A few weeks ago John Kogan posted for discussion on Linked-In 10 Best Practices for Accounts Payable.
John with an experienced CFO track record is someone who shares practical tips as part of his business. Especially if you are in business or responsible for any of the CFO functions. I recommend a look at what he has to say.
This got me thinking about how we pay our providers, so I took a look and found we waste a lot of time in process and have poor practices with potential to de-motivate, or even lose, our service providers who we rely on in our delivery capability.
I also found things like taking early discounts, returns great value with little or no effort. And improvements in approval processes can also let us see better where we waste money on things we don’t need.
It is all too easy for an AP processes with poor tracking processes to get it all wrong and pay more than we should or worse, pay twice. For example when there are issues on untracked invoices they can get lost in a too hard basket somewhere And then as people change jobs things go wrong. Gaps in systems and delays also open up opportunity for error and fraud. Vendors too learn very quickly how to walk their invoices thru an organization. So as copy invoices are sought to be processed, in the meantime the original may have also been cleared.
And as emailed PDF versions are now best practice originality checking is even more important. And remember not everyone is supply chain integrated and has fully automated processes.
Using John Kogan’s example, which have I pr?cised here, I suggest you examine your accounts payable process, as he says are in no particular order.
1. Always pay from original invoices or double check copies.
2. Before paying ensure tax info is correct. Fines can hurt
3. Have a policy on how invoice numbers are entered E.g if there isn’t a number.
4. The person entering should be different from the person approving or signing the check.
5. Have all invoices first logged by accounting before sending out the approval(s) black hole.
6. Don’t batch enter. Do it individually so you have an audit trail.
7. All invoices to have the account coding on them and any notes about special handling.
8. Enter the billed amount then issue credit memo to provide an audit trail.
9. Send a new vendor welcome letter and include where to send invoices, and other info needed etc. Vendors appreciate this and will ensure their payments aren’t held up.
10. Watch to take advantage of discounts offered by vendors. It can add up to a nice sum.
Getting linked with customer based supplier systems sees many providers hook their systems directly into the customer system and send invoices that way too. But for most in business, especially the small ones everywhere and also in some very large ones in Australia and Asia that I know, and where over 60% of global supply comes from, the process is still largely people based process dependant. Mind you Asia is not backward and is highly wired.
To add to the ebb and flow of the discussion, subscription messages on my in-box set it blinking today with discussion updates and a bunch of great comments. You can see then if you are a member of the SuperCFO group.
It is a great discussion. but as many reading here will not have access, I have pr?cised some of the discussion below along with authors links so you can communicate with them directly. I have also added some of my own responses which you can also challenge or add to what’s there.
Click more so see these conversations
Mary Schaeffer
Publisher & Editorial Director Accounts Payable Now & Tomorrow
Mary has a fantastic blog devoted to the subject as part of her business
I believe the ‘only pay from an original invoice’ requirement no longer holds water. The reason is simple. Given the advances in technology today, it is possible to have many, many invoices that look like an original….. see Mary’s blog for more
Mary I may be a little old fashioned but I cannot accept that the original invoice concept is no longer valid especially with automated systems.
Taking your point about look alike versions, companies must be even more aware of this to be sure they only pay once. For this they need to find a way to be clear they can only process one original once. (tautology is intentional ) .
Carl Nordman
Financial Services Executive Founder InnoVenture Group, Inc.
As an Associate Partner at IBM Carl Nordman recently presented IBM CFO Study 2010 findings at CFO.com
Any company of any size and volume in payables would not be pursuing best practices around a largely “manual process” as suggested by those practices.
Carl this thinking is fine for software based best, but beware of the salesman who is giving you this advice and about what is best. Best practice is about what works not what others say is good. The majority of companies, not those in the 800 pound gorilla class (love that metaphor Mary Schaeffer… thanks) including many large and small business that have processes that can break. Hence manual process thinking is still very relevant and for my money it is even more important when the process is automated as it should do the same. Good luck with your new business
Alan Abels
Chief Financial Officer Geodis a European Group
Point number one is even more critical in today’s electronic age. I have allowed my department’s to pay from a copy, but each A/P clerk has a stamp “Researched for Prior Payment” that is stamped on each non original with their initials. I have found through audits so many duplicate payments when not paying from originals. Don’t always count on the vendor to tell you that you paid twice. They may keep the payment in unapplied cash, but they will hold on to the cash.
Akin this reinforces the issue so well and to try to ensure duplicates are not double paid. It reminds me of the grocer shop principle. The story goes something like this:
The delivery boy forgot to write down the name of the customer. The shop owner, not wanting to lose money, billed all his customers, knowing full well the customer would paid. He never did find out who it was but he made so much money when only 2 out of 10 complained and all the rest just paid.
Patricia Uhlman
Business owner / Consultant Clocktower Financial
There should be a best practice for A/P accruals at period end. It is important to get amounts entered into the system, especially for large, material purchases, even if the invoice has not yet been entered into the system.
Patricia, This is so spot on and I love the point. If we started with tracking from commitment stage once the PO is issued the AP issues and overall financial management would be best practice by default. I would drop something from the top 10 list to get this in.
Iain Bacon
Senior finance Executive
I recommend that you look at systems which scan purchase invoices and use Optical Character Recognition (OCR) to extract the data from them.
Talk about leaving the sales door open Ian, someone will jump in on that one for sure with a solution. with cheques planned to be phased out in the UK in the next few years I am sure you will be an expert more so than some of out US and us Aussies
I notice too you are also getting peer level consulting questions from Angie Lim CFO, Asia Pacific at Jones Lang LaSalle a connection in Asia.
Jon Zalinski
Business process consultant Consultant at Mountain Scanners and Owner TreadZ
Jon uses a video to also makes the point well. This also plugs his client’s product “FileBound AP” which I am sure they are pleased about. If you watch you can see document Scan and OCR are key aspect in the matching process that ensures this.
Here is his video http://www.mountain-scanners.com/node/14 Good luck on the sales Jon.
About John Kogan
CEO at Proformative a US based company He lives and works in the /San Francisco bay area.
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