Does your AP process make no exceptions?
Many of the slowdowns in accounts payable processing are the result of manual, paper-based invoices.
In a perfect world, the bill in front of you will have an invoice amount that exactly matches the purchase order amount, which matches the product/service that was actually delivered. In other words, everything matches.
Unfortunately, the reality is usually quite different. When an invoice is incomplete or does not align with expectations, an exception occurs. That can happen more often than you think, especially if you are still using a manual, paper-based accounts payable (AP) process.
In its report, The State of ePayables 2019: Driving Value in the Age of Intelligence, Ardent Partners lists seven causes of exceptions.
- Discrepancy between purchase order (PO) and invoice
- Supplier error
- Lack of PO — If no PO was issued
- Bottleneck in invoice approval process
- Incorrect PO
- Failure to deliver goods/services
- Coding error
A PO tends to be accurate “because it both initiates and defines the order,” the report says. POs list what has been purchased, quantities, price, and payment terms. POs are generated by the buyer and clarify what is expected of the supplier.
In a PO-invoice mismatch, the invoice usually is to blame. Some variances are small enough and fall into what a company has defined as an acceptable limit and therefore the invoice can be processed through. For others, AP personnel have to spend time determining where the error is, and getting the invoice corrected and resubmitted.
A supplier error usually means key information is missing and must be tracked down. Delays in getting the missing information will also slow down the invoice approval process. If there are too many errors from a supplier that can put a strain on the relationship between the buyer and the supplier.
Many of the slowdowns in invoice processing are the result of manual, paper-based invoices. Ardent Partners says: “One solution is adopting an e-invoicing solution that enables suppliers to remove paper from the accounts payable process by creating invoices electronically.”
This automation can be set up so that certain fields or information must be completed before an invoice can be submitted. According to Ardent Partners, “This can virtually eliminate the submission of invoices with missing information that is needed by an AP organization to successfully process and pay [an invoice].”
Incomplete invoices can be sent back to the supplier before they reach the AP department.
Interestingly, companies that use POs also tend to have higher levels of automation in their procure-to-pay process. POs are important because they spell out exactly what the buyer ordered. Without a PO, it is much harder for someone in AP to validate the order and determine if the invoice is correct and therefore should be paid.
An e-procurement system can generate a PO, which should eliminate the problems caused by not having one.
Ardent Partner’s advice is to follow the lead of best-in-class organizations when it comes to POs and that is: No PO, No Pay. These organizations have POs for 79% of their invoices which has led to a 2.5X higher rate of straight-through invoice processing.
Straight-through processing with no exceptions is what every organization should strive for.