The accounts payable function is probably the most labor-intensive of all of the accounting functions and is therefore an excellent source of labor savings if the right best practices could be implemented. The fundamental process in most companies is for 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 ensure that a prospective payment is authorized and that the underlying goods have now been received, and then pays the bill. The procedure is labor-intensive partially because there is this kind of massive amount matching to accomplish, but in addition as the three documents almost never match. Either the purchase order quantities or prices do not match what the supplier is charging, otherwise the total amount received does not match the quantities on the other two documents.
Because of those inaccuracies, the quantity of labor needed to issue a payment can be extraordinarily high. The best practices in this chapter fall into a couple of main categories, a lot of them designed to lessen the matching work. One category attempts to consolidate how many invoices arriving from suppliers, thereby shrinking the paperwork from this source—typical best practices in this region are using procurement cards and shrinking how many suppliers. Another category tries to lessen or eliminate the number of receiving documents. Typical best practices in this area are substituting occasional audits for ongoing matching of receiving documents, in addition to directly entering receipts to the computer system. Finally, another category reduces the number of purchase orders that really must be matched. Typical best practices of this type include using blanket purchase orders and automating threeway matching. Other answers to the matching problem involve going away from the traditional matching process entirely, by using payments based solely on evidence of receipt. It is difficult to utilize many of these best practices together, since some are mutually exclusive—one should be careful in choosing the correct best practices. Lastly, several best practices give attention to the general accounts payable process, trying to either shrink or automate the number of steps required before an organization issues payment to a supplier. Types of best practices of this type include utilizing a signature stamp and switching to wire transfers. How many best practices in the accounts payable area indicates that function is ripe for improvements. However, some best practices need a large investment of money or time, as noted in the chart in the next section, so the person doing the improving should verify that resources are available before embarking on an implementation.