Smarter Payments e-Report Edition 9
Top Tips For Best-in-class AP
Over the past 5 years or so, even the smallest accounts payable operations have taken steps towards automating and updating their processes in order to make them more efficient. Many larger organisations have adopted these changes on a large scale. All this is in the quest for best-in-class AP. New technologies, like electronic invoicing and payment portals, have done much to enable these changes, allowing AP professionals to play a much more strategic role and to focus on more value-added activities rather than just the necessary daily processes.
A recent APN survey of senior Accounts Payable influencers and decision makers found that 74 % of respondents had the goal of becoming a best practice AP department. This is not really a surprising figure. However, according to the survey, the reality in most organisations is somewhat different.
Increasing efficiencies, reducing costs and implementing new technology came out as the top three challenges in the survey – and therefore the top three focus points – for AP in 2010. However, while some 59% respondents to the survey said that they scanned in their invoices, 53% were able to accept e-invoices, and 45% used electronic approval workflow for invoices – indicating some movement towards best-in-class AP – only 24% were able to take advantage of early settlement discounts, only 33% captured weekly KPIs and only 22% operated a P-card scheme. All three are key ways of increasing efficiencies and reducing costs as well as monitoring and managing the performance of the AP team. Lack of time and reduced resources were the predominant reasons given for why many AP teams are still not operating at a best-in-class level.
To establish best-in-class AP, organisations should begin with an audit to review the current AP way of working. Truly best-in-class AP teams review this every 6 months to take account of any changes. Best-in-class AP teams also have a clear set of metrics against which to measure their performance. These might typically include:
- Number of invoices processed per day per operator
- Average cost to process an invoice
- Exception invoices as a percentage
- Percentage of erroneous or duplicate payments
- Average time to approve an invoice R to P
- Percentage of discounts captured
- Percentage of electronic invoices
- Percentage of credit notes
- Worst performing suppliers
- Percentage of non-compliant invoices
Best-in-class can often seem daunting, especially in these cash-strapped and resource-poor times. However, just focusing on 2 or 3 key activities before moving onto the next, can have a major impact on the performance of the AP department. Too often, companies try to fix everything at once.
Top best-in-class activities include setting up processes and systems to:
- Ensure invoices are accurate and legitimate and then pay them on a predetermined schedule
- Minimise handling and expense in AP paperwork processes
- Oversee rigorous new account opening procedures
- Implement approval authorisation limits
- Automate the reconciliation process
- Restrict data input to the Master Supplier File to one person
- Automate a 3-way match for invoices to avoid a long paper trail
- Include payment for travel and entertainment expenses along with the monthly salary
- Ensure staffs are trained and up to date with current procedures (many providers offer free webinars).
At a strategic level, best-in-class companies will ensure they:
- Proactively manage the AP process to support cash flow objectives, ensuring cash is paid out at a rate equal to or slower than the collection rate.
- Make the most of technology such as optical character recognition (OCR) and workflow systems, to digitise invoice documents and help to reduce errors associated with manual invoice processing.
- Deploy industry-leading software to detect duplicate payments, fraud and other AP errors. This can be a net time and cost saver by picking up errors the company’s ERM system misses, thereby avoiding time-consuming, expensive and often unsuccessful tracking after the event. Often savings run into tens of thousands of pounds.
- Make the most of strategic supplier relationships to negotiate the best payment terms, and minimise the number of suppliers overall to decrease the AP workload and risk of payment errors.
- Establish systematic anti-fraud controls that focus on both prevention and detection, as criminals have learned to penetrate AP systems and make illegal transactions in recent years. *
Weak or non-existent internal controls put your company at risk of fraud and duplicate payments. An inefficient AP organisation also costs more to run. Plus, putting in place many of the systems and processes described above should free up AP staff to do more challenging work than just inputting data – this can only benefit the business in the long run.
Once the right processes have been put in place, it is crucial that they are constantly reviewed to ensure that they remain best in class. Again, measurement is key here, allowing the AP Manager to maintain and increase control. Best practice should be continually evolving to allow for changes elsewhere in the company and in financial practice, as well as to take advantage of changes in technology.
*The recently updated Duplicate Supplier Finder module in FISCAL Technologies’ AP Forensics® suite now provides a wide range of enhancements designed to protect organisations against supplier fraud.
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