Accounts Payable Department: Making the Most of It (Part III)

Oct 13, 2016 | Accounts Payable Management

This article is the third in a series of three, under the title "Getting the most out of the Accounts Payable Department", deals with the basic concepts that influence the productivity of Accounts Payable departments:

  1. In the first article in the series, we spoke about the cost of the Accounts Payable process
  2. in the second we dealt with the Improvements derived from Automation and the Error Rate
  3. and in this, the third and final one, we will look at Fraud and Duplicate payments, Financial controls and Provider Satisfaction.

Fraud and Duplicate payments

Fraud is on the rise. In a recent survey conducted in the United States, nearly 36% of companies identified signs of check forgery, 48% higher than the same question asked in a survey conducted two years earlier. The incidence of this type of fraud appears correlated with the size of the company, however, even small companies are vulnerable to this problem. A high incidence of fraud is often the direct result of a lack of process controls. Proactive management of the vendor master file can often be a good initial control point. Maintaining a file with a large number of suppliers, compared to the number maintained by similar companies, can indicate the potential incidence of fraud. Benchmark data suggests that companies with fewer than 1,000 employees should have fewer than 20,000 suppliers on file. A supplier file containing more than 50,000 records should be closely scrutinized.

For example, if the number of identified duplicate payments represents more than 0.5% of all invoices, it can be an indication of the lack of controls or an out of control provider master file. Benchmark Results have shown that duplicate payments represent a major problem for companies with fewer than 250 employees.

Financial controls

This is an area in which studies and surveys have, increasingly, a forward-looking point of view as the requirements of companies evolve rapidly applying more and more stringent methods. The use of documented policies and procedures include practices associated with the separation of duties, role-based security, supplier discounts, custody of cheques, the frequency of remittances, authorization levels, the limiting of amounts for multiple signatories, registration of transaction level, etc.

Provider Satisfaction

The best companies are concerned with and monitor the satisfaction of its providers in various ways. A number of companies use self-service portals that allow providers to check the progress in the processing of their invoices, have a realistic forecast of the payment date to feed its treasury, and get answers to questions. This capability is still very effective in reducing the number of telephone calls from providers to customers.

In a recent survey, over 34% of companies indicated that the resolution of discrepancies in provider invoices is the activity that has had most impact on provider satisfaction.

Accounts payable Department in companies

Companies gain significant benefits in their Accounts Payable process by comparing their performance or productivity with that of other companies.For this reason the results of surveys and specialized studies of Accounts Payable functions are important. The benefits of these initiatives include, for example, reducing process costs, identification of deficient processes, increasing efficiency, strengthening financial controls, and adherence to regulations. In addition, companies that practice benchmarking of their Accounts Payable, are in a stronger position to improve its working capital management, reduce risk, and reduce financing costs.

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