Compliance.  The new healthcare law imposes new reporting rules on businesses.  For many organizations, the new rules will require issuing 1099s for many different business payments when this previously was not required.  Regulations like this create administrative overhead that is not core to your business.  Describe how a self-service vendor portal can allow vendors to provide this information electronically.

6)  Improve Credibility.  Obtain and grow respect for your business unit.  Turning your A/P cost center into a revenue center is a career enhancing move!

7)  Improve Ease of Doing Business.  Describe how you will improve your vendor customer service by making payment history more easily available to your suppliers.  Explain new system capabilities that will provide your A/P staff with the tools they need to quickly answer questions and resolve issues.

8)  Improve Your Department’s Capabilities.  Make the case to eliminate mundane tasks.  Automation and outsourcing can free up A/P resources for tasks that add value (think procurement, spend analysis, fraud prevention).  Identify professional development opportunities and career path options to make this possible.

9)  Improve Performance.  Describe how process improvements will shorten processing latency, improve DPO and insure that supplier discounts are being taken.

10)  Improve Quality.  Document your plans to reduce errors that strain vendor relationships (such as making an electronic payment to the incorrect account) and that require time-consuming research to resolve.

11)  Improve Your Department’s Scalability.  Ensure that your A/P department is positioned to do more (with less).  Make the case to eliminate manual, time consuming activities.

12)  Improve Security.  Without adequate controls, storing your supplier’s banking information can contribute to fraud and increase your liability exposure. Make the case to be proactive about eliminating potential fraud.  A CTO once told me, “I don’t want to read about this on the front page of the Wall Street Journal.”

13)  Improve Technology.  Legacy applications are called that for a reason.  Explain how you will stay current with technological advances by embracing a Software as a Service (SaaS) delivery model.  Explain how IT resources, always in short supply, can be utilized differently. 

14)  Obtain Experience.  A/P automation can be a daunting task.  Explain how you will not bite off more than you can chew.  Present this as Phase I of a strategic initiative.  Take the first step by outsourcing your check print and mail and then migrate your suppliers to electronic payments. 

15)  Expand your Capabilities and Improve Your Processes.  The Sarbanes-Oxley Act (SOX) has changed the way the accounts payable function should be handled at both public and privately held companies.  Explain how you will satisfy auditors with improved internal controls by utilizing system features such as multi-factor authentication, control totals and multi-level payment approval.

A complete business case will demonstrate that you have thought through the entire project thoroughly and that you have included the key performance indicators including:

• Savings in cost and time
• Return on investment
• Productivity gains
• Loss prevention
• Reduction in non-compliance risk
• Revenue growth

By addressing these business goals, decision makers will be confident that the correct analysis has been done, that the project will yield the expected results, and that it will be in the best interests of the company.

Have you created a business case for your payment execution outsourcing? If so, tell me about your experience.