Outsourcing Accounts Payable Yields Operational Efficiency and Happy Vendors for G&K Services | Article
In 2001, G&K Services, which provides uniforms for over 175,000 customers, stored its paper accounts payable invoices and supporting documents at large offsite storage facilities. The routing of accounts payable invoices was also paper-bound. If there was a dispute over a vendor invoice, it could take several weeks to resolve because of the inefficient retrieval process.
Tom Rooney, Vice President and Treasurer, says the company realized it needed a more efficient process. It believed moving to an electronic system would reduce processing costs as well as provide easy access to accounts payable documents once they were in a centralized location. G&K desired to achieve this transformation through an outsourcing service provider.
How the process works
G&K’s U.S. plants and branches send their invoices to G&K’s corporate offices in Minnesota for payment. The company transports the accounts payable invoices and supporting documents to its outsourcer, API. API scans and indexes the documents into Doc Archive, a central image archive repository, within 24 hours of receipt.
The system matches and merges additional vendor and invoice information from G&K’s ERP system with the document index API captured. The system also captures different invoice types such as fax, e-mail, and EDI.
Once the documents are in the system as images, authorized personnel can view, print, or e-mail the images from their desktops through Doc Search, API’s Internet portal, or through their system, which interfaces to the archive system with API’s Archive Link.
This provides G&K’s authorized personnel with the ability to seamlessly retrieve and view archived documents with a single click and eliminates the need to log into another system.
To meet related Sarbanes-Oxley requirements, API archives the images for seven years. It then destroys and recycles all paper documents.
A 3PL speeds the approval and payment process
G&K also uses a third-party logistics (3PL) company to consolidate low-volume, single-shipment orders by different companies into high-volume shipment orders from a single entity, the 3PL. This results in the shippers’ obtaining lower pricing through volume discounts that they cannot obtain individually. However, this too created a more complicated document management process.
In 2005, G&K asked API to also manage G&K’s document management process for its logistics group. The process entails the freight carrier picking up the shipment from G&K and creating a bill of lading at the consolidated rate. Then the carrier delivers the freight to the receiving company and gets a delivery receipt.
At this point, the carrier puts the carrier receipt, bill of lading, and invoice in an envelope and mails it to API. API scans the documents and enters all the information from the invoice. API workflow routes the invoice to the 3PL’s audit engine, where it runs the invoice against the record of what the shipper ordered, which it maintains on the audit engine. If the invoice reconciles, it’s routed to G&K for approval. After G&K approves the invoice, API workflow routes it for online payment.
Capturing P-Card receipts and supporting documents electronically
Rooney says a third function, which API began performing for G&K in 2007, captures all of the support documents and receipts for G&K’s P-Card (Purchase Card) transactions for reconciliation. Authorized G&K employees use P-Cards to buy commodities just as they would with credit cards. This reduces the number of accounts payable invoices and the cost associated with processing them.
However, P-Cards have limitations because employees have spending limits and can only use them with certain vendors. “Since 2007, we’ve grown our usage to a multimillion-dollar amount of purchases transacted through the use of P-Cards,” says Rooney.
API captures the receipts and identifies them by the P-Card number, which enables G&K to match the receipts to the P-Card statements. “P-Cards are yet another way G&K has automated its processes,” says Rooney.
According to Rooney, as a result of API’s automation capabilities, G&K has been able to increase productivity in the AP department, is experiencing few duplicate payments and late fees, and has virtually eliminated vendor disputes. There are fewer data entry errors as well.
API’s customer base is enterprise and middle-market companies, which tend to incrementally add functions. According to Gary Halleen, President and CEO of API Outsourcing, “API’s claim to fame is to let you go at your own pace to achieve your outsourcing goals. We fill the gaps — if you have an underperforming area, we’ll start there. Companies give us additional projects because they see the value we bring.”
Rooney is impressed with API’s commitment and willingness to act. In the first two weeks when he joined the company, he says, Halleen met with him and G&K’s chief financial officer to introduce his company and its services and ask what they could do for G&K. Since then, “they’ve always reached out and listened to us,” he says.
A month ago, he continues, they had his core treasury team out to API’s headquarters to brainstorm how G&K could improve its AP processing through the implementation of additional best practices. API has also visited two of G&K’s locations and the company’s corporate headquarters to view the accounts payable processes. “They want to understand the process and make it better for us, and they do it on their own nickel,” says Rooney. “That’s the sign of a great business partner. They go the extra mile” to ensure their customers are satisfied, he reports.
Lessons Learned from the Outsourcing Journal:
- When a buyer’s accounting and related paper documents are geographically dispersed across an organization, centralizing them at one location, then digitizing them with a document management system, allows users to retrieve them in less time at less cost. Companies can resolve payment disputes quicker. An outsourced document management system eliminates long-term storage costs.
- Though using a third-party logistics (3PL) provider lets shippers get lower pricing through volume discounts, it can complicate the document management process.
- Outsourcing document management increases productivity in the accounts payable department, reduces duplicate payments and late fees, and cuts down on data entry errors. When the buyer can send an image over the Internet instantaneously to prove it hasn’t received a customer payment yet, it expedites collections as well, a key activity to increasing cash flow.