It’s 11 am….do you know where your checks are? If you are the Chief Executive at American Apparel, Dov Charney, the answer is ‘my living room’.
American Apparel has had its fair share of difficulties since its founding in 1998. However, as the company scrambled to pay their vendors this last spring, there was one major frustration – they could not find the checks.
The issue began when Charney started signing all of the company’s checks – hundreds a month – from his Los Angeles mansion. The checks were delivered to Charney’s house by assistants, where they would then sit for weeks before finding their way to the Accounts Payable department.
This system implemented by Charney offers a clear explanation as to why this retailer found itself in such a difficult financial state, and ultimately why Charney will lose his position. American Apparel is a fantastic example of a business that launched quickly, only to fall flat due to lack of formal processes and air-tight controls.
In 2013, Charney had turned his attention to cost cutting. After personally reviewing the company’s invoices, he discovered that some vendors were being paid twice. In the wake of these discoveries, about half a dozen financial employees either left or were laid off – including the Vice President of Finance and the Controller. American Apparel’s cash had dropped about $8 million from the year prior.
How Document Management Can Help:
American Apparel has several major issues with their Accounts Payable processes that could be easily addressed with the proper document management/AP automation solution. For American Apparel to improve its current processes, they must address their:
- Lack of visibility
- Lack of process
- Need to reduce costs
- Need to improve efficiency/turnaround
An AP automation solution will easily address all of these needs. By scanning invoices and automating AP processes, American Apparel can gain valuable insight into their invoices, including detailed audit trails and advanced reporting. With the proper AP automation software, American Apparel would know exactly where each invoice is regardless of its place in the AP pipeline. Additionally, automation can reduce labor costs, increase turn-around, and provide the proper restrictions and securities to maintain a best-in-class process.