Stop Approving Supplier Invoices!

If you’re having to check every supplier invoice is ok to pay - your process is broken.

When a supplier submits their invoice, they will typically have fulfilled their part of the contract, be it delivering goods or providing services. Therefore, the supplier should reasonably expect their invoice to be paid on time and without query.

So why do so many companies have a bottleneck in accounts payables?

The problems with waiting until the supplier invoice arrives in accounts are many-fold:

  1. The goods or services have already been specified - the originator of the requisition will have decided on the product or service they need. So its too late to challenge the specification at point of invoice.
  2. The choice of supplier has been made, probably based on a combination of convenience, product availability, service, quality and price. Asking why a specific supplier was selected, or trying to enforce use of an approved supplier after the event is simply too late.
  3. The product quantity or scope of service needed should have been clearly communicated to the supplier. If the product is already held in stock or the requestor has taken advantage of bulk order discounts, there will not be much the purchasing company can do at invoice stage.
  4. An order has been placed with a supplier. Whilst 80% of companies still use manual processes such as email or verbal instructions to place orders with suppliers, an order is an order. Suppliers are getting wiser (rightly so!) to individuals and companies who do not raise purchase orders as it adds to their risk of non payment or delays in receiving their money.
  5. The supplier has provided the service or delivered the goods. At this critical point in the process, there is the biggest opportunity to assess whether the supplier has fulfilled the contract (order) or not. If they have not delivered in full or the product / service was not delivered in accordance with the order, the buying company must reject or partially reject the delivery and decide whether the supplier can fulfil the order as specified or reduce their pricing to reflect the goods or service delivered. This is often difficult to do objectively if there is no formal (written) to compare against and much more contentious if the query is raised once the supplier has submitted their invoice.
 

The impact of persisting with supplier invoice approvals, rather than putting more checks and balances in place earlier in the process can have a significant impact on a business. High quality, reliable suppliers will either build in more cost to their pricing, reduce their service / product costs or simply stop supplying their goods or services.

Delays in paying suppliers can also be costly - due to missing out on early payment discounts or incurring late payment fees. Another, often hidden cost, is the time and administration involved for accounts payables teams chasing departmental managers and employees to get appropriate budgets, order approvals and audit trails on what can be relatively low value invoices.

In many cases the cost of checking an invoice can exceed the value of the invoice itself.

Thats why so many company’s simply auto-approve and pay smaller invoices and only investigate high value invoices or when a problem is identified. This approach opens up the risk of over-payments, fraud, duplicate invoicing, unreconciled accounts and a multitude of other problems.

There is a better way.

Set, enforce and manage departmental budgets

With a well prepared budget in place, visible to budget owners 24x7, with clear alerts to budget variances and transaction level detail - companies can spot anomalies at requisition or order stage: early enough to avoid problems at invoice stage.

Use a purchase order process

Implementing a purchase order process for all employees involved in purchasing does not have to be complex, time consuming or expensive. Simple to use cloud based software can be accessed by all authorised employees, where-ever they are located (in the office, remotely or on the road). Communicating a ’no PO - no pay’ policy will typically be welcomed by suppliers and rapidly encourage employees and suppliers to follow the desired process.

Automate approvals workflow using cloud based software

Implementing cloud based software to automate multi-level purchase approvals will allow for day to day purchasing to be streamlined and control costs with minimal disruption for approvers. With the right software in place, different workflows can be specified for each department, product category and cost centre.

Stop Approving Supplier Invoices

By the time an invoice lands on the accounts team’s desk, it should have a full audit trail including requestor, product specification, quantity, price, delivery information, purchase order, goods receipt records and approval from all involved in the process.

Approvals should not be left to the AP team to check this before making the payment to the supplier. Accounts teams need to be freed up from policing poor purchasing processes to focus their time on credit control, accurate reporting and ensuring suppliers are paid according to payment terms. Its good for business.

To stop approving supplier Invoices and Improve your purchasing, take a look at Zahara

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