Accounting Best Practices, Fifth Edition

3–22. Centralize the Accounts Payable Function

A company with many subsidiaries or locations usually has a separate accounts payable function located in each facility. This can be inefficient for several reasons. First, the accounting staff at each location requires a supervisor, so the sum total of supervisors at all the locations can be substantial. Second, there can be problems with suppliers sending invoices to the wrong locations. This is a particular problem when the subsidiaries all have the same or similar names, since it is difficult for a supplier to figure out which location is the correct one to which a bill should be sent. The problem is exacerbated if a supplier ships to several company locations and then must issue a separate invoice to each location, since it is confusing to issue billings when not only the company names are identical, but also the goods shipped to all of them. Third, the many accounts payable departments all require training and auditing to ensure that they all process payments in the same manner. If a company does not do this, it is likely that discounts will not be taken or that payments will be made without proper authorization. Finally, there is a lack of control when the accounts payable function is widely distributed. Local management can interfere with the payable process to make payments to themselves or to entities they control, while still giving the appearance of good local controls. All of these problems can be either eliminated or ...