Accounting Best Practices, Fifth Edition

Chapter 3. Accounts Payable Best Practices

The accounts payable function is the most labor-intensive of all the accounting functions and is therefore an excellent source of labor savings if the correct best practices can be implemented. The basic process in most companies is to receive three types of information from three sources—an invoice from the supplier, a purchase order from the purchasing department, and a proof of receipt from the receiving department. The accounts payable staff then matches all three documents to ensure that a prospective payment is authorized and that the underlying goods have been received, and then pays the bill. The process is labor-intensive partially because there is such a large amount of matching to do, but also because the three documents almost never match. Either the purchase order quantities or prices do not match what the supplier is charging, or else the amount received does not match the quantities on the other two documents. Because of these inaccuracies, the amount of labor required to issue a payment can be extraordinarily high.

The best practices in this chapter fall into a few main categories, most of them designed to reduce the matching work. One category attempts to consolidate the number of invoices arriving from suppliers, thereby shrinking the paperwork from this source—typical best practices in this area are using procurement cards and shrinking the number of suppliers. Another category tries to reduce or eliminate the number ...