by Jean Cunningham. President of Jean Cunningham Consulting
I get to visit lots of organizations and see lots of accounts payable processes. And, I’m sorry to say, that the large majority of A/P processes I see use decades old methods that are the most wasteful and least effective. Too much wait, too much over-processing, too much mind-numbing activity. It is way past time for everyone to take a step back and really think about improving their accounts payable process for the sake of their staff and organization.
I am going to divide my suggestions between purchases made on purchase order and those without a purchase order.
PO Based Purchases
The PO based purchases, I have been writing and talking about for years. Rather than doing three-way match at the invoice receipt point, just move the control point to the PO creation, set up a payable at item receipt, and pay the vendor the PO price. Done. No invoice, no entry, no additional approvals. This makes sense for most PO based purchases. I say most, because there are exceptions, but it’s not productive to manage for the exception. It’s always the right time to take advantage of this huge time saving method.
Non-PO Based Purchases
The typical, process used with non-PO based purchases, starts when either the accounting team or a purchaser receives an invoice through mail or email. If accounting gets it, they send it to the purchaser for approval. The accounting team hopes they get it back before the end of the month. At the end of the month, there is a huge scramble to try and find out what invoices haven’t been sent back, or those invoices are accrued. When the invoice does come in, there is typically some sorting for various incomprehensible reasons, then the invoice details are manually entered into the computer system. Then the invoices and vouchers are sent to another person who is supposed to check that everything is ok. Finally, the check is cut and all the backup is added to it, and there is one more possible check by the signer. You know, just in case. And then filing and scanning until you drop. Sigh. Wasted time and effort.
Sorry, I know I sound a bit snarky, but really it is so sad that the genius of our team members is spent on these transaction type activities that just add no real value. Some perceived value, yes, but that is a false perception based on not knowing good process alternatives. It takes valuable time that could go to doing work that could help the organization!
While I don’t have one perfect process to offer, here are a few items to look at.
- Don’t put as much effort into finding errors on $50 invoices as you do on $10,000 invoices.
- If you get a bill every month for something, pre-approve them as a group.
- Spend more time looking at an invoice from a new vendor, than from an existing, known-effective vendor.
- Let accounting put the account number on an item and enter it.
- Let approvals come later and by exception.
- You can get money back from most vendors if you pay them too much.
- Rely on the purchaser’s approval more.
- Set a limit on how many times an item gets reviewed. Remember, the person entering it is one. Do you really need 4 or 5 “approvers” in the loop?
- Put more items on PO’s and pay as described above.
- Enter every bill on the same day that it is received.
Get started right now. Create a swim lane process map. Identify all forms of waste. Identify the true value add. Do some experiments. Then change!!! With this freed up time, go participate in the purchasing departments huddle boards, staff meetings, or supplier initiatives. There is much more value to discover and add there!!
Jean Cunningham is President of Jean Cunningham Consulting and former CFO of two manufacturing companies. She is co-author of Real Numbers: Management Accounting in a Lean Organization, as well as other books.
Side note: NWIRC will host a Lean Accounting course with instructor, Jean Cunningham, on October 24th in Erie. See more details here.