The accounts payable function is the absolute most labor-intensive of all the accounting functions and is therefore a fantastic supply of labor savings if the correct best practices can be implemented. The fundamental process in many companies is to get three types 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 now been received, and then pays the bill. The procedure is labor-intensive partially because there is this kind of large amount of matching to do, but in addition because the three documents almost never match. Either the purchase order quantities or prices don’t match what the supplier is charging, or else the total amount received does not match the quantities on the other two documents.
Because of these inaccuracies, the quantity of labor necessary to issue a payment can be extraordinarily high. The very best practices in this chapter belong to several main categories, many of them designed to reduce 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 area are using procurement cards and shrinking the number of suppliers. Another category tries to cut back or eliminate the amount 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 amount 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 original matching process entirely, by utilizing payments based solely on evidence of receipt. It’s extremely hard to make use of all of these best practices together, since some are mutually exclusive—one must certanly be careful in choosing the proper best practices. Lastly, numerous best practices focus on the general accounts payable process, trying to either shrink or automate the amount of steps required before an organization issues payment to a supplier. Types of best practices in this region include using a signature stamp and switching to wire transfers. The number of best practices in the accounts payable area indicates 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 individual doing the improving should verify that resources can be found before embarking on an implementation.