In 2023, a woman in the UK was jailed after embezzling nearly $2 million from her employer. The fraudster had stolen funds from the metal recycling company after she had channeled money to a fake customer whose bank details matched that of her own. Had the segregation of duties (SOD) been followed, this may not have occurred as the criminal wouldn’t have been in a position to commit the crimes without colleagues finding out. SOD can help improve your accounts payable procedure.
Trustpair’s software helps you protect your accounts payable process by securing your payment chain through continuous account validation of vendor data and optimizing processes through automation.
What is the full account payable procedure?
The full account payable procedures are listed below:
- Complete the purchase order
- Get the goods
- Process the invoice
- Two-way, three-way, or four-way matching
- Code the invoice
- Pay the invoice
- Make a record of the payment
However, there are more details to it. Let’s take a look…
Complete the purchase order
Your procurement department will provide a purchase order for goods or services. For example, this may be for certain glass types from their preferred supplier.
Get the goods
The supplier will have now sent the goods to the buyer (your company). A check will happen at this stage to ensure the goods are correct and in good condition.
Obtain the invoice
Now, the supplier will send an invoice to be received by the buyer following the purchase.
The matching process
Next, the matching process occurs. This can be 2-way-matching, 3-way matching, or 4-way matching depending on how many times the orders are matched.
If you match just the invoice and the purchase order, that is 2-way matching.
Your company would be 3-way matching if it compares the invoices to the purchase order and order receipt.
Four-way matching in accounts payable involves all of the steps as 3-way matching. The addition is that an inspection report or slip has to be filled in to state that the goods or services have been supplied.
Three-way matching is typically the industry standard. 4-way matching may be used in manufacturing services to check that the goods fulfill safety requirements.
Code the invoice
All invoices have its unique code so it can be differentiated in the future if required.
Pay the invoice
Once it’s in the system, the invoice needs to be approved and paid to the supplier to start to complete the accounts payable procedure.
Make a record of the payment
Once the payment is made, as with all transactions, a physical and online record should be made of the payment. So, if any challenges are made in the future as to whether the payment was made, or whether the funds were correct, documentation can be provided.
What are the challenges faced by the accounts payable cycle?
Human error
It’s a cliche but everyone does make mistakes without intending to. A member of staff in your accounts payable department could accidentally lose an invoice, duplicate the entry of details, or put in one wrong account number for the bank details of a supplier, vendor, or third-party.
Therefore, when it comes to payment, this could delay the funds being processed and potentially incur a penalty or reputational loss to the company. Alternatively, the duplicate entry could mean a supplier is paid twice by accident which, if it isn’t recognized, could financially damage your company.
Manual processes
For example, one of the manual issues in the accounts payable procedure is that invoice processing must be done in good time. The process relies on several people to do their jobs well and in conjunction with one another to ensure that payments to suppliers are made on time.
If supplier or vendor payments are delayed due to invoice processing and not paid on time, this can result in late fees and damage to the vendor relationships.
Let’s say this occurs a few times, supplier relationships may be damaged beyond repair and you’d have to find a new preferred supplier.
Fraud troubles
There are fraud risks and troubles in every company, but also in the accounts payable procedure. That is because when the accounts payable team processes invoices and approves them, staff have more opportunities to commit embezzlement, internal fraud, and invoice fraud.
Statistics show that employee fraud costs companies around $50 billion per year. Also, the average embezzlement occurrence costs more than $350,000 in losses.
For example, if segregation of duties isn’t applied, a member of staff could change the bank details on the invoice to an account controlled by themselves, or direct money to their own account and signal that the payment has been completed to the supplier in the system.
Get more details about B2B fraud in our latest fraud study!
3 tips to improve your business’s account payable procedure
Here are three best practices to better the AP procedure in your organization:
Automation
If you read about the human and manual issues involved in accounts payable, it is certainly worth exploring automation!
Platforms like Trustpair offer automation software to prevent payment errors and fraud. Trustpair help secure the entire accounts payable process. This is thanks to supplier and vendor data being consistently monitored with automation. Therefore, no suspicious activity by suppliers slips through the cracks.
Make easy but reliable approval processes
Ensure there are easy-to-follow approval processes in the accounts payable process and that this is communicated to staff. Each step should have a dedicated member of staff as a point of contact. Therefore, if there are any issues or vendors want a query answered, staff know who to go to and can do so easily.
Segregation of duties
In accounts payable, the segregation of duties refers to splitting roles so that one employee cannot commit and conceal fraud. For example, the same worker should not be able to receive and pay an invoice in a company without another employee viewing this. This should limit the chances of internal fraud and employee embezzlement.
Recap
The accounts payable procedure involves completing the purchase order, receiving the goods, processing the invoice, the matching process, coding the invoice, and then paying and recording the transaction. Trustpair can secure the entire process through continuous account validation so you are alerted if your suppliers or vendors have a change in status.