Accounts Payable Articles

Accounts Payable Now & Tomorrow is a monthly print publication with the most current advice from the trenches based on our reader surveys, interviews with some of the best practitioners, and the latest changes in all related specialty areas such as T&E, 1099s, sales and use tax, OFAC, VAT, electronic payment alternatives etc. Here is a sample article.

Why Good AP Managers Need to Be Control Freaks

Whoever coined the saying the devil is in the details certainly could have been talking about accounts payable. Without exacting attention to every tiny facet of the process, duplicate payments can arise and the door for fraud opened. That’s why it is imperative for accounts payable operations to standardize the way associates process invoices right down to the very last point. Let’s take a look at some of the items that must be standardized in order to avoid problems.

Vendor Names

The way vendor names are entered both in the master vendor file and when processing invoices is crucial. Without these standards duplicate entries in the master vendor file will occur making it a breeze for an invoice to be paid twice. There is no one right naming convention; there are numerous alternatives. What’s decisive is that every processor uses the same convention. This means addressing:

How individuals’ names are entered (first name first or second).
How the word the and other articles are treated in a vendor’s name.
Whether or not to use titles such as Mr. Ms. Dr. etc..
How to treat numbers, abbreviations, apostrophes, spaces and periods in vendor names.
How to treat DBAs.
How to handle vendor names longer than the space available in the file

Invoice Numbers

The way the invoice number is entered is key. It is the way most systems check for duplicate payments and it is one of the most abused fields in the process. While management may be relying on the systems’ refusal to process a duplicate invoice number, knowledgeable processors override this control by simply adding a period or space at the end of the invoice number. Any manager discovering an associate taking this short cut should have a serious talk with the offender. In some organizations this infraction is considered so intolerable it will get the processor written up.

Now, if you are wondering what there is to be concerned about regarding the invoice number, assuming processors know not to add extraneous symbols or spaces, you would be wrong. Here are some of the issues you should standardize.

How to enter the invoice number if it is longer than the field allowed in your system.
What to do about front-leading zeros (enter them or leave them out).
What to do about dashes and other non alphanumeric characters.
How to assign an invoice number to an invoice without one.

Invoices without Invoice Numbers

Since much of the way invoices are entered and processed relies on invoice number, it is pivotal that a unique number be associated with every invoice processed. Unfortunately manyinvoices—some say as many as 40%—do not have a pre-assigned number. Therefore, it’s a good idea to set up a process for assigning invoice numbers when none exist. Before we talk about the best ways to do this, let’s address two ways that we do not recommend.

Any process that includes the vendors’ taxpayer identification number (TIN) should be avoided. The reason for this is simple. Some of your vendors will have TINs that are social security numbers. With identity theft such a huge concern these days, most organizations have chosen to avoid adding to the problem by using TINs for anything other than their intended use. They also safeguard that information as much as possible.
Using the invoice date as the invoice number. In many cases thisresults in the same invoice number on multiple invoices making tracking difficult. If the vendor sends a duplicate invoice, you could end up with two invoices for the same order.

You can assign a unique invoice number in one of the following ways:

If you use purchase orders for everything, use the purchase order number as the invoice number.
Use a combination of the vendor’s phone number (or perhaps your vendor number) and the total on the invoice or the original invoice date. If you use the invoice amount it could create a problem when you receive repetitive bills for the same amount from the same vendor.

There is one more tactic you can and should try. Ask your vendors to assign invoice numbers before they send the invoice. Many will do so once you ask and point out the benefit to them—that it will be easier for them to track the status of your payments and apply cash.

Desk Setups

How often has one of the following happened to you?

One of your processors is out unexpectedly and you need to find an invoice he/she is working on. You search through the piles on their desk and are unable to make heads or tails out of the various paper mountains.
Even worse, one of your less-than-spectacular processors leaves the organization and as the new person is arranging their desk they find a stack of very old invoices hidden in the back of a draw. Needless to say, these invoices all have problems.
An irate vendor calls looking for payment and you cannot find the invoice anywhere so you ask the vendor to e-mail in another copy. Months later, when the duplicate payment auditor is in, you discover that invoice was paid twice—and the payments went out within two weeks of each other. Where was that invoice when you made your original thorough search?

These vignettes demonstrate why best practice accounts payable departments dictate how their processors’ desks should be set up. This does not mean telling them where to place photos of families and friends, a box of tissues, or other personal items. But it does mean dictating how invoices should be filed while they are being processed. The set up can be as simple as having three different colored files on the desk for:

Invoices being processed;
Invoices to be processed; and
Disputed invoices waiting to be resolved.

Depending on your preference, these can be left on the desktop or filed in one or more drawers. The important issue is that all processors keep invoices in exactly the same way so anyone looking for an invoice (or processing them due to an unexpected absence) can easily find what they need. In fact, some organizations that use top-of-the-desk filing forbid processors from putting invoices inside the desk. This way there can be no more disappearing invoices!

Track Disputed Invoices

In addition to the desk setup procedures discussed above, there needs to be a uniform methodology for tracking disputed invoices. Every invoice in the disputed file should also be tracked. Depending on your system abilities, this can be within the accounting software or on a separate Excel spreadsheet.

Processors who understand the fundamentals of accounts payable will know why this is necessary and not develop their own workarounds. By standardizing your processes you will greatly minimize the number of duplicate payments made—and that is something near and dear to the hearts of every management team, control freaks or not.

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