Originally published in
Reprinted with permission

Facing the Inevitable: How to Merge With Another A/P Dept.

Accounts payable managers in the 1990s are being confronted with an issue many never imagined they would face. With the growing number of mergers and acquisitions, payables professionals at organizations of all sizes are grappling with the challenge of merging two accounts payable departments. When this takes place it usually happens quickly—rarely is there adequate time to plan a smooth transition.

At RECAP’s (an A/P consulting firm based in Oak Ridge, N.J.) recent Enhancing Accounts Payable Operations conference, attendees were advised how to manage such a crisis by two veterans who had gone through the process and lived to tell about it. John Kluxen, a vice president at First Union Corp., has survived 40 mergers and acquisitions. Susan Comer, CoreStates Financial Corp.’s vice president of accounts payable and travel management, has supervised many accounts payable department mergers.

These two professionals have extensive experience in this area due to the numerous mergers and acquisitions in the banking arena. While it is unlikely that most Managing Accounts Payable subscribers will match their records, a good portion will find themselves in a similar situation at some point in their careers. Kluxen and Comer approach the question from four angles: planning, process issues, communication, and the human element.

Planning

The very first step you should take when assigning the task of merging another accounts payable department with your own is to obtain an organization chart with contact names and telephone numbers. Kluxen and Comer developed an extensive interview checklist that they use when reviewing the operations which will be folded into their own organizations. You will need to do the same.

The checklist includes accounting, check processing, invoices, vendor files, year end, business systems, staff, and records. Every possible question and detail should be covered. "You can’t ask stupid questions when acquiring another company," said Kluxen.

Once you’ve gotten the answers to all your questions, you will be able to develop a task list. You will also need to investigate any interdependencies for matters such as general ledger, payroll, bank accounts, and centralized processing groups.

Process Issues

Once you’ve got all of your information together, there are certain procedures that will need to be investigated closely. These may require special handling to ensure a smooth integration. They include:

• Vendor files. You will need to decide whether or not to merge the two vendor files or simply add new vendors as needed. If the acquired company is in the same line of business, you may have many of the same vendors, making a merge unnecessary.
• Invoice history of the old system. Most companies find it both desirable and useful to retain this information. How this data will be incorporated into the new system will need careful investigation.
• Duplicate payments. Many firms have procedures for uncovering payments that have already been made. Investigate how this is being handled at the target company and compare its procedures with your own process to make any necessary adjustments.
• 1099s. This necessary but annoying task will not go away. By making sure at the time of the merger or acquisition that you have done everything needed to produce 1099s at year end, you will save yourself a nightmare.
• Record retention. This is an easy area to gloss over, but inadequate attention to this issue can come back to haunt you. "Make sure and ask, ‘how is it filed,’" advises Comer. She relates the tale of an acquired company that filed paid invoices by G/L code. Temporary help had to be hired to refile all information by vendor. This is a perfect example of there being no question too stupid to ask.

• Identify unique processes. No two accounts payable departments are exactly the same. Nor do all handle exactly the same tasks. Kluxen relates a case where the accounts payable department was responsible for ordering business cards for directors. Why? Who knows? But when a director called down with an order, saying "not my job" was not an acceptable response. Do your best to identify any oddball tasks handled in the accounts payable department of any company your firm acquires.

Communication

The integration of two departments is never easy. How information is shared between the two groups can make the difference between a smooth transition and a rocky one. Kluxen and Comer strongly recommend that the following be provided to each department of the acquired institution two weeks prior to the system conversion:

• A general memo describing the differences between the existing procedures and new procedures.
• A cross-reference listing of the most frequently used G/L accounts.
• A cross-reference listing of departmental cost centers.
• Current accounts payable procedures, including a system check request and 1099 policies and procedures.
• Current T&E procedures, including T&E form, travel agency information, and T&E system procedures.
• A list on centralized invoice processing, such as telecommunication invoices to one group, facilities invoices to one group, etc.

It is also important to communicate with all affected vendors. The speakers suggest that this might be an excellent time to not only clean up the vendor file but to update it as well. You certainly wont have the time once the departments are merged.

Perhaps the most important, yet often overlooked, group that needs to be updated when a merger takes place is the staff. The speakers suggest sending a letter to the "new" employees, highlighting the conversion and centralized areas. Despite your best intentions, be mindful that only half those receiving your communication will actually read it. Do not be surprised if you are asked questions at a later date that were explained in detail in your missive. Include an invoice-processing package with your letter.

The most effective way to communicate with those employees who will now be working for you is to set up training sessions. The speakers report that this is the most effective way to transmit information. It will also give you the opportunity to get to know those who will be joining your staff.

The Human Side

Kluxen describes this as the toughest part of any merger, and recommends being honest with all affected personnel. The speakers suggest that you begin by estimating your incremental staffing needs. They advise giving yourself some breathing room and not cutting things too close to the edge. This, of course, assumes that you will have some say in the eventual size of your staff—which we all know is not always the case.

Once you have a schedule that both you and management can live with, identify all affected staff. As early as possible, contact you human resources department for any and all guidance it can offer—you will need it. People, whether they are invited to stay or are part of the group that will no longer be employed, will be under a lot of stress and may not always behave in the professional manner one normally expects from business associates, so show a little tolerance. Kluxen recommends letting old procedures run for the first month if that is at all possible. After that adjustment period, begin to insist the new procedures be used.

The speakers recommend setting a realistic schedule of work-through dates and communicating them to the staff. Kluxen also suggests analyzing severance packages. Serious consideration should be given to offering "pay to stay" bonuses, even if only for a short period. If you have to hire temporary help to get you through the rough period, it will be expensive, and the amount of time needed to train temps can be enormous in comparison to the amount of time they will actually work for you. Better to spend this money on those who already know the job and have proven they can do it in the most efficient manner.

"Facing the Inevitable: How to Merge With Another A/P Dept." © 1997 Institute of Management and Administration, Inc. For subscription information call (212) 244-0360 or send e-mail to SUBSERVE@IOMA.COM