Improve Your Organizationís Profitability
Five often overlooked ways revealed.
January 3, 2008
by Mary Schaeffer
When accounting executives think about improving their bottom lines, they have many variables to consider, but few think about accounts payable. This is unfortunate because ignoring the accounts payable function usually results in lower bottom-line profitability. Today, we’ll look at five steps your organization can take to ensure you don’t inadvertently lose money through less-than-stellar practices in your accounts payable function.
- Insist that processors employ rigid coding standards when processing invoices. This should conform to the naming standards you use when the master vendor file is set up and when new vendors are added. Companies that take this relatively simple step find that duplicate payment are almost completely eliminated. And, as those who are familiar with the functionality will attest, duplicate payments are rarely returned without outside prompting.
- Adjust invoice processing procedures so you can take every early payment discount offered. Early payment discounts often provide the very best rate of return that any organization can earn in the current interest rate environment. The famed 2/10 net 30 is equivalent to a 36 percent rate of return on an annualized basis. Other than loan sharking, no investment yields that kind of return in the current market.
- Have invoices sent to accounts payable first. Besides making it easier for you to earn the early payment discounts, invoices can be tracked more easily. Thus, when a vendor calls looking for payment, the caller can be assured you have the invoice, even if the payment is delayed. This will prevent sending out a second invoice, which is costly to practice and occasionally leads to duplicate payments. It also makes it a little harder for a shady employee in another part of the company to submit a fraudulent invoice. Notice, I said, a little harder, not impossible.
- Don’t overlook your control environment. Internal controls and appropriate segregation of duties are not only a requirement of Sarbanes-Oxley, they make good business sense. They make it more difficult for your employees to defraud the company. And, as many are probably aware, internal fraud is most frequently committed by long-term trusted employees.
- Don’t overlook duplicate payment audits. Periodically have an audit firm check for duplicate payments. Since these firms most often work on a contingency basis, it will cost you nothing if everything is under control. And, if not, the firms will provide some insights into why duplicate payments are occurring. Don’t use these firms to look at your vendor payables only. Hire specialists who also focus on freight, telecom, media buying and other specialties, if you use these services.
Incorporate these practices and you should see some bottom-line improvement.
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Mary S. Schaeffer is the author of more than a dozen business books including Controller and CFO’s Guide to Accounts Payable. She is currently working on a book about fraud. She is the president of CRYSTALLUS, Inc. a publishing, training and consulting firm focused on payment issues.
A knowledgeable speaker, she will be part of the team that discusses Cash Leakage in the Procure-to-Pay process at seminars next spring.