Tag Archives: AP bad practice

What Happens When Best Practice Is Ignored?

Most organisations know that they should be aiming towards best practice processes – but what does it really mean – and can something as diverse as accounts payable ever be constrained to a simple set of rules across all organisations?

Ignore Best Practice

This article was originally published on PPN.

If we’re talking about specifics, the answer is probably no. But the general framework and methods of working can be aligned in a way that can be translated across AP departments regardless of size, and to some extent industry and internal culture.

The opposition can come from those who decide to carry on working in a manner which they feel has served them well enough in the past. Others may simply not have sufficient resources to implement the practices which management are asking them to do.

Three results of Bad Practice

Ignoring best practice in any environment, but especially in AP, can have catastrophic consequences for the organisation. There are three very tangible results from an organisation where the operation is overly flexible and unstructured.

The most obvious one is that inefficient organisations cost more to run. Financially crippling as this may be in the long run, often this area should be the least of your worries.

An operation where internal controls are lax is leaving itself open to fraud. An enterprising individual can take advantage of such an organisation with relative ease, and as long as they’re not too greedy, their fraudulent activity can go unnoticed for a very long time – perhaps forever.

None of us like to think that any of our colleagues would behave in a duplicitous fashion, but the sad truth is that, in all probability, some of us already have.

Lastly, the third most tangible effect of not adhering to a code of best practice is the existence of duplicate payments within the accounting system. The Institute of Internal Auditors have found that duplicate payments make up between 0.05 and 0.1 per cent of annual invoice payments.

This may not sound like a lot, but if your organisation makes £50 million in annual invoice payments, you are likely to be paying out £50,000 or more in duplicate payments every year. Unfortunately many people assume that if a vendor receives payment twice for the same service or product, then he will simply return the payment. However this is seldom the case.

Quick Solutions to Common Failures

Current Practice: Many people can input invoice numbers and can make changes to the Master Vendor File.
Best Practice: Restrict this to just one or two key personnel – preferably those who do not approve invoices.

Current Practice: Invoices arrive, are approved and paid in a variety of locations.
Best Practice: All are dealt with in one centralised area, preferably by specified employees.

Current Practice: Issuing travel and entertainment reimbursement cheques.
Best Practice: Include payment along with monthly salary.

Current Practice: Petty cash box which anybody can access.
Best Practice: Don’t have one.

Current Practice: Urgent cheque request.
Best Practice: Don’t allow rush cheques.

Current Practice: A long winded paper trail of invoices and reconciliations.
Best Practice: Automate the 3 way match.

Current Practice: Time consuming duplicate payment retrieval.
Best Practice: Implement duplicate payment prevention technology.

Current Practice: Long processing and approval times – no early payment discount capture.
Best Practice: Implement AP automation solutions, including automated dynamic discounting.

Even if your organisation is unable to implement some of the more costly changes, by changing even just a few of the more minor ones, your organisation will see both a rise in productivity and, over time, this will generate an increase to the bottom line.

However, it’s good to bear in mind that best practice should be something which is constantly evolving. It’s no good to slavishly adhere to outmoded working methods. Ultimately, departmental success will depend on the ability to work within given boundaries, while keeping an open mind, receptive to change.

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