As we have said before, AP “best practices” should not be daunting or impossible standards to achieve. Think of them more like “constant improvement practices.” There are ways that AP professionals could be doing their jobs more efficiently and more effectively, and some of these “best practices” have stirred up debates. Below we weigh in on three contentious issues surrounding AP best practices and explain our reasoning.
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The Debate Over Distributed Coding
- Best practice, as any outside auditor will tell you, is to code at the buyer level – to push that task out as far as possible to the people who make the purchase decisions, also known as distributed coding. Their reasoning is that the people who make the buying decision should know what they are buying, what budget it comes from, and what line item it belongs in, and for accuracy’s sake they should, therefore, be accountable for coding their purchases.
- But many companies still have their AP people doing coding. Their argument, and a valid one, is that AP people know the accounts, they know the right places to put things. The buyer of the “item”, the person in operations or marketing or manufacturing, might be more accurate about what was purchased, but they do not know enough about accounting to properly code those purchases.
- In the real world, practicality dictates that not everyone who needs to buy stuff is going to know the coding. So usually they’re told, “Just buy it and send AP the invoice.” The AP team then has to track down the person who made the purchase to get clarification on what was purchased and for what purpose so that they can determine what budget it comes out of and what code should be assigned.
- It seems like errors and inefficiencies are inevitable no matter who handles coding. If it’s pushed out to the people who know exactly what was purchased, but who might not know the appropriate “bucket” that the purchase belongs in, it will probably be miscoded. But if the AP person who knows the Chart of Accounts as well as they know their phone number guesses wrong about the items listed on the invoice then they can’t assign the proper coding either.
- A lot of companies are overlooking the questions of “where are we doing coding” and “where should we be doing coding” because they think it has to be handled in only one way and that has to be dictated by their business model. But the choice of doing centralized coding or distributed coding doesn’t have to be a binary one. With good AP Automation and Workflow, you can actually set up a system that pushes the invoices out as far as necessary but ensures that coding is still ultimately controlled by the AP department. And all without the inefficiencies and delays of scanning, back and forth emails, calls, or interoffice mail that would normally be required. Your auditor is happy, your purchasers are happy, and your AP professionals are now able to work on strategic tasks versus chasing down people.
The Debate Over Exception Resolution
- A similar debate often arises over who should be the cleanup crew on exceptions. Best practices dictate that you push resolution back to the people who have the relationship with the vendor. For instance, if there is a variance in price or quantity between the PO and the invoice AP isn’t going to be able to explain that difference. It has to go back to procurement who might know that the price on the PO was actually a limited time sale price that was no longer in effect when the order was filled, or that they approved a higher quantity in order to take advantage of a price break. The vendor naturally accepted the PO and filled the order, but the price or quantity on the invoice doesn’t match the price or quantity on the PO.
- Without automation, AP has to track down the person in purchasing who approved the change, who might very well say, “Just pay it and we’ll figure it out.” Or they have to contact the vendor, who might or might not have a record or recollection of why the invoice was changed. Some companies just change the PO to match the invoice, which of course leaves the door open to all kinds of problems and will likely earn you a slap on the wrist from the auditors.
- Ideally, the difference is resolved, an adjustment added to the PO, and the cause of the discrepancy properly notated, leaving no question about why the change occurred or who approved it. But most companies have just learned to live with this problem, even though it happens on a daily basis, because they don’t believe there is a viable solution.
- AP Workflow with upfront invoice capture will catch those exceptions automatically and notify the approver. Better yet, since purchasing is included in the Workflow with access to a single screen that shows them all of the documents affected, exceptions can be cleanly and easily resolved before the invoices are ever queued for payment. Once it is resolved, it goes into the system for processing with all the documentation attached, meaning that your AP staff and your auditors have access to the records should an explanation be required later.
The Debate Over Supplier Networks
- If complying with best practices is difficult in an environment where you, theoretically, call the shots, just try it when the people who must change their process to conform do not work directly for you. One of the most difficult tasks facing AP professionals is the challenge of getting all the vendor-related documents digitized – i.e. converted into an electronic format and processed using a single process. It’s easy to see why this standardization is considered best practice, but it seems to be a nearly impossible mission to accomplish.
- A while back, EDI was hailed as the universal solution. Of course, it was not, and now the Supplier Network and Vendor Portal are being touted as the answer to our standardization prayers, but there are challenges with these solutions as well.
- The problem with these, and with any “closed-loop” solution that requires compliance from your vendors, is that you will always have vendors who do not have any interest or incentive to change the way they invoice you. That huge supplier that offers you the best deal is too big to change their systems just for you – the cost would be astronomical because of the size of their operation and, unless your business accounts for a disproportionately large percentage of their yearly sales, there is no ROI on their investment of time, training, and software licenses and maintenance. The small vendor is too small to see an ROI on that investment if they can even justify the initial expense, and the trade supplier of specialty goods and materials is in a strong enough niche that they don’t need to make expensive changes to keep the orders coming in. Then there is the problem of how many different networks must we all comply with across all of our channels and customers!
- These are just a few of the reasons why even those companies that have achieved good compliance with their Supplier Networks are still receiving greater than 50 percent of their invoices through EDI, email, or “snail mail.” These invoices have to be processed manually, which probably means the documents are printed from an inbox, or the mailed paper documents are copied, and the copies are routed out to the approvers.
- These documents are easily misrouted, misplaced, or simply overlooked, resulting in missed opportunities for early pay discounts or avoiding late pay penalties as well as strained vendor relationships. And there is just the overhead of maintaining multiple processes – if the “old” process never goes away, was the project a success?
- This is one area of best practices where software alone won’t solve the problem. Which is why we created the Digital Mailroom – a single on-ramp to digital AP. With almost no vendor requirements (or on-boarding), no specialized software and a wide variety of open standards it is designed to handle all your documents -- email, EDI, mail, XML, even fax (yes, fax!). By the time you see them they are not only in a standard digital format, but they have been through a rigorous QA process, exceptions have been tagged and notifications sent to the proper approver so that they can be resolved quickly and accurately, payment dates and reminders have been set, and the invoice and all related documents have been imported into your Workflow so every professional on your team has easy access to process every invoice in compliance with best practices and in alignment with your business model.
A process that is too rigid inevitably invokes the law of diminishing returns. But best practices are called “best practices” for a reason. Our goal is to give you the best of both worlds, the flexibility to tailor the process to your business model with the technology and innovation to truly automate AP processing.