This article is republished with the express written permission of (TAPN) The Accounts Payable Network.

 

Accounts payable (AP) professionals know that discovering more efficient ways to handle invoices is a major goal, and achieving it is never simple.

For most organizations, a successful three-way match process is fundamental to making accurate payments. The three documents that must be examined are the invoice, the purchase order (PO) and the receiving document. While mistakes can occur on any of the documents, the receiving document is often the weakest link in the chain, because at many companies, the department marks the packing slip as ‘received’ without actually verifying the contents of the shipment.

 

Proven practices for invoice handling

1. Beware paying from copies – One of the most common causes of fraudulent and duplicate payments is payments made against copies of invoices. Consider paying from a copy only if it has been approved at a high level, and a thorough review of the documents has been conducted. Another common control used when paying from copies is searching the master vendor file to ensure that no previous payment was made. Search for both the invoice number and the dollar amount.
   
   
2. Request that vendors send all invoices directly to AP –It may seem logical from a vendor’s perspective to send a bill to the person who placed the order. In reality it makes more sense to send bills directly to AP, thereby avoiding a delay in payment.
   
   
3. All items sent for payment should be coded – All invoices should include a valid general ledger code. This is usually the responsibility of the purchasing department, an accountant or the employee requesting the purchase.
   
   
4. Enter invoices individually – Invoices should be entered separately rather than grouped by vendor into one voucher. Grouping by vendor makes it difficult to locate and answer questions about individual invoices. (This is different than an invoice with multiple line items, which should also be entered as one invoice.)
   
   
5. Notify vendors to explain adjustments – If the amount shown on the invoice is not the amount being paid, send an adjustment letter or other form of communication to the vendor explaining the discrepancy.
   
   
6. Assign responsibility for vendors alphabetically – Assigning AP employees complete responsibility for one section of the vendor database is a simple way to keep track of duties.
   
   
7. Work closely with vendors – An important, but often overlooked, aspect of the process is good communication with your vendors. Begin at the start of the relationship: when requesting a W-9, also explain the policies and procedures your shop follows and how the vendor can communicate with you effectively. When there is a question about an invoice, picking up the phone is sometimes the best way to resolve it.
   
   
8. Negative assurance – Also called assumed receipt, negative assurance means that an e-mail is sent to the purchaser confirming the order. The e-mail informs the purchaser that the invoice has been received and that if the e-mail is not responded to within a certain number of days, the invoice will be paid.

 

The two-way match

Evaluated Receipt Settlement (ERS) environments (typically found only in manufacturing) eliminate the need for an invoice, thus creating a two-way match. If the PO is completed properly and the receiving document likewise is completed properly and checked closely against the goods received, the payment can be released upon matching these two documents.

 

Technological advantage

The following practices can help streamline the invoice handling process:

1. Going paperless – Converting invoices, POs and receiving documents to electronic form allows customers to view the documents online in one to three days, rather than the two weeks it takes when using a paper-based system.
   
   
2. Procurement cards (p-cards) – All purchases made using a p-card are paid from a statement issued by the card company and approved by the purchaser. No invoice is involved in these transactions. A p-card can eliminate most small-dollar invoices, which could comprise 60 to 80 percent of all invoices received.
   
   
3. Automated clearing house (ACH) debits – Based on prearranged terms, when an order is shipped, the purchaser’s bank account is directly debited for the amount owed. Thus, no invoice is necessary. As with check disbursement, ACH disbursements must include controls to protect against fraud. To avoid fraud and duplicate payments, all of these approaches require solid controls to be in place. Aside from ERS, p-cards and the conversion to electronic documents, electronic data interchange (EDI) and imaging are two additional technological advances that can help AP streamline the payment process.
   
   
4. EDI – EDI is defined by the National Automated Clearing House Association (NACHA) as the application-to-application exchange of business information in a standard format. (Two common forms of EDI are ACH and e-mail.) Because of the extensive technological requirements and value added network (VAN) charges, EDI has been primarily beneficial to larger companies, but benefits can include time and cost savings due to fewer errors.
   
   
5. Imaging –Before implementing an imaging system, make certain it will work for your unique situation. Because AP receives invoices in a variety of sizes, colors and shapes, you may have difficulty using scanners. Monitors should be large enough for the AP staff to be able to accurately interpret the image. Network capacity and available storage are other points which should be considered. Any imaging vendor will offer a host of reasons why imaging will save you time and money, but make sure it is a worthwhile investment for your accounts payable environment. Look for OCR scanning capability – this technology can eliminate keying.

 

The Accounts Payable Network © 2009. Republished with permission. Further distribution prohibited. For infonnation about The Accounts Payable Network, visit www.tapn.com.

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