Overcoming Everyday Challenges in the Accounts Payable Department
Life moves fast in an accounts payable department. Every single day is an influx of new invoices, statements, and payment data to take in, and that’s on top of the endless stream of queries. The volume can be massive and it’s challenging to stay on top of everything.
Teams are overwhelmed and overworked - and when they’re using manual processes and outdated technology, it certainly doesn’t help. The challenges they face are even harder to overcome when they don’t have the appropriate tools or processes in place.
What does a day in the life of an Accounts Payable Department look like?
Reviewing existing invoices
At any given time, there are massive volumes of invoices waiting to be processed and matched in an AP department. Even if they’re operating at an 80/20 level of electronically received invoices, that still leaves 20% of them on paper - and that’s a lot. Of those that must be manually entered, there’s always a backlog to sift through. Some of the information they must manually input into their system includes:
Vendor information, such as their name, address, and contact information
Invoice date
Purchase order number
Invoice number
Currency
And more
2. Verifying the accuracy of those invoices and resolving invoice discrepancies
After the invoices have been reviewed, the AP department must verify them against the original scope of work to ensure the accuracy of both the invoice and the payment they’re about to send out.
To do so, they compare the invoice against the Goods Received Report and make sure the quantity and value match up. If there is a mismatch on the invoice, such as price, quantity, tax, or any other inaccurate entries, then the invoice may need to be placed on hold. To remedy the error, the initial buyer or goods inwards department may need to get involved. All of this can add even more time onto the already tedious activity of paying the invoice.
3. Processing + scheduling payments for approved invoices and send to vendors
Once the invoice has been verified, it’s automatically approved to be posted to the ledger. It must then be matched to goods received, which is then matched to the purchase order to generate the payment value and quantity.
When managed diligently, the AP team can prevent payment errors by verifying the information and adhering to suppliers’ timelines before the payment goes out the door.
4. Managing internal + external relationships
Throughout their more tactical day-to-day duties, maintaining strong internal and external relationships must stay top-of-mind. AP teams do this by responding to inquiries from suppliers or other departments, ensuring payments are following agreement terms, and more.
Whenever there’s been a change to payment details, such as bank details, the payment address, or a handful of other factors, the vendor master file must be reviewed and updated. If any updates are not reflected in the vendor master file, information about vendor payments may be out of date or inaccurate, hurting AP health over time.
5. Reporting
The accounts payable department’s work isn’t truly complete until they’ve translated it into digestible, actionable reporting for the departments that will put it to use, such as accounting and procurement. This is crucial to make sure all number entries and payments are accurate, and that any outstanding payments or credits have been resolved.
There are many types of documents that must be created, verified, and distributed to their relevant parties as often as each month, including:
Travel + Expense reports
Payments to suppliers
Any payments for the organization - rent, utility, etc.
Vendor records
Legal/Statutory Obligations
Debit balance
Check out these tips for a better contract in the procurement process in our blog, "5 Tips for Better Contracts: How to Improve Contract Negotiation in the Procurement Process" +
Challenges in an AP Department
To put it delicately, a typical day in AP is a hectic one. It’s no wonder that errors can slip through the cracks, even for the most efficient and accurate AP teams. And when processes are highly manual or technology is even the slightest bit out-of-date, the chance of errors skyrockets.
What’s worse is that at the end of that tumultuous day, the AP department gets all of the blame for these errors. As the final line of defense against payment errors, the AP department is left responsible for catching and correcting them. And when they don’t, other departments see that as nothing more than lost revenue.
The REAL culprit for these errors almost never has anything to do with the AP team themselves – rather, it’s their tech and processes that create natural friction and lead to errors.
Accounts Payable Challenge #1: Manual Processes, Limited Resources, and Limited Manpower
An accounts payable department is a BUSY place - teams are bogged down by a constant influx of invoices and often barely have enough time or headcount to manage them. The management of those invoices takes up a drastic amount of time and effort, and the AP team is often moving so fast that they don’t have time to thoroughly check for errors or do historical reviews.
Part of this process includes posting credits to incorrect or dormant vendor accounts. These can be separated by stock and non-stock items:
For stock items, teams must chase for Goods Inwards to create a negative PO so they have somewhere they can allocate the credit. In these cases, Goods Inwards departments are typically reluctant to raise negative POs without performing a stock count.
For non-stock items, the AP team must track down GL codes to manually post the credit to the account.
Usually, neither of these are actually successful. But in a state of urgency, credits are inaccurately posted and end up incorrect on the ledger.
Enhance your AP processes with our recent blog, 9 Lines of Defense to Protect and Modernize Your Accounts Payable Process
Accounts Payable Challenge #2: Data Errors
Accounts payable teams collect, analyze, and send out vast amounts of data every day. With three-way matching, this process is automated…but not all teams have that luxury.
It’s easy for errors to slip through the cracks, especially when teams use manual coding rather than three-way matching - entering an extra zero, forgetting a decimal point, or any other minor mistake can end up costing them millions.
Not only do they consume a lot of time that AP departments could be using on more strategic initiatives - but they jeopardize the accuracy and legitimacy of financial records.
Some simple activities that lead to big errors include:
Uploading new information into a dataset
Manually inputting vendors / invoices
Automatic file uploads and payments
Invoice and purchase order matching
Did you know that, on average, 1 out of every 4 freight bills contains an error? Learn about common freight errors in our blog, 4 Common Freight Invoice Errors that Cause Overpayments +
Accounts Payable Challenge #3: Technology Errors
Technology like ERP systems and accounts payable automation is designed to save accounts payable teams time and streamline their processes - but they aren’t immune to errors. The slightest change or incompatibility in your technology can cause your tools to malfunction or become misconfigured, leading to payment errors that may fly past your radar.
Many ERPs can be difficult to customize exactly to your environment or may have other issues with integration. And even if everything is properly set up with your ERP, insufficient training for employees can lead to errors on their end. On top of that, technology can fail at any time - system glitches or software bugs can come out of nowhere and cause unexpected errors.
Perhaps the greatest oversight of ERP overall is that most ERPs just aren’t designed to catch many of the errors that most commonly plague AP departments. Variations, duplicate payments, and other simple errors fly past their radar all the time. These errors can result in delayed processing, incorrect data recording, and potential financial discrepancies.
No ERP is perfect. Find out which errors ERPs most commonly miss in our blog, 10 Common Errors in Your ERP System + How to Avoid Them +
Accounts Payable Challenge #4: Vendor Errors
Accounts payable teams can do everything in their power to ensure they’re doing everything right - but are their vendors?
Errors that vendors often make include:
Price
Quantity
Tax
Wrong Product
Freight cost
When vendors make these errors, invoices are placed into query and need resolution from the relevant internal or external department. The AP team is responsible for coordinating and correcting the issues. Adding additional pressure to their day to day routine.
Discover specific strategies to proactively manage your vendors, avoid costly errors, and ensure smooth engagements in our blog, “Prevent AP Errors at the Source: How to Action Root Cause Analysis” +
Accounts Payable Challenge #5: Statement Compliance and Reconciliations
It is common for companies to have a policy in place for vendors to submit monthly statements. The first challenge is ensuring compliance from all vendors. Most of the largest vendors comply, but it’s the non-compliance vendors often with the most fruit. Improving compliance is time and resource consuming for most AP Teams.
The second challenge is reconciliation. This is one of the most time and resource heavy jobs for the AP Team. If statements go unreconciled and vendor payments stop, this can have serious business implications.
How to Overcome AP Challenges
For an AP team, there’s almost never a slow day - but the right tools can mitigate the challenges presented by manual processes and human error. By freeing up their time with more efficient and effective technology and processes, the AP team gains back the time they need for business-critical activities.
AP Assurance
AP Assurance gives AP teams peace of mind with real-time alerts and monitoring of their processes to free up their time, resources, and allow them to focus on their most pressing tasks and responsibilities. There are two components to achieving AP Assurance: AP historical reviews and payment error prevention tools aka AP Assurance tools.
Reactive: AP Historical Reviews
By reviewing historical transactions and errors within your AP department, you can identify patterns and tailor your approach to your organization’s challenges. AP audits help organizations to recover profits that were lost through overpayments, duplicate payments, missed credits, or other errors that went undetected.
While the traditional method of looking back on past transactions is critical to AP health, there’s another piece to the puzzle. By monitoring current transactions as they occur, AP teams can reduce the volume of transactions and errors they’ll have to review when the time for an AP audit rolls around. That’s where AP assurance comes in.
Proactive: Payment Accuracy Tools
Payment accuracy tools (i.e. FlexTrap) enable a continuous, daily check of your AP health - allowing you to catch errors before they go out the door and ensure payment accuracy before cash leaves your pocket.
Payment accuracy tools may look different from one organization to another - teams must tailor what they monitor based on their priorities, technologies, and most common errors. A few components of AP Assurance that organizations might decide to monitor include:
Duplicate payments
Wrong vendor payments
Validity checks
Statement reconciliation
Currency checks
And more
With continuous monitoring of payment errors, teams can finally get proactive and stop chasing down tedious, repeating errors. They can actually get ahead of erroneous payments by stopping them at the source and analyzing their root causes. Not only does that help AP teams prevent errors - it helps them continuously improve, becoming more accurate and more efficient by the day.
The work in an accounts payable department is never really done. But the right tools and processes, aka AP assurance, can alleviate A LOT of the burden and prevent payment errors from slowing teams down.
Check to see if your organization is vulnerable to payment data accuracy risks in our Ultimate AP Assurance Checklist