Why Accounts Payable Best Practices Matter

    It costs big to ignore basic practices in the accounts payable department. It performs a crucial role within a company.

    • The AP Department guarantees that each supplier is thoroughly screened prior to onboarding as a governing entity in the supplier sourcing process, protecting the organization from the risk of fraud, fines, audits, and investigations.
    • After establishing a supplier connection, it continues to safeguard the company's financial interests by assuring prompt invoice processing, verifying those payments are fulfilled according to agreed-upon terms, and providing excellent customer service.
    • It acts as the final checkpoint before a payment is made to a vendor. After paying money to a supplier, the odds of reclaiming it later owing to an unintended data entry error or employee or supplier fraud are extremely slim. To reduce the chances of this happening, the appropriate approval workflows, signatory permissions, and protocols must be set ahead of time.
    • The integrity of the supplier masters file is also supported by AP during the Procure to Pay (P2P) process, as well as the integrity of the financial transaction during the financial close or Record to Report (R2R) phase.

    It is critical that all organizations examine their accounts payable function and implement as many best practices as possible throughout the cycle. Every responsible professional in the AP department should be familiar with the best practices, given the current business environment, growing regulatory challenges, and the greater visibility and relevance of the accounts payable function.

    Here's what could go wrong if an organization does not follow accounts payable best practices.

    1. The organization would end up paying many invoices twice:
    2. Payment of duplicate invoices is one of the costliest expenses for accounts payable departments. They aren't always the consequence of fraudulent vendor invoices, though. If there has been a payment delay, a vendor may re-submit an invoice. If there are any loopholes in the AP department's PO and invoice matching procedure, these bills will occasionally be paid twice.

    3. The organization would be hit with more fraud:
    4. External fraud happens with vendors choose to fraudulently submit multiple invoices. Internal fraud happens when an employee involved in invoice processing obtains a legal vendor invoice and diverts the payment to a separate bank account rather than making the payment to the vendor's bank account. To prevent discovery, the employee temporarily modifies the vendor's bank account details in their company's AP system before restoring the modifications.

    5. The organization would be paying high costs on accounts payable workflow:
    6. Accounts Payable is one of the work processes that wastes a lot of money and paper if best practices aren't followed, aside from the time wasted in the processes themselves. For regulating the consistency, accuracy, and efficiency of each step in the process from start to finish, a simplified AP workflow is critical.

    7. The organization could lose out on supplier goodwill
    8. Increasing payables should be a top priority when it comes to working capital efficiency. To be sure, many organizations use this method to maximize free cash flow by prolonging payables as long as feasible. Unfortunately, this is not always the best method. Delaying payment can diminish supplier goodwill in some situations, resulting in longer delivery times, a reduced willingness to correct problems, slower response times to inquiries, and more onerous payment terms.

    9. Expenses for the accounts payable function rise as a result of inefficient processes:
    10. This could take the shape of additional personnel, lost early payment discounts, or late fees. Also, errors by staff can lead to late fines or penalties, as well as liability and compliance difficulties for your firm.

      The truth is that organizations ignore accounts payable best practices at their peril, and the consequences can be seen in the bottom line. It's that simple - yet some companies continue to ignore the leakage that occurs as a result of inefficient or ineffective AP processes. Make sure you're not one of them! Learn how to empower your accounts payable department to prevent overpayments and fraud while also improving your team's work experience!

      Attend the seminar Accounts Payable Best Practices to learn more. The instructor Richard Cascarino is a regular speaker at National and International conferences and has presented courses throughout Africa, Europe, the Middle East, and the USA. Richard is a Past President of the Institute of Internal Auditors in South Africa and also a member of ISACA and the Association of Certified Fraud Examiners.