Managing centralized vs decentralized accounts payables

Published on: December 5, 2018

Growing companies are increasingly trying to decide between centralized vs decentralized accounts as they scale. Multi-entity accounting has become a necessity for many. Accounting processes can become more complex as they expand, whether through acquisitions, growth across new geographies, the introduction of new product lines, or any other factor. Companies eventually need to decide whether they centralize their accounting processes or keep them decentralized across their different entities.

A significant point to take note of is the number of resources that each new entity must manage. Each new location comes with more vendors to pay, customers to invoice and collect from, and employees on the payroll. The work involved in managing these resources alone is one reason a company may investigate centralizing their payables processing to avoid redundant and inefficient operations.

To help you decide which you should opt for, we’ve broken down the benefits of centralized vs decentralized accounts below.

But first, let’s look at what centralized vs decentralized accounts are:

What is centralized payables processing?

Centralized payables processing combines the accounts payable processes from different locations and manages them in a singular location. It allows companies to overcome inefficiencies or redundancies that may result from having disparate systems and operations.

What is decentralized payables processing?

A decentralized payables process is when each entity of a company works relatively independently of the others. This makes it easy for individual entities to allocate costs, but it can lead to issues with compliance and consolidated financial statements.

The benefits of centralized accounts processing

 The benefits of centralized accounts processing

1. Eliminates redundant processing at separate locations

Centralizing accounts payables processes helps organizations eliminate much of the redundant work that each location may be doing, but there are other benefits beyond that. With companies where the separate entities operate within the same space and are merely different branches (for example, restaurant franchises, gas stations, etc.), branches within the same region may be working with the same vendors and customers.

2. Ability to negotiate better rates or prices for purchases across branches

In the case of vendors, the corporate head office can realize further gains by centralizing the processes since they can negotiate better rates or prices based on volume discounts resulting from the purchases made by all their branches combined.

3. Introduce consistency across records and accounting errors and duplications

Aside from the immediate opportunity for decreasing costs, centralizing payables also helps companies have more consistency in their recordkeeping and better coordination in all steps of the process. Centralization also ensures that staff members are all trained and operate similarly, reducing redundancies, disagreements, errors, and duplications.

4. Lower the risk of missed payments with consolidated invoicing

Working with a customer that operates a centralized payables department is much easier for vendors since they can consolidate invoices and lower the risk of missed payments.

The benefits of decentralized accounts processing

The benefits of decentralized accounts processing

1. Operating in multiple countries may be easier if decentralized

Companies that operate across multiple countries may find that separate entities have different standards or needs. In this situation, a centralized system can be prohibitively costly or challenging to create and manage. It may be best in this situation to stick to a decentralized approach, even if financial consolidation may take longer.

2. Different countries may require different levels of security

For other cases, the security and accessibility of having all payment processing at the relevant site are significant. While most organizations would have a hierarchy with operating across multiple companies may mean each entity has different needs.

3. Parent companies may require each child company to self-manage

There could be cases that require that each company is self-managed and can freely access and control its operations.

Centralized payment processing features

Whether you are planning a move to centralized accounting for the first time or are already operating in that mode, an essential factor to consider is the accounting software you implement. Here are some features you should look for:

1. Ability to centralize payments processing for all entities

Any centralized payment processing software should allow a corporate head office or parent company to send one check to a vendor for all entities, including proper intercompany distributions during payment processing. At its core, this feature cuts down the amount of time you and your organization spend processing vendor checks for multiple entities.

2. Enables you to streamline accounts across all entities comprehensively

The productivity gains of centralizing your accounting and finance processing are immense. However, it’s challenging to set up in typical multiple database environments. With centralized payment processing, you’re easily able to centralize not just the processing of payments but also receipts, payroll, invoicing, and purchase orders.

This feature will help many departments of your organization run smoother and more efficiently. In centralizing all of the facets of accounting, organizations cut down the chance for human error and streamline their reporting processes to operate with more agility and confidence.

Mekorma’s Payment Hub and Multi-Entity Management connector

Multi-Entity Management has all the above features and more. Rather than sending multiple cheques to the same vendor, organizations can send one cheque on behalf of all entities. They can also process a single purchase order for multiple entities, a bill from a corporate head office and fulfil stock from a branch office.

The Mekorma Payment Hub is a comprehensive platform for managing the AP payment batch process in Dynamics GP. The Payment Hub’s heart is the Action Board–one unified window where you can automate the batch building process, send approval requests, print, post, and generate bank files. With Mekorma’s customizable workflows, streamline redundant processes, and retain proper payment approval steps to ensure accuracy and security.

By using Multi-Entity Management and Mekorma’s Payment Hub, accounts payable professionals can access all of their different companies and chequebooks in Dynamics GP and limit the chance for error, lack of insights, and tedious manual processes.

Learn more about Multi-Entity Management

 

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