Invoice Processing in Accounts Payable:
Start the Year Strong Mary S. Schaeffer
Accounts Payable Now & Tomorrow
Agenda
O Background: Invoice Processing
O Best Practice Processing P2P
O Reality
O Step by Step
O Potential Problems
O Fixing broken controls
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Background of the Control
Issue in Invoice Processing
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Overview
O Start with the basic issue in accounts
payable
O Processing Invoices
O Control is all in the details
O Not a big picture issue
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When the details are ignored O Duplicate payments
O Other erroneous payments
O Charges the vendor was supposed to pay
O Fraud easier to commit
O Inaccurate accruals
O Inaccurate financial and accounting records
O Remember: Your employees know where the
weaknesses in your system are
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Keep in Mind
O Many of the problems eliminated by
automation
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Dissecting the Invoice Handling Process:
How the Process Should Work
When The Invoice Arrives
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The Ideal World: Part 1
O Invoice arrives in accounts payable
O Invoice is sent out for approval (or approvals
done online)
O Approval comes back promptly
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The Ideal World: Part 2
O The three-way match is completed
O No discrepancies
O Invoice is scheduled for payment
or
O If there are discrepancies
O Discrepancies resolved before payment date
O Invoice scheduled for payment
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The Ideal World: Part 3
O Payment is made on the due date
O Note: Late payments create additional
problems
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A Word about Late Payments
O The Where’s My Money Calls
O The Second invoices
O Frayed vendor relationships
O The duplicate payment
O The honest mistake that leads to fraud
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Dissecting the Invoice Handling Process:
The Reality
When The Invoice Arrives
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Receipt of Invoice: Some Problems
O The floating invoice
O The invoice addressed to no one
O The invoice sent to the wrong person
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Invoice Receipt
O Ideally centralized – one location
O One postal address
O One email address
O One fax number
O Used only for invoices
O Semi secluded spot – avoid tempting others e-
fax facility
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If Invoices Sent to Purchasers First
O Possible approval delays
O Increase the chance of getting a second invoice
O More work for AP
O More he said, she said games
O E-Invoicing ends these problems – especially if
automatic escalations are included
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Invoice Processing
O Standardized process
O Naming convention - rigid
O Some go as far to standardize the way the
desks are set up
O Probably the best control against duplicate
payments
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The Accounts Payable Policy and Procedures Manual
O Written
O Detailed
O No detail too small
O Updated regularly
O Reviewed annually if no updates
O Shared with everyone who might need t
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The Policy and Procedures Manual
O Reference Guide for existing processors
O Important for those once-a-year tasks
O Training Guide for new processors
O Relevant Excerpts shared
O Cut-off schedules
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Invoice Number Control
O “Our system won’t allow us to enter
duplicate invoice numbers”
O Doesn’t provide the control you might think
O Don’t rely on it – exclusively
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Invoice Numbers
O Pay close attention to
O Almost as important as dollar amount
O If invoice processing is automated, this is
not an issue
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Invoices without Invoice Numbers
O Create a standardized routine that will create a unique invoice number
O Never use TINs as part of it
O Using the date can be problematic – except perhaps for phone bills
O New Best Practice: Return it with a polite letter
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Invoices w/o PO #
O Invoices without PO # or name of
requistioner
O Make PO# or name of requisitioner a
requirement
O Return with polite letter “in order to get
vendors paid in a timely manner”
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Disputed Invoices
O Identified
O Tracked
O Monitored for status
O Keep track of who is responsible for resolving
O Age the disputed invoices
O Who’s got the oldest invoice
O Report to management
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When Disputed Invoices Are Ignored
O They don’t get handled in a timely manner
O AP’s reputation takes a hit
O Avoid the black hole reputation
O These invoices often get paid twice
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Disputed Invoices: Reports
O Sort by processor, purchaser, vendor, locale, etc.
O Identify problems
O People
O Processes
O Vendors
O Evaluate
O Train and retrain
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Invoices Arriving at the Last Minute: Part 1
O More a problem in a manual set up
O Rush payment request
O Full backup???
O Sometime missing
O Often requests for return to requisitioners
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Invoices Arriving at the Last Minute: Part 2
O Returning checks to requisitioners and Rush
payments – leading cause of duplicate
payments and potential fraud
O Poor practices
O Is the three-way match completed?
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Invoices Arriving at the Last Minute: Part 3
Best Practices
O Never return check to requisitioner
O Find ways to minimize these transactions
O Make payments by ACH rather than check
O Insist on full backup
O Either at the time the request is made or
O Within the next few days
O Extinguish PO and open receiver
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What if There’s No Backup
O Process the payment
O Follow up and get backup afterwards
O Don’t forget, extinguish PO and receiver
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New Issue: Invoices Sent Twice
O Invoices e-mailed or faxed
O Vendor wants to make sure it was received
O Sends by snail mail
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Dealing with Duplicates
O Identify vendors likely to send twice
O Ask them not to
O Develop an ACT (Always Check Thoroughly)
list
O Automate invoice processing
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Payments
O Efficient payment process translates
O Early pay discounts earned
O Avoid late fees
O Schedule payments so paid on time – not early
O Ideally – one payment vehicle per vendor
O Use best vehicle
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Best Practice Mission Statement for AP
O Pay the right amount, to the right vendor at the right
time
O Lowes Home Improvement
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How Invoice Automation Helps
O Human keying errors eliminated
O No processor playing games
O Faster processing
O Invoices sent for approval automatically
O Clear audit trail and hence
O Faster approvals
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Questions/Comments
Share your thoughts and insights with
Mary Schaeffer by writing her at
Sign up for her free weekly ezine at
www.ap-now.com/ezinesignup.html
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About Mary Schaeffer Editorial Director & Publisher CRYSTALLUS, Inc. publisher Accounts Payable Now & Tomorrow newsletter
• Editor-at-Large CFO Publishing’s Learning Pro: AP Edition
• Nationally recognized accounts payable expert and consultant
• Frequent speaker at seminars, conferences and online events
• Regular contributor to the AICPA’s Corporate Finance Insider
• Creator of Institute of Financial Operations Accounts Payable Innovation Certificate program
• Writes a free weekly e-zine, e-AP News
• Author 16 business books including the Do-It-Yourself Accounts Payable Consultant
• M.B.A. Finance, NYU
• B.S. Math, York College
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