Outsourcing Supplier Payments, T&E

For many mid-market finance operations, finding an efficiency solution may involve outsourcing. That's evident in Ames, Iowa, home to the North American Financial Shared Service Center of Sauer-Danfoss, a $1.2 billion company that designs, manufactures and sells engineered hydraulic and electronic components for mobile equipment manufacturers.

Corporate treasury may be multinational, but making supplier payments in North America is a classic middle-market operation. Sauer-Danfoss has put in place classic middle-market solutions by outsourcing non-core competencies.

Sauer-Danfoss's shared service center plugged into two state-of-the-art automated solutions by outsourcing supplier payments and travel and entertainment expense processing and reimbursement to Wells Fargo Bank, explains Kim Sampson, manager of the center.

"When our North American facilities were transitioning to SAP in 2005, we took a close look at our business processes and how we might improve them in the future considering the move to SAP," Sampson says. "Disbursing funds for supplier payments is not a core competency for us. Rather than setting up an internal solution within our new SAP system to disburse supplier payments, we found an efficient and cost-effective provider."

The SAP payment program with a vendor master data in SAPdetermines who gets paid, how much, and when, she explains. "We then export the payment file to Wells Fargo, which disburses the payments to our suppliers via check, ACH, and foreign wire.

"We essentially replaced a 16-step check printing process, which tied up resources from accounts payable, IT and our mail room, plus supplies, with a one-step process," Sampson notes. "Our SAP payment program is completely automated and set up to run on a weekly schedule. We use an SAP iDoc to package the payment information into something the bank can receive. The bank confirms receipt and verifies the number of checks, ACH, and wires and the dollar amounts associated with them. Then they take the file, divide it according to payment types, and send the payments along with the remittance information to our suppliers. There are no touch points for us."

The company's business case for this project calculated that outsourcing supplier payments would break even with the cost of its current process if 80% of payments were converted from paper check to electronic payment. "We're at 94% electronic payments now," says Sampson, "so we've saved time and money by outsourcing.

"The shared service center typically generates 1,800 supplier payments a month, covering approximately 15,000 invoices," she says.

Wells Fargo prints and mails check payments including remittances to suppliers. Sauer-Danfoss will sometimes have the bank print checks and mail them back to the shared service center in Ames. There's a reason, of course.

"Some suppliers require a coupon or remittance document with our payment," Sampson explains. "We see this with government and tax payments, and also with donations. Our HR team likes to send a letter along with the check for donations."

The other efficiency gain came from outsourcing the administration of the North American travel and entertainment expense process. Today, the company uses the Wells Fargo commercial credit card program for 700 travelers and key purchasing employees, who charge T&E expenses and purchases to their company-issued credit cards.

"Prior to the commercial card, employees paid for their travel expenses and used a spreadsheet template and extensive routing of paper to eventually be reimbursed," Sampson reports. "Now employees log onto a Wells Fargo portal when it's convenient. Instead of keying information and numbers into a spreadsheet and totaling columns of numbers, they verify charges recorded on their statement and add a business description.

"Once they complete the approval of their monthly statement, the Wells Fargo system sends their leader an e-mail recognizing the completed statement," she adds. "Leaders then log into the Wells Fargo portal to review and approve or reject their employee's monthly statement of charges. It's a much more streamlined process than before."

To read more about innovative solutions employed by middle-market companies, see Cashing In on Technology.


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