Ideally, any invoice amount should match what is in the purchase order with what is actually delivered. This scenario allows for a smooth accounts payable process, from the receipt of invoice to processing, and then finally, payment and archiving. Unfortunately, such a scenario is not always the case, and so exceptions occur.
And if your organisation uses manually processed accounts payable or a mixture of automated and manual processes, exceptions can happen more often. These exceptions can cause delays in the process and hurt the relationship with your supplier.
What are the exceptions in accounts payable exactly?
An exception is any scenario where the information stated does not match what you expect to see. Mismatches can include transposed Purchase Order (PO) number or wrong pricing.
Causes of the exception can be any of the following:
- Error in coding – This is the most common cause of error in accounts payable. Manual encoding is prone to human error, such as transposed PO numbers or incorrect payable amount. Inaccuracy can cut both ways. It can be that the data is correct but entered inaccurately, or inaccurate data was entered accurately.
- Duplicate payments – These happen when the supplier sends another invoice for the same transaction because the first invoice was not processed on time. If these two invoices aren’t spotted, it is easy to accidentally pay them both.
- Supplier error – This usually is the case when the invoice is missing key information that needs to be traced, thus delaying the approval and payment process.
- Early or premature payments – Premature payments refer to the payments made before the delivery of a product, or a service, has been confirmed.
- PO-Invoice discrepancy – An invoice exception occurs when the information on the invoice does not match what is on the supporting documents, the most common being quantity, and price mismatch.
Sometimes, deviations are within an acceptable limit; therefore, payment can still be processed. However, some discrepancies will necessitate investigation, and so can be time-consuming.
The cost of accounts payable exceptions
Financial and time costs are the main implication of exceptions in accounts payable. Overpayments, payments for items that were never delivered, or double payment can hurt the company financially.
Not to mention the man-hours wasted on manually tracking down the missing information in your invoices, purchase orders, and other documents.
AP automation for an efficient exception management process
Accounts payable automation helps simplify and streamline the accounts payable process from procurement to invoices approval and payment. Accounts payable automation software, on the other hand, refers to the automated system designed to enhance productivity and reduce costs in the accounts payable department.
Accounts payable automation and enhanced exception management help reduce bottlenecks and enhance compliance with regulations, especially if you are dealing with global suppliers. The benefits of adapting accounts payable automation include:
- Late payment reduction – AP automation makes it easy to search and spot invoices nearing due dates.
- Granular invoice data – AP automation allows you to see fine invoice details and create analytical reports for a more informed process management decisions.
- Early payment discounts – AP automation allows for a smoother and efficient exception management workflow. This enhances invoice payment turnaround time, which can work to a business’s advantage when negotiating terms and discounts.
- Reduce fraud – AP automation enhances transparency in the procurement process, which makes it easy to spot possible fraudulent activities.
Handling exceptions in accounts payable
There are specific accounts payable automation best practices that help promote a more efficient exception handling in accounts payable:
CPA Firm Management Association’s 2019 paperless benchmarking survey revealed that 56% of companies pay the majority of their accounts payable through electronic means.
Utilising an end-to-end solution to the procurement process allows businesses to completely eliminate the need for paperwork. Compared to paper documents, electronic records are easier to manage, search, and use.
Generally, this type of software provides firms with capabilities such as sending notifications and reminders on invoices with pending approvals. A dedicated portal for vendors may also be set up so they can do updates and verify the status of their invoices on their own.
Three-way Document Matching
Three-way matching helps in preventing payment of incorrect or even fraudulent invoices. Specifically, it involves the process of comparing three documents: the vendor invoice, the purchase order, and the receiving report.
Comparison of quantity, unit price, payment terms, and other relevant information are made to determine if they all match and appear on all three documents. It is only when all three documents match will the invoice be entered and processed as an account payable.
Configurable Business Rules & Flexible Workflows
Assuming you are processing invoices electronically, you can set up business rules and user permission to make sure that if an invoice requires approval, it goes to the right person. You can even set notifications with deadlines so that the user is aware of the invoice he or she needs to approve. The same goes for exception handling management for the many discrepancies that can occur.
If you have an efficient and configurable AP automation solution, most invoices will just go through the entire workflow following your business rules.
Remember, a solution that requires a high-level of customisation will be costly and take a long time to implement. However, a strong AP automation solution will provide you with extremely flexible business rules and workflow automation with little or no customisation required. For example, RapidAP has a highly customisable accounts payable automation system. Check out this RapidAP review page to learn more about its top features and benefits.
Consider Using Advanced Purchase Permissions
Setting up advance permissions allows businesses to take full control over who can create orders and what they are allowed to order. This will help minimise unauthorised purchases
Maximise Benefits with Good Exception Management and AP Automation
Exception management aims to minimise and prevent the occurrence of exceptions in accounts payable. When good exception management works in tandem with accounts payable automation, businesses stand to benefit with saved company money and time, as well as maintain good relationships with their suppliers.
However, not all AP automation software is created equal, so it’s important to do your research well to find the best accounts payable software that suits your business needs.
Best-in-class software will process an invoice using the following steps:
- Step 1: The OCR capture the data and send it to the AP automation software
- Step 2: The software analyses the data searching for any anomalies and routes the invoice to the person authorised to approve this vendor, previously configured in the business rules.
- Step 3: At the same time, the invoice is also recorded and listed in the invoice library alongside a complete audit trail of who handled it and when it was handled.
- Step 4: Should there be an exception, the system would match the invoice to its vendor and carry on the workflow while notifying managers of that event.
- Step 5: The information is sent to the ERP to fulfill the payment, after approval.
In most cases, these AP automation solutions can provide ROIs in less than 13 months.