There are various ways a company can implement an Accounts Payable (A/P) program utilizing internal or external resources. Just keep in mind that the process will evolve. The approach you establish to process 100 invoices/month will not be the same approach you establish to manage 1,000 invoices/month.
Following are three Best Practices that should be part of any program you implement, regardless of the size, to manage this activity. Note, if the A/P process is not managed properly, the expense to correct deficiencies can be very high. Best Practices include —
Establish Policies and Procedures –Document the entire A/P process. This step ensures consistency in processing, i.e. everyone needs to work within the same established guidelines. Clearly outline an exception process and a problem resolution process. Caution – Do not let the exception become the rule.
Provide Vendors with your payment policy (abridged version) with payment dates, so as to set expectations of when payment will be made. For example – “All invoices should be forwarded to the area ordering services for validation and approval. Invoices will be processed twice a month, based on the date of receipt…”
Invoice Processing – Maintain a database of all preferred vendors, with complete information. This information should include a valid W-9, current executed Purchase Order, and invoice identification information (invoice#, amount, and date). Track the cumulative expense. If it is large enough, you should be able to negotiate preferential pricing with the service provider.
Approved invoices should be processed in one central location, if possible. Payment requests should fall into one of two separate groups, i.e. leases with a set amount paid monthly or quarterly as identified in a contract, or invoices with variable amounts.
Audit – Audit the process annually to understand if the documented policies and procedures are being followed. It is also at this time that the process should be reviewed to potentially improve it.
There are pain points internal to the A/P department and pain points external to the A/P department, which include:
Internal Pain Points – Recurring Payments associated with contracts – Proper management of this area, will avoid over payments to terminated contracts and missed payments to new vendors. Any situation that can disrupt the A/P department’s flow should be eliminated.
External Pain Points – Multiple Offices – if your organization is composed of multiple offices around the country, another area of concern is ensuring those branches forward bills to the A/P department on time, to avoid the creation of out of cycle payments.
What is your experience?