After payroll, the largest disbursement of funds for a company is usually related to accounts payable. Accounts payable is often the biggest cost in the accounting function. However, it is often the least controlled process due to the highly manual and transaction intensive nature of the process. This study lists common accounts payable processing issues and errors found in most organizations.

Common problems / errors

Data entry errors

Data entry errors can occur in any field on the invoice and account for the majority of errors in accounts payable processing. According to a research report, data entry errors average 1.6% of all AP transactions. While the proportion may seem small, the absolute number of errors increases in companies with hundreds of AP transactions. This also increases the likelihood that the error will have a big impact on finances and disbursements! The other source of risk is that these errors are not easily measurable and / or visible in most accounting departments. This ‘hidden’ nature makes it difficult to develop rules or actions to reduce the impact of these errors.

Matching errors

Matching invoices to purchase orders and merchandise receipts / packing slips is complex and error prone as AP staff often do not document or follow business rules to match invoices. In most companies, the lack of sufficiently detailed documentation to match business rules makes it difficult to automate this process. This forces the accounts payable staff to apply the rules manually, increasing the possibility of errors.

Excessive use of PO-receipt-invoice matching tolerances

Many accounts payable departments use matching tolerances to reduce the effort of resolving mismatched items, but these tolerances are often set too loosely (to reduce effort), allowing you to lose dollars.

Duplicate or incorrect invoices

Suppliers often generate duplicate invoices when an invoice has not been paid in a timely manner. Most companies can only keep track of such invoices if the invoices are properly matched to the purchase orders.

Incorrect account encoding

Encryption of accounts is critical and the encryption rules are not well documented or otherwise established in most companies; this can lead to inconsistent coding between departments or manipulation for budgeting or other purposes. This inconsistency in coding can also make comparing trends for different expenses or income difficult or inaccurate.

Disappearing invoices and unapproved invoices

Invoices that come directly from the vendor to a business unit manager or a non-accounting location tend to be delayed (sometimes on purpose) or lost due to disorganized paperwork or filing systems, decentralized operations, and multiple checkpoints. contact for invoices. As a result, the accounting may not know the exact number of invoices and therefore the liabilities of the company may not actually be known or reflected on the balance sheet. This also leads to late fees and bad credit from providers.

Approval of new suppliers or update of key supplier information

Careful controls must be put in place over who can approve the establishment or review of providers to prevent fraud.

It is difficult to find invoices and checks after document processing and storage are expensive paper

Documents are difficult to locate after accounts payable processing due to filling errors and costly to store and locate. Many companies store the invoice, a copy of the check, and the purchase order together for easy retrieval, but this is extremely expensive. The lack of an adequate electronic document management system also compounds the problem.

The findings of a recent study highlight common errors and problems faced by the accounts payable department. They also emphasize the manual, inefficient, and error-prone nature of most accounts payable processes. The key findings of the study are:

• Errors: the average accounts payable department has an error rate of 1.6%

• High cost: the average cost to process an invoice is $ 16.54

• Lack of controls: administrative staff have wide discretion on how to apply management rules around order / receipt / invoice reconciliation and payment and invoice authorization rules are not always followed

• Low visibility: financial managers increased outstanding payments on a monthly basis; many of the individual transactions are paper invoices sitting in managers’ inboxes awaiting approval that financial managers have not seen

• Poor Documentation – The paper intensity of the process makes it difficult to locate manually filed invoice and check documents.

• Management time: All of the above contribute to spending an inordinate amount of management time, attention, and resources in a non-value-added role.