KnowledgeLeader Blog

How to Get Your Accounts Payable Process to Work for You

Posted by Protiviti KnowledgeLeader on Thu, Nov 01, 2018 @ 09:12 AM

""One of our leading practices to consider for your accounts payable process is to develop strategic business alliances with suppliers and involve them in developing better ways to process accounts payable.

The benefits of this practice are that it allows suppliers to participate and cooperate in joint quality, service and cost-control efforts, giving suppliers the opportunity to become involved in helping the company achieve payables strategic objectives. This partnership enables the sharing of relevant training and educational programs sponsored by the company, suppliers and manufacturers. It also opens channels of communication between suppliers and the accounts payable organization regarding value-added service capabilities and new technologies. Now, you can economically justify the joint development of technology linkages that are designed to increase efficiencies and reduce no-value-added elements (e.g., EDI [electronic data interchange] and EFT [electronic funds transfer]), thus dissolving the traditionally adversarial approach to conducting business in favor of a spirit of cooperation.

With those benefits in mind, here’s a possible approach to take:

  1. Identify potential supplier alliances. Create a partnership with purchasing to evaluate candidates.
  2. Focus on the largest suppliers. Define objectives for identifying the best strategic business alliance candidates and then use these objectives when choosing potential suppliers. Consider the following criteria:
  • Supplier size
  • Financial strength
  • Current working relationship
  • Reliability
  • Track record for process improvement
  1. Creatively design criteria to be included in the partnership arrangement.
  2. Initiate partnership arrangements with "good" candidates. Arrange meetings to discuss capability and willingness to develop an alliance.
  3. Select partners and develop mutually agreed-upon goals for the business relationship.
  4. Search for process improvement opportunities that may be addressed with the formation of a supplier partnership arrangement:
  • EDI
  • Electronic payments
  • Invoice less processing (pay upon receipt)
  • Summary invoicing
  1. Support ongoing relationships with partners through well-developed feedback mechanisms designed to continuously improve the process

Performance Measures

  • Qualitative assessments of vendor service
  • Results of vendor survey

This is just one of many leading practices outlined in KnowledgeLeader’s Accounts Payable Process Key Performance Indicators (KPIs) benchmarking tool. You can find the benefits, approach and performance measures for all the below leading practices in the full benchmarking tool:

  • Use summary invoicing from key suppliers.
  • Empower and enable employees closest to the user to authorize supplier payment and charge appropriate accounts.
  • Edit (check arithmetic extensions, approvals, signatures and authorizations) only those vouchers significant in dollar amount or unusual in nature.
  • Evenly and efficiently distribute accounts payable workload based upon voucher complexity and materiality of payment.
  • Set frequency of payments to suppliers based on supplier relations, discount policy and cash flow position.
  • Centralize accounts payable processing, but decentralize accountability, error correction, authorization and approval verification.
  • Integrate the purchasing, payables and receiving systems to increase efficiency and prevent errors (e.g., automatic matching of purchase orders [PO], receivers and invoices).
  • Utilize EDI with suppliers for ordering, for price changing and to accept receiving reports and invoices. Where practical, use electronic payments.
  • Pay upon receipt of materials or merchandise at agreed-upon prices rather than receipt of the invoice (“invoice less processing”).
  • Strive for paperless storage (records retention) and reporting.
  • Use “paperless” invoicing and payments where practicable.

More leading practices for the accounts payable process can be found in other tools and resources on KnowledgeLeader:

Topics: accounting/finance, cash and treasury, financial reporting, performance management/measurement, accounts payable & purchasing, supply chain, vendor management

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