9 Lines of Defense to Protect and Modernize Your Accounts Payable Process
Think of your accounts payable department like a house: there’s tons of data (people) going in and out with several sources of input and points of entry (doors, windows, etc.). That’s a lot to keep track of.
You have a home security system with cameras and sensors because you invest in the comfort of knowing your home is protected. So if your home was at risk, you’d want to be alerted.
Your accounts payable process is no different… implementing checks and guardrails in your AP process can ensure threats and errors are brought to your attention and stopped in their tracks.
Common threats to accounts payable processes
There are three sources of errors that affect your AP accuracy:
System flaws
Data integrity issues
Human error
Making changes in your AP environment can open the door to unexpected consequences… even when you think you’re covering all your bases, these common changes can create risk:
Staff Reduction → Teams no longer have the bandwidth to handle current exception processes.
System Merge → Suppliers are paid twice because of vendor master issues or legacy data merge issues.
System Migration → Existing exception reports and processes have to be reviewed/reworked.
Payment Automation → Electronic data capture leads to incorrect invoice information and duplication.
AP Outsourcing → New controls are being used that may not be as robust and new users are being trained to handle the AP process.
Risk #1: System Flaws in Accounts Payable
Upgrading software and technology is a necessary step in maintaining your AP toolkit - but without proper configuration, errors can easily slip through.
Additionally, there may be many instances in which AP teams need to manually override a payment entry to change the amount or make a correction. But in such cases, manual overrides and workarounds will not automatically update data across your systems. If teams forget to make these adjustments or incorrectly enter the new amount, this can skew their system data and go undetected for an extended period of time.
Even the most finely-tuned ERP isn’t designed to catch all errors. Find out what you need to look out for in your ERP with our blog, “10 Common Errors in Your ERP System + How to Avoid Them” +
Risk #2: Data Integrity Issues in Accounts Payable
Accounts payable departments process and manage massive amounts of data, often manually - this is bound to open the door to data errors that slip through the cracks.
The overarching cause of data integrity errors begins with the upload of new information into an organization’s dataset. Errors can come from many sources:
Inputting the same vendor twice makes it even easier to accidentally create duplicate payments.
Many companies utilize software that automatically uploads new data to their system. But when this is the case, those automated uploads almost always go unchecked - leaving the door wide open for data errors to sit and multiply in your data set.
In the same vein, when data is coming from multiple input sources, it becomes challenging for ERPs to validate their accuracy and cross-check the data it’s receiving. Examples of data sources include:
Manual keying
Automated payments
File uploads
System integration
Like AP automation, optical character recognition (OCR) software is designed to streamline and speed up manual processes - in this case, data entry. However, again like AP automation, this software is fallible. OCR read errors occur when the software misreads characters or fails to read them at all. So when the data does go into your system, it’s incorrect from the start without another line of defense in place to catch those errors.
Risk #3: Human Errors in Accounts Payable
Human error is unpredictable and often unavoidable - and when processes rely on manual effort, these errors are only exacerbated and amplified. Additionally, AP teams are already overburdened and under-resourced - so when you add stressors such as high turnover and outsourced functions on top of that, it creates a perfect storm for human error.
In a typical accounts payable department, about 45%+/- of invoices are received manually with the rest coming through digitally. Multiple input sources and unclear ownership quickly lead to missed or late payments and accruals. Furthermore, multiple input sources might lead more than one AP operator to enter the same payment.
Even if each invoice is paid in a timely manner, it’s easy to accidentally type in an extra “0” or send in two payments for the same invoice. These moments of human oversight can lead to overpayments or duplicate payments, both of which often go unnoticed for years and pile up over time.
Unfortunately, human error can even come in the form of fraud. Both employees and third parties, such as suppliers, can commit fraud in an accounts payable department. When fraud represents a 5% loss on average to most businesses - which equates to $3.7 trillion globally - it’s not an issue to be taken lightly.
You can rely on your systems and data to catch some errant payments - but to account for human error, accounts payable monitoring is the most comprehensive solution to catch those mistakes.
Elevate your AP processes and ensure error-free payments. Explore our latest blog, “Prevent AP Errors at the Source: How to Action Root Cause Analysis” to discover common root causes and safeguard your payments against recurring errors. +
How are these errors typically monitored?
Controls are implemented to detect, prevent, and recover from payment errors. Standard controls include:
Approval workflow
Exception reporting
Teams and processes to review AP
System upgrades and patches
ERP configuration
3-way matching
Separation of responsibilities
Historical payment reviews with process improvement recommendations
AP automation
Learn how AP Assurance tools can reduce the risk of erroneous payments, the need for manual effort, AND the time taken to safeguard a new system throughout a migration +
Why you need AP assurance and 24/7 monitoring
AP assurance is a process that monitors AP activity in real time to ensure that controls are working. It’s accomplished by continuously updating controls, tools, and processes based on feedback from newly identified or recurring issues.
AP assurance leads to error prevention by…
Proactively identifying and correcting errors when they occur
Pinpointing root causes to improve controls and prevent future errors
Providing a consistent, centralized, and flexible framework for implementing rules to catch new types of errors
AP assurance and monitoring have many lasting benefits that extend beyond merely catching risky or malicious activity. It enhances your AP processes and teams with long-term solutions and improvements.
Accounts Payable Monitoring Benefit #1: Removes friction
Continuous monitoring removes the burden of checking in on the risks facing your AP function - instead, you’re alerted as they come in so you can act immediately and proactively. Proactive monitoring removes the friction for both accounts payable teams that engage in manual processes as well as the vendors on the receiving end of those payments.
Accounts Payable Monitoring Benefit #2: Alerts you + improves visibility
Similar to benefit #1, AP monitoring improves your overall visibility over your AP function. Having a greater understanding of your blind spots can help to build organizational awareness so you know what to look out for and how to react when you catch it. Even better than that, you can configure automation that is triggered or influenced by the results you see from AP monitoring, streamlining the reconciliation process altogether.
Accounts Payable Monitoring Benefit #3: Efficiency
When the AP team is no longer bogged down by a constant barrage of alerts and errors, you can cultivate a truly proactive accounts payable function. The time once devoured by manual processes and the reconciliation of errant payments will be freed up to enhance those processes, invest in the business, and fulfill the greater objectives of your AP department that stretch beyond the day-to-day of AP fire drills.
Post Audit
Errors are often discovered 2-3 years after the transaction
Post Audit reviews focus on recovering financial leakage
Identified historical root causes may be irrelevant today as things will have changed
AP Monitoring
✔ Instant notification of errors, close to or before payment
✔ Designed to prevent financial leakage
✔ Root cause feedback can be applied to current processes/tools to prevent future errors
How AP assurance and 24/7 monitoring works
A comprehensive security system is tailored to each individual risk that threatens a home. Sometimes that looks like an alarm, sometimes it looks like a physical barrier - to know what works best, you need a holistic view of the house and all its threats and risks.
AP automation is a great place to start, but it doesn’t catch everything - it’s meant to supplement an already healthy AP process but monitoring goes even further.
AP automation can streamline processes in a healthy AP department - but it can’t solve all of your existing challenges. Learn more about how you can make your AP automation software work for you with our most recent blog, “Why AP Automation Software Isn’t Enough” +
AP Monitoring Line of Defense #1: Accounts payable team
AP assurance is designed to remove friction from manual processes and free up the time of the AP team - but they’re still a critical component to the accounts payable function.
While AP assurance is not designed to replace the accounts payable team, it removes friction from the manual processes. By leveraging AP assurance, you gain the time and space to proactively investigate root causes of errors and work with other internal departments to streamline organization-wide workflows.
AP Monitoring Line of Defense #2: Duplicate checks
AP assurance checks can identify duplicate or erroneous payments before payment is issued. Duplicate payments often bypass checks, but AP assurance can detect payments that are about to go to the same supplier, have the same date, owe the same amount, and other variations of potential mistakes.
AP Monitoring Line of Defense #3: Dashboards + analytics
With AP assurance dashboards, you gain clarity and visibility into the AP department and its key metrics. Maintaining root cause feedback also illuminates patterns of repeating errors so that teams can address them accordingly.
AP Monitoring Line of Defense #4: Net 0 payment terms
When purchases are made with net 0 payment terms, teams have very little time to get that money out the door - and when teams don’t have the time or space to double-check those payments, that leaves room for oversight and errors.
With AP monitoring, you get another line of defense for those payments that have faster turnaround times - so even if you’re in a rush, you can rest assured that the right amount of money has been sent to your vendors.
AP Monitoring Line of Defense #6: Vendor settlements
In the event of a vendor settlement, AP monitoring alerts your AP team to any pricing or payment discrepancies so you can be confident that all transactions were properly closed out and recorded on the books.
AP Monitoring Line of Defense #7: Profit and loss coding
Payment errors in the accounts payable department can stretch beyond AP and seep into other financial sectors of the organization through financial documentation. Once those errors hit the books, they can snowball over time and create a disjointed view of the business’s true financial standing.
AP assurance can be used to flag incorrect profit and loss entries to prevent errors in financial reporting so that financial documents stay clean and accurate from one year to the next.
AP Monitoring Line of Defense #8: Legal requirements
A lasting benefit of AP assurance that extends beyond the day-to-day of an AP department is that it has the flexibility to address specific laws and regulations that affect the AP payment process, leading to reduced fees and fines over time. Continuously monitoring errant payments and other accounts payable functions helps you to stay ahead of regulatory violations and ensure they don’t occur in the first place.
AP Monitoring Line of Defense #9. Prevention - when can this work?
Perhaps the most unique benefit to AP assurance is that it doesn’t just catch errors - it stops them in their tracks. The philosophy behind prevention is that organizations should prevent all the errors they can and get alerted for the rest.
Feature highlight: Validity Checks
Your organization is unique, and keeping it protected requires more than a cookie-cutter approach. You know your company’s needs better than anyone else: that’s why with FlexTrap, you can keep track of the risks that are most pertinent to your organization with customizable validity checks that fortify your finances before a payment goes out the door.
Prevent and catch AP errors through monitoring
No matter how healthy your AP function is, it’s vulnerable in places that are out of your control. Prevention and monitoring provide guardrails that protect your AP function much like a security system.
FlexTrap is an AP assurance and payment integrity tool that equips businesses with unrivaled visibility into their processes so they can monitor, detect, and correct payment errors in real time.