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The Accounts Payable department is arguably one of the most important back-office functions in your business.

Despite this, it is often undervalued and sometimes suffers from underinvestment.

The consequence of underinvestment ranges from unreliable accounts to damaged supply chains and business reputations. Furthermore, there is also an increased risk of fraud and error.

A real problem

The recent case of Patisserie Valerie illustrates the impact that poor accounts payable systems and processes can have on the reliability of accounts.

The effect of poor practices on the supply chain was illustrated recently by the failure of Carillion. Slow payments can disrupt the supply of goods and services, which then has an impact on the whole business, not just the back office.

Retailer Holland and Barrett have recently discovered the impact on their brand of poor payment practices. They showed that, although the accounts payable process may be hidden away from your customer’s eyes, it is vital for providing value for your business and maintaining a positive brand perception.

Failure to have an efficient accounts payable process that provides both visibility and control over transactions increases the risk of fraud. Reports show that accounts payable fraud is on the rise, with an estimated cost to UK organisations of up to £193bn per year.

A need for control

Paying suppliers on time, within agreed payment terms, prevents disruption of the supply chain.

However, the speed and efficiency required to meet supplier terms should not be achieved at the expense of control.

Controls are essential for reducing the risk of fraud and errors but implementing them can often slow the payables process.

One of the key controls is an authority register. This identifies who is responsible for approving different levels of expenditure across each department and/or spending category.

To be effective, it needs to be visible and consistently applied. However, all too often, it is out of date and likely sitting on a shelf gathering dust.

Unapproved customs and practices can overcome the agreed processes and invoices can end up approved by the wrong staff. These problems sometimes lead to expensive consequences as was witnessed in this accounts payable fraud case.

Unless the authority register has been integrated into the accounts payable process, there is a danger that it sits to one side and is too rigid to actually be used in practice.

It is not uncommon for the authority register to appear to be watertight in theory, but in practice the complexity is overcome by staff taking short cuts to get things done.

If an invoice needs to be signed off by three people, why not just get the most senior person to do it? There may well be a good reason for this, but if it is not visible in developing the register and it was not really tested in practice, such issues may not be addressed.

Authority registers are exposed to changes in personnel, sickness and holiday breaks. Keeping them up to date needs simple and quick management action. In the absence of this, staff face letting invoices pile up awaiting approval or trying to make things happen. The former can cause delays and upset the supply chain, while the latter may undermine the register and business controls.

How can I improve?

Visibility of the accounts payable process can quickly identify bottlenecks: a flexible authority register can make it easy for management to make permanent or temporary changes to the register.

This visibility is difficult to achieve without automating the process. An automated accounts payable process allows you to see the progress of the transactions, coupled with an audit trail, while ensuring the authority register is consistently applied and visible to the required people.

This consistency can have consequences if the process for amending the register is complex. Cloud-based services like Verify provide a flexible approval matrix that can be updated by management at the click of a button. With its four levels of approval, it can handle complex approval requirements that automatically push the right invoices in front of the right approvers in the right order.

More complex approval requirements can be addressed by a premises-based Accounts Payable solution, which provides greater customisable approval and coding capabilities based on your business’s specific requirements.

Agilico is a certified Sage Partner and Developer. Cloud-based Verify and premises-based Invu Accounts Payable solutions both integrate directly with Sage 50cloud and Sage 200cloud systems among many others. These integrations remove the mundane data entry task currently required for those that undertake manual invoice processing.

Contact us to learn how an automated accounts payable solution can improve your business’s invoice processing and prevent backlogs.