“It just pays my suppliers it is very simple”.
“Why should I look at AP – it works”
“If it is not broken why fix it”
Those are some of the comments I hear when I start conversations with clients about reviewing or enhancing their Accounts Payable process regarding process issues.
Standard Accounts Payable has not really changed since the implementation of MIRO and Logistics Invoice Verification. However there are a number of common mistake clients make that impact their business. Some clients are not really aware of the issue, as they throw resource at any issue and do not know how to deal with basic issues.
Before I review the types of issues it is best to quantify what the business impacts could be by having a poor accounts payable process.
- o Loss of early settlement cash discounts from suppliers
- o Suppliers being paid twice
- o Over inflated team of Accounts Payable clerks
- o Poor reporting for Vendor spend
- o Loss of vendor volume rebates
The list of business impact should be taken very seriously. Some of the issues that cause the business impacts are very easy to resolve and the potential benefits of resolving them very high.
Accounts Payable Issues
Vendor Master data: It is important to have a clear and concise master data process. Ideally the volume of vendors should be kept to a minimum. If you can purchase the same item from a number of suppliers it is best to agree the best vendor and ensure your whole organisation where applicable uses that supplier. This will enable your procurement team to negotiate better terms of payment, or even volume rebates as well as early cash discount. In turn having a small number of suppliers will reduce the volume of invoices you need to process as you will be buying in bulk and the suppliers could have many orders on a single invoice.
Purchase Order requestors: If any user in your organisation can request to purchase something the consistency of creating purchase orders will be affected. Some users might only be raising one or two purchase orders a year, and there is an overhead on training and data entry. The other key area of entering purchase orders is the coding of the order. If a user is not used to creating a purchase order there is a higher chance that the wrong GL account, cost center or even material is selected. This in turn will affect the approval of the purchase order as the wrong approver could be selected. This will impact the time to gain approval of the invoice or the purchase order, which in turn could see early settlement discount not being applied due to this delay. By selecting the wrong GL account and material, this will impact the reporting providing decision makers incorrect information to negotiate with suppliers.
Manual data entry: No matter the volume of invoices that you will process there will always be a relatively high volume of effort to enter, approve and pay a vendor invoice. Some of the issues noted above could reduce the volume of invoices and so in turn reduce the effort to process all supplier invoices. However where a supplier provides a paper invoice copy to you there is still some manual involvement. There are options to automate this by scanning invoices and the entry of the invoice into the system. The SAP recommended tool is by Open Text “Invoice Management”. For further information please review the following link
The benefits here are significant. This should enable your organisation to reduce the head count in the accounts payable team who are entering and approving invoices. This in turn will enable the invoices to be processed via a speedier process ensuring that where possible early cash settlement discount can be taken as well as better reporting.