However, identifying ways to reduce expenditure is difficult when over half of large or enterprise organisations admit to misdirecting payments or making duplicate payments to suppliers. This accounts for 0.3 percent of their spend on average being directed to the wrong supplier and causing untold difficulty in reclaiming these amounts.
Accounts Payable (AP) plays an important role in keeping an organisation profitable, growing and competitive. Depending on how a company manages its AP processes can have a major impact on not only its bottom line, but also its reputation and cashflow. However, this is no small feat – 24 percent of an AP team’s time is spent fixing invoice process and payment error and currently just 26.6 percent of supplier invoices are processed seamlessly.
So, given its importance to the finance department, and the current inefficiencies present, what are the benefits of AP best practices?
Cash retention and protection
Reducing the risk of payment error retains cash in the business, and also significantly reduces the time needed to administer credits and prepare financial reporting. AP staff can focus on their more valuable activities and increasing profitability of the organisation.
If AP is to achieve its goal of adding value to the organisation, team members could spend less time on liaising with suppliers to fix mistakes. With a proven, continuous, self-audit system in place, auditors have fewer reasons to conduct a detailed P2P audit, making audits less frequent, less intrusive, and less time-consuming for those involved.
The increase in paperless and automated accounts payable processes removes the step of manual checking and monitoring of transactions across the P2P process. However, without oversight and strong controls, this can also increase the risk of financial loss. Continuous, preventative analysis and monitoring of payments - independently from the ERP system – delivers greater control and reduces loss due to error and fraud.
Better staff morale
Demotivated teams work less efficiently, have higher turnover and are less effective at identifying problems. As accounts payable is a stepping-stone into finance, the AP team usually has a higher than average turnover. Technology advances have reduced the AP team’s role to largely being one of checking and reporting, so the job is not seen as engaging or having career prospects.
Lower processing costs
Low touch invoice processing should result in lower cost of AP resources and defines AP best practice. The ability to identifying risky vendors, ones with a high volume of credit notes (which may also be an indicator of fraud) quickly and prior to payment, reduces AP team workload and speeds up payment process.
Enhanced internal reputation
Fewer errors result in greater trust across the business, from procurement to AP, and the finance function and compliance team are aligned and able to focus on growth opportunities. Reducing silos between procurement and AP benefits both the organisation and supplier chain.
Improved financial governance
There is a proven correlation between a culture of good governance and profits. Lower capital costs, reduced wastage, corruption and mismanagement, and increased investor confidence means that it makes good business sense, often resulting in share price rises. There’s also a reduced risk of reputational damage for the business as a whole and the finance department specifically.
Secure supplier relationships
Late payments, unexpected requests for the return of money paid in error and unresponsiveness to enquiries all have a detrimental effect on a business’ relationship with their suppliers. This lack of goodwill means they will be less likely to be flexible when negotiating terms of business.
With only four percent of invoices requiring no additional attention before payment and a fifth of organisations having over 36 people following up on billing issues, it’s clear to see that there’s a need for better practices in the AP team. There are a whole host of benefits to best practice AP, but ultimately, implementing these steps will ensure the protection of cash.
Lesley Reeve is COO at Fiscal Technologies