Even a small scale business is likely to make a large amount of purchases during the course of a month or year, and there are definite advantages to ensuring you have an efficient, slick accounts payable (AP) system, both in terms of the tech needed and the process involved in the way you organize things.
Various pitfalls can cause AP problems for your business:
1. Inappropriate system
Whether you do your AP manually or use automation, it’s vital that your set up is up to the task and includes facilities that can speed up the process and provide security. For example, if you generate paper checks then using secure tamper-proof laser-printed voucher checks can efficiently capture invoice payments and minimize fraud.
Your tech may no longer be up to the task if you’ve grown as a company and process more invoices; it’s a false economy to persevere with outmoded systems, so consider an upgrade.
2. Human error
Keying in data manually can be rife with errors, no matter how careful people are. Incorrect data entry can cause issues with overpayment or underpayment with the attendant problems that can bring.
It’s time-consuming and something that can harm your reputation and relationship with suppliers if payment amounts are wrong leaving you with the hassle of correcting them.
A good purchase order system can automate much of the AP process – vastly reducing human error risks and the possible health issues of larger-scale repetitive data entry work.
3. Time-consuming invoice processing
An invoice may need approval from one or more people before it’s passed for payment.
If this process takes too long then issues with creditors can arise if they’re waiting beyond the agreed time frame for payment, and it may end up costing your business more. For example, perhaps there’s a reduction if invoices are settled by a certain time or perhaps you’ve negotiated that type of arrangement with your supplier.
If you miss the payment deadline and don’t qualify for the reduction then over time these missed deadlines could mount up financially.
4. Inefficient payment system
Paying invoices late is obviously a huge shortcoming in a business and can cost you money, harm relations with suppliers and may impair your credit terms with them if they remove certain facilities or privileges due to late payments.
Errors such as duplicate payments can also cause financial issues and sour relations with suppliers, so it’s vital to have an efficient payment system that can ensure prompt invoice processing and payment.
5. Fraud
AP is an area where fraud can be rife, so you need to be aware of the possibilities in your business.
A favorite ruse is in invoice fraud: someone sends a bogus invoice or poses as one of your genuine suppliers and tries to slip a fictional invoice in for payment that may get wrongly paid. This may be a precursor to fraudsters checking to ascertain if they can ‘get away with it’ prior to their trying this ruse on a more regular or larger scale.
A slack password regime – such as allowing too many different people higher-level access to your payments system – can cause security vulnerabilities. Also, fraud methods constantly evolve so ensuring staff are up to date with the latest techniques can sometimes be neglected with possibly disastrous consequences.
Ongoing security and fraud training for staff involved with AP and other accounting is important.