The accounts payable function is probably the most labor-intensive of all the accounting functions and is therefore an excellent supply of labor savings if the correct best practices may be implemented. The fundamental process in most companies is to receive three kinds of information from three sources—an invoice from the supplier, a purchase order from the purchasing department, and a evidence of receipt from the receiving department. The accounts payable staff then matches all three documents to make sure that a prospective payment is authorized and that the underlying goods have been received, and then pays the bill. The method is labor-intensive partially since there is such a wide range of matching to do, but additionally since the three documents hardly ever match. Either the purchase order quantities or prices don’t match what the supplier is charging, otherwise the total amount received does not match the quantities on another two documents.
Because of the inaccuracies, the total amount of labor necessary to issue a payment can be extraordinarily high. The very best practices in this chapter belong to a couple of main categories, a lot of them designed to cut back the matching work. One category attempts to consolidate the amount of invoices arriving from suppliers, thereby shrinking the paperwork from this source—typical best practices in this region are utilizing procurement cards and shrinking how many suppliers. Another category tries to cut back or eliminate the amount of receiving documents. Typical best practices in this region are substituting occasional audits for ongoing matching of receiving documents, as well as directly entering receipts in to the computer system. Finally, another category reduces the number of purchase orders that must be matched. Typical best practices of this type include using blanket purchase orders and automating threeway matching. Other methods to the matching problem involve going away from the standard matching process entirely, by using payments based solely on proof of receipt. It’s difficult to make use of many of these best practices together, since some are mutually exclusive—one must certanly be careful in choosing the right best practices. Lastly, numerous best practices focus on the overall accounts payable process, attempting to either shrink or automate how many steps required before a company issues payment to a supplier. Examples of best practices in this region include employing a signature stamp and switching to wire transfers. The amount of best practices in the accounts payable area indicates that this function is ripe for improvements. However, some best practices demand a large investment of money or time, as noted in the chart in the next section, so anyone doing the improving should verify that resources can be found before embarking on an implementation.