Are You Underestimating The Total Impact Of P2P Risks?
July 18, 2019 by Ray Welsh
Duplicate payments – just a nuisance, right?
The knock-on effects from the seemingly small fraud, risk, inefficiencies and compliance issues compound to create costs that concern every level of the finance function.
And if your controls and processes can’t catch duplicate payments, they won’t stop more sinister threats, either. Duplicate payments are an indication that other threats may be passing unnoticed, leaving your organisation open to other risks, including fraud.
These unchecked risks result in financial loss, a reduction in the organisation’s available working capital, and reputational risk.
Are You Still Relying on Traditional Controls?
The Procure-to-Pay (P2P) process is exposed to greater risk today than at any time in the past. Invoice processing automation increases processing speed, but at the cost of visibility.
These new technologies, coupled with reduced headcounts, mean that fewer people with accountancy training are reviewing transactions. Meanwhile, fraudsters are becoming increasingly sophisticated at exploiting this weakness.
The retrospective approach offered by 3-way matching and audits is ineffective at best; you cannot rely solely on traditional techniques to solve modern finance problems.
Calculating The Total Impact Of Risk
Most organisations consider the cost of paying duplicate invoices, some will also consider the cost of audits and recovery projects, but few organisations consider anything further. We’ve found the total impact includes:
- The Cost of Duplicate Payments
- Increased Cost of Processing Invoices
- Out-of-Reach Capital Reduces Funds For Growth
- Cost of Recovery
- Increased Cost of Procurement Fraud
- Strained Supplier Relationships Leads To Inflexibility
- Lost Early-Payment Discounts & Late-Payment Penalties
- Consequential Costs From Failure To Comply With Regulations
- Increased Disruption From Audits
- Damage to Team and Company Reputation
- Opportunity Cost of Lost Employee Time
- Operational Teams Are Demotivated, Uninspired And Underperforming
- Staff Turnover Increases
These issues reach beyond the Accounts Payable or P2P team, affecting all levels of the finance function and ultimately the profitability and competitiveness of the organisation itself.
We estimate the true cost to be 3-5x the value of the duplicate payments in a typical mid- to large-sized organisation.
If 0.1% of your invoices are duplicate, every £100M in supplier spending contains £100,000 of duplicate payments. Over three years, the total cost of P2P risks may reach £900,000 to £1.5 million.
Click here to get the full breakdown of our calculations in our new eBook, Six-Figure Threat: The True Cost Of Operational Finance Revealed.
The Answer: Proactive Controls Protection
To solve this problem, organisations must focus on implementing new processes and technologies to find and correct irregularities proactively, and crucially, before funds leave their account.
By taking a proactive approach, organisations identify the root cause and prevent the same issues from happening repeatedly.
This delivers significant, long-term reductions to the total cost of AP/P2P processing, as well as reducing the risk of procurement fraud, protecting the organisation against reputational damage, and releasing both capital and employee time to be reinvested into the business.
By changing the team’s approach to risk management with forensic analysis, artificial intelligence (AI) and robotic process automation (RPA), the finance department can seize the opportunity to become a business driver, bringing the function out of the back office by providing cross-silo insights to the benefit of all functions.
Download our new eBook, Six-Figure Threat: The True Cost of Operational Finance Risks Revealed, to Discover How Moving to a Preventative Strategy Can Pay For Itself Within 3-6 Months – And Then Deliver 5-10x ROI Over Three Years.