The accounts payable function is the most labor-intensive of all of the accounting functions and is therefore an excellent source of labor savings if the correct best practices may be implemented. The basic process in most companies is to get three forms of information from three sources—an invoice from the supplier, a purchase order from the purchasing department, and a proof receipt from the receiving department. The accounts payable staff then matches all three documents to ensure 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 because there is such a wide range of matching to accomplish, but additionally since the three documents rarely match. Either the purchase order quantities or prices do not match what the supplier is charging, otherwise the total amount received doesn’t match the quantities on another two documents.
Because of those inaccuracies, the total amount of labor needed to issue a payment may be extraordinarily high. The most effective practices in this chapter belong to several 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 using this source—typical best practices in this area are utilizing procurement cards and shrinking the number of suppliers. Another category tries to lessen or eliminate the number of receiving documents. Typical best practices of this type are substituting occasional audits for ongoing matching of receiving documents, in addition to directly entering receipts in to the computer system. Finally, another category reduces how many purchase orders that must definitely be matched. Typical best practices in this area include using blanket purchase orders and automating threeway matching. Other answers to the matching problem involve going far from the original matching process entirely, by utilizing payments based solely on proof receipt. It’s not possible to utilize all of these best practices together, since some are mutually exclusive—one must be careful in choosing the correct best practices. Lastly, numerous best practices give attention to the overall accounts payable process, attempting to either shrink or automate how many steps required before a company issues payment to a supplier. Samples of best practices of this type include employing a signature stamp and switching to wire transfers. The number of best practices in the accounts payable area indicates that this function is ripe for improvements. However, some best practices require a large investment of money or time, as noted in the chart next section, so the person doing the improving should verify that resources are available before embarking on an implementation.