Centralized Processing vs. De-centralized Processing

Many multi-location/multi-entity organizations struggle to optimize operations control within their company. The issues are compounded when the company is in a growth phase. More locations; more vendors to pay; more customers to invoice and collect from; and more employees on the payroll. At the heart of the struggle is the fact that companies tend to operate in a de-centralized mode – managing payments and receipts from each individual location. This means duplicate efforts and duplicate functions.

One option to consider to get a handle on the increased volume of transactions is to consider centralizing some or all of your business & accounting processes.

What is Centralized Processing?

As an example, let’s take a look at the accounts payable (AP) function. In a typical de-centralized set-up, each location of a company handles its own accounts payable. At each site, a manager is assigned to keep track of incoming invoices and to make sure they are paid. Instead, with a centralized AP process, all invoices for all locations are received at one location, often the headquarters, and processed by a single person or team.

Benefits of Centralized Processing

Centralizing the accounts payable area and other accounting processes like accounts receivable, payroll, and purchasing has many benefits. For example, the volume derived from bulk purchasing from one central purchasing department versus smaller purchases from numerous branch offices can have the net effect of reducing per unit purchase cost down throughout the entire organization.

Centralizing helps to eliminate confusion and costs in the cases where a supplier services multiple locations and is required to send a separate invoice to each location. Similarly, even when a customer purchases goods from three of your locations, they can receive a single invoice – not three separate ones – from your centralized invoicing staff.

Having a centralized accounting staff means processes can be followed in a more consistent and coordinated manner. Fewer people need to be trained. Redundancies, errors, and duplication of work are eliminated. With a centralized system, staff can look up accounts across multiple locations instead of having to perform multiple inquiries.

Intercompany transactions and reconciliations in a centralized environment are quicker and less error-prone.

And, finally, centralizing your accounting can save you money. In addition to requiring fewer accounting staff, according to research conducted by Ideal AP, a centralized accounting system can save a company more than $2.00 per bill in processing costs compared to when a de-centralized system is in use.

Benefits of De-centralized Processing

Despite the many benefits of centralizing accounting processes, there are situations whereby a de-centralized system makes more sense. One benefit of a de-centralized accounting system is for companies who operate in multiple countries with network environments that are less than consistent. In these type cases, a centralized system can be cost prohibitive and tough to create/manage logistically.

For companies that have established themselves with a decentralized system and have grown international with said system, it’s difficult to start centralizing process while still trying to support government regulations, statutory reporting, and other business processes. Generally, a de-centralized system allows each business region to work more independently and have more flexibility in their AP and AR departments.

Centralized Payment Processing Features

Whether you are planning a move to centralized accounting for the first time or you are currently operating in that mode, an important factor to consider is the accounting software that you implement.

The Centralized Payment Processing feature of Multi-Entity Man allows for a corporate head office or parent company to send one check to a vendor for all entities including itself that includes proper intercompany distributions during payment processing.  At its core, this feature is built to cut down the amount of time you and your organization spend processing vendor checks for multiple entities.

The productivity gains of centralizing your accounting and finance processing are immense. However, it’s very difficult to set up in typical multiple database environments. With Centralized Payment Processing in MEM, 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, it cuts down the chance for human-error, as well as makes the reporting process much simpler.

With MEM, rather than sending multiple checks to the same vendor, you’re able to send one check on behalf of all entities. You can also process a single purchase order for multiple entities, a bill from a corporate head office and fulfill stock from a branch office. The features and benefits go on and on, check them all out here.