After payroll, the largest disbursement of a firm’s funds typically comes from Accounts Payable.
Accounts Payable is often the largest single cost in the accounting function and not having a proper account payables management could make the customers of the company loose trust that can generate a bad impact on the company. Therefore a sound accounts payable personnel with adept knowledge is essential.
Common issues/errors
Data Entry Errors
Data entry errors can occur on any invoice field and account for most of the errors in accounts payable. Data entry errors average 1.6%, a very large amount not readily measurable in most accounting departments
Matching Errors
Matching of invoices to purchase orders and receipts is complex and prone to errors business rules for matching are frequently documented or followed by clerical staff
Duplicate or Incorrect Invoices
Vendors frequently generate duplicate invoices when an invoice has not been paid in a timely manner
Improper Account Coding
Account coding is judgmental and rules for coding are not well documented or otherwise established in most companies; this may lead to inconsistent coding across departments or manipulation for budgetary or other purposes
“Disappearing” Invoices and Unapproved Invoices
Invoices that come directly from the vendor to a business unit manager or location other than accounting tend to get delayed (sometimes on purpose) or lost due to the many opportunities for paper to get lost unapproved invoices (not yet received by accounting) are not known to accounting and therefore company liabilities are not truly known or reflected on the balance sheet
Lack Of Well-Defined and Documented PO-Receipt-Invoice Matching Business Rules
In most companies, matching business rules are not documented in writing or in complete detail and accounting systems are incapable of matching rules, automatically using all necessary forcing accounts payable staff to apply rules manually
Excessive Use of PO-Receipt-Invoice Matching Tolerances
Many accounts payable departments use matching tolerances to reduce the effort to resolve unmatched items, but are often set too loosely (to reduce effort), allowing dollars to be lost
Broad Discretion of Application of PO-Receipt-Invoice Matching and Approval Level Business Rules by Accounts Payable
Apply rules manually and generally have broad discretion on how to apply business rules; few companies audit rules compliance
Approval of New Vendors or Update of Key Vendor Information
Careful controls should be placed on who can approve the establishment or revision of vendors to prevent fraud
Financial Management Does Not Know the True Picture of Outstanding Company Liabilities
Many invoices are in managers in boxes or remote locations at any point in time financial management has no way of knowing the dollar value and due dates of these invoices
Managers Keep Invoices in their In Boxes too Long or Misplace them
Managers inadvertently or deliberately (to avoid costs hitting their cost center) do not approve or reject invoices on a timely basis or lose them; financial management has no way of knowing the dollar value and due dates of these invoices this also leads to poor credit from vendors, late charges or inability to take advantage of discounts
Difficult to Find Invoices and Checks after Processing and Document Storage is Expensive Paper
Documents are difficult to locate after accounts payable processing due to filling errors and are expensive to store and locate. Many companies store the invoice, a copy of the check and purchase order together for ease of retrieval, but this is extremely expensive.
Managing account payables is a tough task for many companies and needs skilled labor along with specialized training activities. Outsourcing the accounts payable activities to an outsourcing service providers can come to the rescue. These outsourcing service providers not only have skilled manpower but also the experience to manage the accounts payable activities of a company. Apart from the savings it gives better customer satisfaction by making payments on time, maintain records better by using latest technologies, calculate complex operations and be clear of any delays.
