8 Accounts Payable Invoice Processing Best Practices

8 Accounts Payable Invoice Processing Best Practices

In May 1954, Sir Roger Bannister became the first man to run a mile, a distance of 1600 meters, in a time of under 4 minutes. Many had tried earlier and failed. It was, then, considered the ultimate athletic achievement, one that could not be repeated. But, guess what, just one generation later, in the eighties, British athletes Steve Ovett and Sebastian Coe were going head to head and already running the mile at under 3 minutes 50 seconds.The current record is 3 minutes 43 seconds or thereabouts, a full 17 seconds shaved off a time once considered impossible. In just two generations.

Take pole vault. Sergey Nazarovych Bubka, who represented the Soviet and Ukrainian, erupted on the international stage in the eighties. In 1983, with a vault of 5.85 meters, he marginally bettered the 5.83 meters mark of Thierry Vigneron of France. Over the next decade, he loomed large on the event and bettered the mark several times, finally finishing with 6.14 meters in 1994. It seemed that Bubka had no peer and that the mark would stay forever. And indeed it did, for 20 long years, when Renaud Lavillenie of France bettered it with a vault of 6.16 meters. Thereafter, the world has witnessed the arrival of Armand Duplantis on the stage, another giant in the sport, who has already bettered it several times and taken it to 6.19 meters. And he is still active.

What does this have to do with accounts payable or invoice processing?

The common link is continuous improvement. Business is not immune to this facet of human endeavor.

Just like flowing water seeks the lowest ground, business always seeks value. Better rates, increased sales, efficient processing, lower costs are different elements it keeps working on in order to move towards its overarching goal of returning a profit to its owners, while competition, choices, regulation and other elements might present challenges in that journey.

Whether in accounts payable invoice processing best practices implementation or elsewhere in the business, it is an ongoing journey for each company, and one which needs attention every moment and every day. The day it stops trying to get better, its slide towards obsolescence will inevitably kick in.

Led by a team with over 20 years of industry experience, oWorkers is constantly challenging the status quo and pushing boundaries in order to deliver the best value to its clients.

 

Best practice implementation

Implementation of best practices in business is an essential step and process that tries to keep it getting better all the time and operating at its most optimum level.

It is essential but not enough.

What does that mean?

What it means is the implementation of best practices is an essential and basic minimum requirement. A company that ignores best practices that stare it in the face, unless there are good reasons for doing so, is courting trouble.

How does one get hold of the best practices to implement?

While it is a good question, the answer is open ended; it cannot be defined by a limited set of situations or circumstances. It can come from anywhere. An aware and connected set of business people should know where to look for best practices. A few places where you could start looking for accounts payable invoice processing best practices:

  • If a competitor is doing exceedingly well, it may be worthwhile developing an understanding of its processes, some of which could emerge as best practices.
  • If within a company, different units have different performance levels for the same practice, learning from each other could create a source for best practices.
  • Repetitive or recurrent issues like delays, penalties, disqualification, could be pointers to processes that are broken. It could initiate the process of looking for best practices.
  • Improvement initiatives have become a commonly used term now in industry. Even if you don’t know for sure that improvement is possible, you strive for it knowing that a small difference can mean a huge gain for the company. Many different methodologies have evolved that help companies structure the execution of these initiatives, such as Kaizen, Six Sigma, DMAIC and several others. These initiatives can result in best practices emerging.

oWorkers has implemented the model of an independent team of Quality Analysts (QAs), which in itself could be called a best practice. It is an independent team that reports directly to the senior management. In a way, it serves as their eyes and ears on the operations floors and enables them to intervene if the situation requires. The QAs also monitor the delivery team and ensure that poor quality is identified and corrected before it becomes visible to a client. This team also identifies areas for improvement and supports and leads improvement initiatives.

 

Accounts payable invoice processing best practices

Invoice processing is a critical business activity that is done in each and every organization that has something to offer and sell, which really means all. Though processes and applications used are likely to vary from one company to another, as a result of repeated execution of an activity, companies do learn what works and what does not. This results in the establishment of best practices that enable efficiency enhancement and optimum use of resources. The following section will discuss several such accounts payable invoice processing best practices.

Prioritize payments based on terms

There is a tendency in some companies to follow a First In First Out (FIFO) policy and maintain a clean desk in others. This results in invoices being processed as they come in. While these are good practices to follow, in case of processing of invoices, these could prove to be financially hurtful to your company.

How is that?

Most payment arrangements between companies include a credit period. What that means is that the payment does not need to be made immediately. If you are making payment immediately, you are needlessly letting go of your cash that could be put to other productive uses in the interim. In a worst-case scenario, it could even just sit in the account and earn some interest, or reduce the amount of overdraft interest.

Hence, payment prioritization based on the terms is a good practice.

With access to the most suitable manpower, on account of its position as a preferred employer in the community, oWorkers is able to further train its staff to execute sensitive jobs such as payment prioritization.

Payment terms are best standardized

A B2B contract is unique. The terms of the contract are negotiated and agreed between the two contracting parties. The accounts payable team then has to track the payment based on the terms agreed. The greater the variety in payment terms agreed upon, the greater will be the requirement of understanding each unique set of conditions, and the greater the probability of misunderstanding and misinterpretation.

Accounts payable invoice processing best practices require companies to follow a practice of a standardized set of payment terms. This enables easier tracking by accounts payable and substantially reduces the chance of errors. Even if errors in interpretation are made, it will serve as a learning experience for future similar issues. If terms keep varying, the chance of error will stay high.

Should there be a need for additional resources at short notice, oWorkers is the partner all companies want to have, with their ability to produce an additional hundred resources within 48 hours, an impossible task for most other providers.

Run a list of checks to identify duplicate payments

Even in automated invoice processing systems, the possibility of duplicate payments cannot be eliminated. Once made and identified subsequently, it would then depend on the vendor and the payer’s relationship with the vendor to recover the money.

But why reach that stage?

Through repetitive processing of invoices, it is often possible to identify the weak points in the process which could result in such an eventuality. It is also often possible to consolidate such areas and run a set of reports, or exception reports, to identify possible ‘at risk’ payments, which could then be scrutinized additionally. These could be run on a daily or weekly frequency based on the processes of the company.

oWorkers offers secure facilities and systems that are built around its ISO certifications (27001:2013 & 9001:2015) for payment processes to be conducted. The company is also GDPR compliant.

Accounts payable invoice processing best practices recommend establishing a Purchase Order process

Many companies have a process of issuing a Purchase Order (PO) to a vendor as an authorization for them to supply the material or service. A PO process usually entails a thorough pre-processing of the transaction in advance, including approval for purchase and spending the money that it will cost. A PO gets created in the invoice processing system and stays as an ‘open’ item until the corresponding invoice has been received.

Since most/ all of the approvals have been obtained at the time of issuance of the PO, the processing at the time the invoice gets presented is swifter. Besides, if there is no PO ‘open’ when an invoice is presented, it could also act as a safeguard against duplicate payments.

With access to the latest technologies thanks to its deep relationships with technology companies, oWorkers can switch between systems with ease. For companies open to it, oWorkers offers cutting-edge invoice processing services.

Create a measurement system

“What can’t be measured can’t be managed,” say many management gurus. Indeed, most professionally managed companies have taken this on board and make an effort to create metrics for every material activity along with a transparent system of measurement, so that the data collected is beyond dispute and means the same thing to everyone.

There is really no reason to leave the invoice processing system out of the ambit of measurement. Suitable Key Performance Indicators (KPIs) need to be developed that are applicable to the unit as well as the people working in it, so that performance can be measured and they know whether they are doing a good job or not. Some recommended measures for the unit are:

  • Payment accuracy
  • Duplicate payment made number
  • Days payable outstanding
  • Number (and %) of invoices paid late/ that incurred a penalty
  • Number of cases of disputed payments

Their reliable and transparent measurement systems allows oWorkers the flexibility of offering a choice between different pricing options to clients, something they love. Most even speak of saving almost 80% of ore-outsourcing cost when they outsource invoice processing to oWorkers.

Establish a dual control mechanism

This is actually management 101. And what better department to implement this system of control than Accounts Payable. Dealing with the cash resources of the company, and having the authority to spend them, makes it a sensitive area. The same person writing a check and signing it and passing the accounting entries and reviewing reports for exceptions can create havoc.

Dual control becomes an important method of control. In very basic terms, in a dual control system, one crook cannot inflict financial damage on the company. It will require at least two people acting in concert to be able to do so. A related control is for the approval authority to be vested at a suitably senior level, or approval levels based on the amount. In a check-based system, the processing clerk would have the check leaves but not the signing authority. The senior person would have the signing authority but no access to the check leaves.

It becomes an even more potent control system considering oWorkers offers services in 22 languages. Whatever the language of the invoice, oWorkers will process it for you.

Leverage technology

In the age we live in, there is really no excuse for using the marvels of digital technology we have at our disposal. Having said that, invoice processing is perhaps one of the very few areas that is still not fully automated, as the starting point is based on a document that is received from a vendor who generates it from a different system or even manually.

However, barring the initial creation of the document’s identity of the application, the remaining steps can still be handled digitally. Apart from the obvious benefit of efficient processing, automation can help remove errors that can be made in manual processing, especially where the processing is repeated and recurring. Additionally, as payment systems are mostly digital now, it can result in a straight-through payment instead of a separate payment process being created. Even record-keeping is becoming digital.

As a pure-play data based BPO player, the niche where it has been identified as one of the three best providers in the world, oWorkers provides access to the latest in invoice processing technology for companies who may not be able to invest in them.

Frequent reconciliation

Frequent reconciliation, especially if processes are manual, and reviewing exception reports, where processes are automated, is an important part of accounts payable invoice processing best practices.

It will help early identification of mismatches and issues, aiding resolution and recovery. The frequency, ideally should be daily, but could be adjusted based on the organization’s requirements.

As a 24×7 operation, reconciliations can be done any time of day or night.

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