improving ap processes - institute of finance and …€¦ · · 2017-07-10invoices go directly...

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 9/9/2016

Improving AP Processes

without Automation

Pam Miller

Senior Trainer : : IOFM

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 2 9/9/2016

The “Paperless Office”

• Coined by George E. Pake, Xerox Corp’s Palo Alto

Research Center in a “Business week” article in 1975

– Predicted that in 20 years – in 1995 – he would

have a TV terminal and keyboard on his desk and

that he didn’t “know how much

hard copy” he would want in that

world


The answer = “Quite a lot”

• Forrester Research says that every day one BILLION

copies are made

• The Paperless Project says that 45% of the paper

printed in offices is trashed by the end of the day and

• That the average office worker uses

10,000 sheets of paper every day

• Gartner says that the average

company’s growth rate in terms of

paper produced is 25%


So, you are not alone • If your Mondays look like this


Because… • AP has always been a paper intensive business

– Invoices

– POs

– Receiving documents

– Proofs of delivery

– Checks

– Remittances

– Exception documentation

• And, let’s face it, a data entry intensive business


Automated systems focus on these issues

– paper and data entry • EDI

• e-invoicing

• ACH

• Other electronic payments

• Automated T&E processing

• Imaging

• Automated workflow

• But, not everyone can implement these systems


And even if we are willing

• Our organizations may not be (due to financial

or other constraints)

• And many of our vendors are not willing, or not

able

– Automation of back office

functions is not high on the

to-do list at many organizations


The truth of the matter is… • Even with implementing all of these systems the

paper never really goes away completely

– For heavens sake, some folks still print out

e-mail!

– People LIKE paper!

• So what can we do to lighten

the paper load now, today?

• And streamline the entire

process to boot?


Let’s begin at the beginning – incoming • Insist that all invoices are sent to AP first

– Instruct vendors to send all invoices directly to

AP no matter what

– Train the mail room that all

invoices go directly to AP

regardless of to whom they

are addressed

• Require PO#, BU#, buyer’s name, or some other

identifying information on all invoices

– So you know where they go/whose they are


Sounds counterintuitive…

• How can AP eliminate paper if we insist we get

ALL of it?

• Eliminating paper is not the only goal – we want

to streamline the entire AP process

• And that means limiting exceptions,

lost invoices, vendor calls

• So we need to gain control of the

invoices – all of them


Eliminate some Postal Mail • Many vendors can send invoices

as .PDF attachments to e-mail

– It’s good for vendors – no

envelope stuffing or postage

• But – remember to go generic so invoices do not go

directly to a staffer who is out for the day, week, or who

has even left the organization

• [email protected]

• It’s good for AP – the invoices arrive, envelopes do not

need to be opened, invoices extracted, and unfolded

mailto:[email protected]


BUT • A .PDF is just a picture, it’s not data

• There are solutions available that can

– Convert the data to a text file

or excel

• Talk to IT about it

– They may already be using such a solution

– Or be aware of one that is available now that

they know you need it


Eliminate even more Postal Mail • Consider asking vendors (especially those who send lots &

lots of small dollar invoices) for excel or text files

– Ask for a specific format or modify the format you get so

that you can upload invoices directly

into your system

• And that old standby the fax

(not dead BTW)

– It already has a date and time stamp on it

• Date and time stamp

– Ammunition for discount push back

– Or defense of AP when approvers make payments late


Prevent problems from the outset

• Receive one vendor’s invoices

one way only!

– Different formats can have

different invoice number formats

– Be especially careful

mid-conversion

– Duplicates…

• Provide vendor number from your system to vendors

and require that it appear on invoices

– Helps prevent paying the wrong vendor


The invoice is here, now what?

• Time to pay the bills

– While that sounds simple enough, those of us in AP

know that it is anything but simple

• First, there are many types of invoices

– And different types of invoices often

require different processing methods

– Some require a match process

• Often a three way

– Some an approval process

• Which means the invoices may need to leave AP


Easy??? • And many different invoice formats

– Sometimes we have hunt for the

bits of information we need to process them!

• And then there are the exceptions

– the less than perfect invoices that arrive in AP

that require additional or “special” handling

• Why does it seem that the pickiest of

vendors – those who want to be paid

right now – are the ones who can’t

manage to send a correct invoice on

time and to the right place?


Keeping those invoices in AP • Invoices that do not arrive in AP or that must be sent out

for various steps in the process can cause problems

• They do not ever come back

• They do not come back on time

• Vendors call wanting payment

• AP staff spends time answering phone

calls, investigating, hunting, nagging

• And AP ends up with a not too pleasant rep

• So let’s see if we can find more ways to complete them

without them leaving AP


Matching • Attack problem PO & receiving

documents at the source

– Get to know purchasing

& receiving staff

• Feed them…..

• Use a variance – do not chase small differences

• Treat different invoices differently in this process

– Low dollar, routine, recurring

• Consider allowing a 2 way match for some invoices

instead of a 3 way match


& Approvals • Treat different invoices differently in this process

– Low dollar, routine, recurring

• Eliminate unnecessary approvals

– A PO = approval

– Establish dollar limits

– Consider certain types of invoices or vendors

• Utilities like electricity, gas, & water

• How many approvers REALLY

look at what they are approving?

– AP probably inspects the invoice

more closely than most approvers


Approvals, continued • Negative assurance or assumed receipt

– Send e-mail with .PDF of invoice to approver

– Indicate drop dead date when it will be paid

with or without approval

– Then pay it on that date –

no news is good news

• Consider no approvals – well, really,

approvals after the fact

– Via reporting – your system probably produces a report of

invoices entered, when they will be paid and/or when they

were paid – sorted by cost center


Coding • Can AP code some invoices?

• In reality despite the size of the chart of accounts invoices are

coded to a limited number of accounts

• We understand coding

• We see (right & wrong) coding on a daily basis

• Just because the owner of the expense does the coding

doesn’t mean it’s correct

– How many times have

you made corrections

because someone kept

changing their mind?


Invoice control is only the beginning • Now we have to get them into the system

• Invoice numbers are the key to ensuring we do not enter

(and pay) an invoice twice

• But not all invoices have invoice numbers

• And just because an invoice has a number on it doesn’t

mean that the number will be entered into the system

correctly/consistently

• Here, inconsistency is a

disgrace (voids my favourite

quote ever…)


Entering invoices with invoice numbers

• Define rules for entering invoice numbers

– Caps or no caps – does your

system distinguish?

• If so you need to specify what

is proper usage

• What about punctuation?

• Leading zeros?

• Create a style guide or cheat sheet

• Insist that everyone use it EVERY time

– And check periodically to be sure that they do


Invoices without invoice numbers • Studies show that 40% of invoices do not have invoice

numbers!

– Phone and other utility bills

– Service provider invoices

– Internally generated invoices

• Create a numbering system for invoices without

numbers

– Keep it simple so people can remember how it

works

– Remember that the numbers must be UNIQUE

• Just the date is not enough


Invoices without invoice numbers (cont’d.)

• That style guide or cheat sheet needs to address

number formats for invoices without numbers

– As many variations as everyone can think of

• Review and update periodically

• Ensure everyone has the SAME guide

• Insist that everyone use it EVERY

time for EVERY invoice without

a number

– And check periodically to be sure

that they do


Internally generated invoices • You have more control over these than over vendor

invoices – make it easy on yourself!

• Check requests, tax payments, customer refunds, etc.

• Forms – historically paper

• Move to some sort of electronic form

– A web form that can be filled out

– A .PDF document that can be filled out

– A (locked down) spreadsheet that can be filled out

• All available on a shared drive, the intranet, SharePoint...

• All configured so that the data filled in can be extracted and

imported into your accounting system


Internally generated invoices (cont’d.) • Numbering system – they need numbers just like invoices

– Paper forms – pre-number, or use a log of some sort • Or create a number based on origination point, date, vendor

– Electronic forms – generate a sequential number

• Include this concept as you design the form

• Determine proper approval signature requirements

– And for electronic forms what is good enough?

• Based on computer id?

• Based on computer log in?

• Some sort of electronic signature?

• Insist on backup

– Refuse to process without valid backup

– Provide ability to upload scanned backup


Resolving “Orphan” invoices • e-invoicing systems can be configured to reject

invoices that are incomplete or contain invalid

information

• You could emulate them and simply

return them to the vendor

– Or at least contact them via phone

or e-mail

– Opportunity to educate the vendor as to what to

include on the invoice to prevent delays in future


Or take advantage of AP power • And try to resolve in house

– AP staffers see the same invoices over and over

– The system contains a wealth of information

• Look at what is billed

– Keep a list of which buyer buys what

– Send it to Purchasing for help (another

training opportunity)

• Consider using a “suspense” account

so invoice can be entered (and perhaps paid)

– But this requires someone reconcile & clear

the account periodically


All well & good, but

• Can we eliminate some invoices altogether?

• Yes, we can

• Let’s focus on small dollar invoices

• Many invoices are small dollar –

prove it to yourself

• And they can take as much time to

process as the large dollar ones

• Or more – sometimes it seems like the little ones are

the ones with all the problems


Consider… • These are great candidates for billing via spreadsheet

• Consolidate payments

• Allow some (small) payments to be paid via expense

reports

– With proper documentation!

• Consider using petty cash

– With proper documentation!

• Purchasing cards – they were

designed to handle small dollar invoices

– And they do it very, very well


P-cards • Yes, there are cons, but there are many pros

• They provide real process savings

– The invoices never even show up in AP!

• Rebates may be available

• They come with are a technology

tool that card issuers will customize

– Add cost center to every card

– Cross reference your GL codes

to MCCs

– Upload transactions into system


Data entry • Eliminate it whenever possible

• We’ve already talked several

ways to upload

• Electronic invoicing for just a few biggest vendors can

significantly decrease the need

• Can you link systems so some data can be pre-

populated?

• Talk to IT – that’s another department worth making

friends with

– Feed them…..


Data entry – when you must… • Keep it simple

• Standardize, standardize, standardize

• Use standard formats

– Not just for invoice numbers – for all fields

• Use drop down boxes

• And pick lists

• Avoid the mouse

• Use “hot” keys

• Review what has been entered for

errors/reasonableness!


Handling exceptions • Prevention really is worth a pound of cure

• Remember to cultivate purchasing & receiving

• Track problem vendors

– Teach vendors how to do business with you

• Educate and re-educate as necessary

• Use variances/tolerances

– Avoid spending more labour dollars investigating and

fixing discrepancies than their value

– Review periodically to ensure they are at the correct level

– But track them, at least informally


Handling exceptions (cont’d.) • Use cheat sheets

– Information AP can use to

resolve repetitive errors

• Freight issues

• Sales tax issues

• Different terms for different

remits

• Or create a WIKI

– Or some sort of shared repository of problem

solving knowledge

– And forms/form letters


Handling invoice adjustments • They are inevitable

• Pay the invoice

– Provide clarity on remittance

document

– Enter a separate inclusion or

deduction document

• If you are paying more or less

than the invoice, tell the vendor what

you are doing and why

– Decreases the number of vendor calls


Handling rush payment requests • Communicate the schedule

– Including cut-off times

• Regularly review payment run frequency

– Balance frequency against number

of rush payment requests

– Which costs more? An additional run each

week or stopping everything to handle each

and every rush request?

• Say NO

– Assuming upper management has your back

• Require extra approvals

– From the toughest executive in the building


Rush payment requests, cont’d.

• Charge for it

– Experiment until you find the proper fee

amount to discourage frivolous requests

– I charged $125

– Ben at PG&E charges $250!

• Explore alternatives

– ACH, p-card, calling the vendor

• Keep track of abusers


Preventing duplicate payments • Remember, accept invoices from vendors in one

format only

– And be sure everyone understands which format

each vendor should use

• Establish rules for paying from copies

– And define what a copy is!

• Remember, it’s important to create rules

& a style guide for entering all data

– Invoices with numbers

– Invoices without numbers


Preventing duplicate payments (cont’d.)

• Account for multiple remit addresses – If system allows it – one vendor with

multiple remits

• Decrease number of check requests

– P-cards

• Do not pay from statements – Or if you do, ensure that invoices from

statement vendors are not entered

• Flag vendors paid by p-card, wire, upload, etc.

– Pay vendors by one method only – “@”



• Consider adding a separate PO box for p-card, EDI,

(statement) etc. vendors

– Assuming your mail room can maintain

the separation

• Watch system uploads

– Look for errors & incomplete files

– Take care when fixing these – just

uploading the file again could cause a problem

• Use system reporting but add more – Demand (!) a report that lists invoice numbers, amounts,

and dates across the entire vendor population


Preventing duplicate payments (cont’d.) • The root cause of many duplicate payments

is duplicate vendors in the master vendor file

• AP should own the vendor file

– Or be close friends with whoever owns it

• Develop a style guide for entering

vendor information, too

– Not just the vendor name –

remittance and address information

as well

– Establish rules around acceptable

abbreviations and punctuation

• Keep it clean – deactivate or purge on an ongoing basis



• Review data entered into the system

• Resolve exceptions promptly

• Do not stretch payments

• Be aware of when errors are likely to happen

– End of year

– System implementation or

Change (think upgrades)

– Divestitures, acquisitions, mergers

• Do a recovery audit periodically to recover funds

and look for weaknesses in your processes


Track effectiveness • Working monthly statements pays off

– Eliminate all but those with amounts in 90 day

box

– Investigate invoices showing as unpaid

– Investigate “on account” amounts

– Take open credits or request checks

• Run credit aging reports

– Determine what a reasonable balance is

– Investigate vendors outside of those parameters


Start here • Do you run reports that no one

reviews? Or rarely?

• Do you need to know things that

available reports do not show you?

• Does anyone ever say that you do something or do

it in a certain way because “that’s the way we have

always done it?”

• Are there things you always throw to the bottom of

the in basket or keep pushing to the bottom of the

to-do list?


Don’t neglect the payment side • Move to ACH

– Even switching a few vendors to ACH

eliminates a great deal of labour in printing

and stuffing checks -- & paper!

– And costs substantially less than paying via check as well

Consider using pressure-seal checks – no more stuffing!

• Put a p-card in AP

– Many invoices say right on them that they take cards

– How about one in Fixed Assets, too?

– Pay all 1099-able vendors on the p-card & eliminate 1099

reporting


Questions:

Contact Info: Pam Miller: [email protected] or [email protected]



improving ap processes - institute of finance and …€¦ · · 2017-07-10invoices go directly...

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