What is a Centralized Accounts Payable & its Benefits

Ryan Thompson
July 25, 2022
 Mins Read

Handling payments will always remain a tricky and complicated task. Most small businesses have informal one-person billing departments that somehow get through. However, as they grow, pressure builds up on accounting teams to manage payments effectively. Additionally, manual payment options have an error rate of 3.6 percent due to data entry. That’s why we are the proud proponents of centralized accounts payable processes. So, we’ve pulled up all the necessary information and put it together in this post for your reference.

What is Accounts Payable?

This business area deals with bills or invoices received from different vendors effectively. This department receives invoices, processes them, and clears them before the due date. For example, restaurants get bills from wholesalers, distributors, linen services, equipment maintenance providers, and other vendors. Then, your accounts payable (A/P) team handles these issues. While small companies can manage without an A/P team, bigger firms must have a specific A/P department. Having efficient and coordinated invoice processing is extremely necessary for businesses. Related

Related Reading: Accounts Payable Best Practices

Why Decentralized Accounts Payable Processes are Undesirable?

If business units having similar names are located far away, suppliers may find it difficult to understand where they need to send their invoices. Furthermore, if the supplier serves multiple locations of your business, you’ll also have a hard time determining which invoice is yours.

In most such cases, suppliers may send multiple invoices to your units and wait for payments. Additionally, because you also have multiple units, your accounting department is also utterly confused about which payments they need to process.

Suppose multiple subsidiaries from your firm process duplicate payments; your firm loses money. You cannot ignore payment requests from your suppliers due to decentralization issues. This constant state of confusion breeds chaos in the supply-chain relations and complicates payment processing unnecessarily.

What is Centralized Accounts Payable?

Centralized payables processing combines all accounts payable from diverse locations and manages it from one location. Through centralization, companies can overcome inefficiencies, redundancies, and inconsistencies that exist due to multiple systems and operations. Furthermore, it simplifies the payment process tremendously.

Benefits of Centralized Accounts Payable

1. Makes Accounting Processes More Consistent

Your centralized accounting team handles finances from all locations at a single location. So, you develop consistent processes and manage payable efficiently. By centralizing these processes, your team works together in coordination to process invoices better. For example, many dealers still use handwritten checks that can easily get lost or damaged. 57% of all invoices exist on loose paper sheets.

A centralized accounting team makes data transfer easier. Centralized systems easily standardize processes and improve overall efficiency to facilitate quicker payments. Since closing teams have onsite access to all transactions, uncovering new issues and researching its causes becomes simpler.

2. Increases Productivity in Staff

Operating from multiple locations could mean that you may send duplicate payments to vendors, suppliers, and service providers. 63% of companies have received duplicate invoices, and 33% have processed them. You cannot always ensure your teams are in perfect tandem with each other. So, you end up spending a lot of time correcting these errors and improve efficiency by removing redundancies.

Using inquiry systems is also an unproductive accounting activity. Through centralized processes, staff can easily look up invoices from many locations simultaneously. Managers can review cash accounts through an efficient single-screen system instead of performing multiple queries.

Related Reading: How to Improve F&A Department Efficiency

3. Improves Customer and Partner Relations

When a local shop procures material from three different stores, they receive three bills. When businesses centralize accounting, your team can send a single invoice for each location and be done with it. This shop eases expense payments and processes them efficiently. If shops delay payments, they get a single call from vendors instead of three calls. So, it’s easier for your vendors to get in touch with you and get paid on time. Hence, you improve relations with your vendors and customers in the long term by maintaining financially healthy practices through centralization.

4. Saves Time and Money

It’s a no brainer that the monthly closing process can take days to complete. The most valuable advantage of centralized accounts payable systems is its ability to save time and money. Through these systems, staff can close accounts from multiple accounts through a single process. When firms decentralize their finances, some locations are bound to be less efficient than the others. Inevitably someone sends in the necessary data late and delays the entire payment cycle.

Companies that use centralized accounting operations save approximately $2 less than decentralized systems. Also, centralized accounting teams are more likely to use electronic payment methods to expedite payments and reduce mailing costs.

You can also automate intercompany general journal postings through centralized processes. This automated feature fastens the adjustment handling process, write-offs and depreciation management, and transactions that use third-party applications.

How to Make Centralized Accounting Processes More Effective?

Every company that prefers centralized accounting processes needs to consider accounting software as an important aspect. Multi-entity management (MEM) software’s centralized processing abilities permit company headquarters or other decisive authorities to pay vendors with one check for all entities. This feature is created to reduce the time organizations take to process vendor payments for multiple entities.

Organizations can gain tremendous benefits by investing in centralized accounting processes. However, it’s challenging to set it up when data is present in multiple databases. By leveraging centralized systems through MEM, you can operate various financial functions like processing payments, managing receipts, dispense salaries, and much more.

With this feature, many departments run better and more efficiently. By centralizing all accounting aspects, firms can reduce error rate, smoothen their reporting procedure, and improve process agility significantly.

Final Thought

We believe that simple solutions are the best ones. Centralized accounts payable systems are awesome in so many ways. They help you manage your time, energy, and resources effectively. So, consider using these systems with automated tools to ease your accountant’s work and reduce payment delays.

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