Startups and smaller companies often approach procurement with a “get what you need to make the business run” mentality. This may work for small businesses with lower purchasing needs—but as the company grows, the purchasing system must evolve. 

This evolution often starts with a process further enhanced by technology—the centralized purchasing model. Using centralized purchasing techniques and tools, businesses coordinate their expenses across the organization to better understand and control spending. 

Let’s look at centralized purchasing and its benefits to fast-moving businesses:

• What is centralized purchasing?
• What are the advantages of centralized purchasing?
• What limitations does centralized purchasing have?
• How can software enable centralized purchasing?

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What is centralized purchasing?

Centralized purchasing means bringing all of your business’s purchasing under one department, system, or technology. Every purchase goes through one intake, processing, and payment workflow, ideally within a software system. 

When businesses don’t use centralized procurement, they can’t keep a close eye on what employees are ordering—nor can they pinpoint duplication and waste. Stakeholders perform redundant work sourcing their own purchases, and the organization often loses leverage on pricing and terms. 

Businesses with only one location centralize their purchasing by coordinating purchases across teams and departments. Franchises go a step further, coordinating purchases for multiple business locations in a central location, such as a procurement tool. Regardless of the business’s size or structure, the idea is to eliminate purchasing in silos, improve management’s visibility into spend, and take control of its supply chain management.

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The Procurement Strategy Playbook for Modern Businesses

Download the ebook to learn how to modernize your procurement strategy and realize the benefits of tech-enabled procurement.

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What are the key benefits of centralized purchasing?

Moving to a centralized purchasing policy allows stakeholders to retain their decision-making power while ensuring they use the best suppliers. This helps the organization realize cost savings and create better relationships with vendors while keeping everyone productive. 

Among the benefits of using a centralized procurement solution are reduced overhead expenses, a stronger purchasing strategy, automation for purchase requisitions and purchase orders, and full visibility for the procurement organization.

Reduces procurement costs

It pays to be organized. When you plan out business expenses and look at all orders as one collective whole, you can save a lot of money.

Centralized purchasing eliminates wasteful spending on duplicate orders or purchases outside company policy. At the same time, it unlocks volume discounts on bulk orders and reduces shipping fees.

Eliminates maverick and duplicate spend

Centralized purchasing reduces the likelihood that businesses will waste capital on duplicate or maverick spend.

What’s maverick spend, and how does it happen? In short, maverick spending is any transaction outside the standard procurement process. It often occurs in cases when people don’t understand the purchasing rules or feel the official process is a hindrance.

Decentralized spend makes it difficult to catch this uncontrolled outflow of cash. Purchases come in from so many employees across various departments and locations that it’s hard to keep a watchful eye.

When purchasing is centralized, businesses implement an approval process that deters employees from purchasing outside company policy. It ensures vendor relationships remain strong, purchases remain compliant, and the purchasing team stays informed and empowered to conduct spend analysis.

Centralized spend also makes it easier to prevent two employees or departments from unknowingly paying for the same service, such as if the marketing and sales teams both independently decide they want the same new software tool. Without centralized purchasing, the two departments subscribe to the software separately and never know the business paid twice.

Unlocks discounts on bulk orders

Many vendors offer discounts on bulk orders—but you have to buy in bulk to redeem those discounts. Centralized purchasing makes that possible.

When businesses make one collective purchase, they drive up the number of goods ordered and the total price of their order. This boost can create eligibility for discounts from the vendor and save the business money on procurement.

Reduces shipping fees

Similarly, businesses save money by lumping orders into one shipment. It’s cheaper to ship several items together than to ship them one by one. Many vendors even incentivize bulk orders by offering free shipping discounts for high-ticket orders.

Centralized purchasing saves employees time

Operations and accounting departments suffer from inefficient, decentralized purchasing processes. Centralized purchasing simplifies ordering for operations teams and, in turn, reduces the number of invoices created through ordering.

Simplified ordering

Purchasing for a business can take considerable time, especially when needs are distributed across locations and orders are spread across multiple vendors.

Businesses can simplify ordering by designating one person to submit every location’s orders together. More mature organizations often implement procurement technology solutions to allow users to place orders with approval from direct managers and departments (such as Legal and IT). The system works without getting between buyers and the supplies they need.

Reduces invoices

Think of all the orders your accounting team processes from Amazon. How much time could they save if those orders were consolidated into only one invoice?

When multiple locations or departments order together, it reduces the number of invoices accounting has to process and reconcile. This saves the accounting department considerable time at month-end close and during tax season.

Ensures consistent quality across locations

To retain customers, it’s essential to manage their expectations by offering a consistent experience across locations. When your purchasing is disjointed, it’s hard to ensure consistency.

Say you’re operating a fitness chain. If one of your studios offers Kiehl’s products, but another offers Dove, it creates an inconsistent customer experience. Customers who visit a studio with Kiehl’s products will expect to see those products in all locker rooms. If they take a class at another location that provides different products, they may be disappointed enough not to return for another class. (Nothing against Dove—people just really love Kiehl’s.)

If you centralize the purchasing of products for the broader organization, you avoid this scenario.

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What are the limitations of centralized purchasing?

All the above advantages are compelling reasons to consider implementing centralized purchasing in your company. That said, there are some limitations to the power of this technique. Technology helps overcome some of these common obstacles:

1. Centralized purchasing is only as good as your process

Before adding a tool to implement a purchasing program, you need to look at your processes from a strategic standpoint. Trace the lifecycle of every purchase to understand how purchases are triggered, what approvals they require, how they’re paid, and how Procurement tracks this purchasing activity. A detailed and well-documented procurement policy will help you overcome unsanctioned spending. 

2. Adoption is critical to success

The best process in the world can’t help you if no one uses it. Documenting your procurement policies and making them available to users is a great first step to increasing adoption.

The second is to offer adequate training on your new policies, tools, and best practices. Getting everyone from the C-Suite down on board with the transition is vital to your program’s success. 

3. Procurement professionals can only keep up with so much

Procurement teams love orchestrating and implementing good practices. They are uniquely invested in the operational success of the company. But process optimization can’t work unless you have the tools to back it up.

When implementing centralized purchasing, consider the impact on your AP staff. Also, consider future impacts as the company grows. Sooner than you think, the need for technology to automate the purchasing process becomes non-negotiable.

Consolidate your business orders with the right technology solution

The simplest way to centralize purchasing is with a sophisticated procurement solution. It allows employees from multiple departments and locations to order what they need from a centralized platform.

Order.co allows you to centralize every part of your procurement process, from sourcing to invoice reconciliation. In addition to saving businesses tens of thousands of dollars per month, our platform makes it easy for operations managers to procure supplies. Order.co’s automatic general ledger (GL) coding, three-way matching, and easy payment process reduce the volume of work accounting teams need to process.
Ready to centralize your purchasing efforts, save money, and reclaim your time? Get in touch with a member of our team or request a demo.

Although “purchasing” and “procurement” are used interchangeably in organizations and online resources, these two terms have different meanings. More importantly, the two concepts call for individual approaches. Knowing their differences may mean the difference between saving a few dollars this quarter and building a truly resilient strategy long-term. 

What are the differences between purchasing and procurement, and how should you apply techniques to ensure you’re balancing short-term savings goals against long-term procurement benefits? 

Let’s cover the finer points of purchasing vs. procurement, and discover how each plays a role in the long-term financial health of your company. The first step is getting a clear definition of each term.

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The difference between purchasing and procurement

Purchasing

Purchasing is the act of buying supplies for your business. It deals with the transactional portion of the procurement process, from the identification of a needed product to the payment for its delivery. A purchasing strategy deals with several things:

• Purchase requisition to define the type, quality, and quantity of a needed product
• Price comparison and competitive analysis of the deal
• Negotiation of price and terms
• Shipment tracking, receiving, and reconciliation of the order 
• Invoice processing and payment to the supplier

Purchasing is one aspect of the total procurement process that deals with the logistical and accounting processes for getting what your company needs.

Procurement

Procurement is, according to Thomasnet.com, “an all-encompassing strategic array of processes that includes both purchasing and sourcing.” Sourcing is the process of selecting a vendor, either through an e-procurement platform or a bid process. Procurement policy covers the following aspects:

• Optimization of supplier relationships
• Third-party risk management
• Supply chain management and inventory control
• Competitive market analysis and benchmarking
• Contract negotiation
• Sustainability and resiliency
• Supplier management and lifecycle evaluation

A procurement strategy takes into account not just, “What am I buying and for how much?” but also, “Who am I buying it from, why them, and how does that relate to the current market?” 

Having defined these concepts, it should be clear that purchasing and procurement aren’t “either/or” practices, but a collection of activities that work together to save the business money, build resilience, and drive value creation through the procurement function.

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An effective purchasing strategy can save your business money

A purchasing strategy defines how your company buys things. Its primary goal is to reduce the bottom line and maximize cost savings by reducing inefficiencies, establishing approval workflows, and forming a tactical buying plan to get desired results. By implementing requirements and processes around purchases, you can lower costs and avoid many common money leaks in the short term. 

One of the goals of a purchasing strategy is to codify clear rules for stakeholders to follow when buying goods and services. Doing so can reduce overall tail spend and eliminate instances of maverick spend. 

• Tail spend is the concept that 80–90% of spend will be taken up by 10% of vendors, usually in bulk purchases, while the remaining 10–20% of spend is taken up by 90% of vendors, usually in one-off situational purchases. It creates a tail shape when graphed.
• Maverick spend, which refers to purchases made outside the established approval workflow, can be a huge issue for companies of all sizes. CIPS reports that maverick spending can make up 80% of a company’s total spend.

If your finance department consistently has trouble keeping tail spend in check or tracking down maverick spend—usually indicated by the inability to match spending to purchase orders or invoices—it may be time to implement a purchasing strategy.

Using a well-crafted purchasing strategy, a finance or procurement team can analyze tail spend in the context of sourcing and vendor development. They can ask and start to answer questions like, “Is the tail spend partially a result of a vendor not fulfilling our employees’ needs?” They can then identify if they need a new vendor, if they need to adjust a contract with an existing vendor, or if they need to improve internal processes.

An effective procurement strategy can make your business more resilient

A procurement strategy goes further than defining how purchases are made. It determines the sourcing strategy for choosing vendors, establishes business goals for buying, and uses strategic sourcing techniques to build and maintain a resilient supply chain network. 

The key concept here is “network.” Procurement positions the company as part of an interconnected ecosystem of upstream and downstream suppliers, reliant on partnerships to drive initiatives forward. This is both internal (for instance, a strong partnership between finance, procurement, and manufacturing to improve production time frames and reach desired goals) and external (building a global sourcing network that coordinates between external stakeholders such as logistics partners, distributors, and end users). 

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Steps for building a strong procurement strategy

The procurement strategy for every organization looks a little different. Developing the right mix of controls and long-term techniques should be an ongoing priority for your procurement team, with well-defined business goals and total quality management leading the way.

When you want to establish or improve your procurement strategy, use these steps as a guide:

1. Identify internal needs

You need to know where you’re starting from—identify the current issues with your procurement process. Poor visibility, increased tail spend, maverick spend issues, or supplier risk incidents are all common reasons companies choose to establish or improve procurement policies. 

Ask yourself some questions to identify gaps:

• Do you have a clearly defined purchasing process for stakeholders?
• Are you using budgets and purchasing guidelines effectively?
• Are you buying from a preferred list of suppliers and/or a competitive supply market?
• Have you sufficiently mitigated third-party risk with suppliers?
• Can you effectively track spending and tie it to POs and invoices?
• Do you need to improve initiatives like green purchasing or sustainable procurement?

2. Establish goals and KPIs

Based on your answers to the previous questions and an evaluation of your currently available procurement data, you will surface goals and objectives to prioritize in your strategy. Clearly outline a short list of business needs and priorities, and identify the key performance indicators (KPIs) to track your success.

3. Build and implement a plan

Establish a purchasing and approval plan that supports your business objectives. This plan should include the following elements:

• Approval workflows and purchasing thresholds for each type of procurement
• Guidelines or policies to encourage desired purchasing behavior in your stakeholders 
• Standards for quality of goods and services, and compliance parameters for suppliers
• Departmental requirements for bid evaluations and contract negotiations 
• Lifecycle evaluation policies for suppliers

4. Evaluate and refine

After building and launching your procurement strategy, conduct regular evaluations to improve and refine your policies. Use the data from tracked metrics to determine the success of your plan and adjust it accordingly. Include stakeholders in the evaluation through employee surveys to gain insight into how the new procurement policies work from a buyer perspective.

5. Employ technology

Increasingly, leading organizations are using digital procurement tools to establish their supply chain networks. These digital tools have introduced an era of automation that makes it much easier to put a procurement strategy into place and definitively track its impact on things like tail spend and maverick spend.

According to Boston Consulting Group, “Firms that use digital [tools] to manage tail spend can cut their annual expenditures by 5% to 10%, on average.” With a tool like Order.co, a good procurement strategy can address the short-term issues handled by a purchasing strategy, while also instilling a network-based perspective that can build long-term resilience in the face of uncertainty.

A procurement strategy needs a procurement tool

Cutting expenditures, finding better prices, and building resilience are only the tip of the iceberg when it comes to the benefits that the right procurement software can provide. Using Order.co, companies are streamlining and automating their strategic procurement practices, centralizing contract management, improving cost savings and cost reduction, building better procurement roadmaps, and using data to drive decision-making. 

If you’re ready to join these forward-thinking companies in implementing a next-generation procurement strategy, schedule a demo of Order.co today.

B2C business success brings its own headaches.

Here is the simple reason why — B2C businesses succeed by selling current and new products and services to existing customers, and then,  they sell to those customers more often. B2C businesses will also acquire new customers, and then repeat the whole process over again.
Having more customer orders means ordering more supplies from current and new vendors, and that is what causes headaches for many businesses. COVID-19 has made it worse. More people are working remotely, teams are introducing new monitoring and checking procedures, and flaws are coming to light. Managing the increased orders and deliveries leads to workload problems because much of it is not standardized and the work is done manually. Your team must then process everything through the accounting system.

The entire accounts payable (AP) process has been in place forever. It is often cumbersome, flawed, inefficient, and leads to dislocations in supplier relationships. In this article, we will discuss:

1. The accounts payable system, its shortcomings, and how to fix them.
2. How fixing problems is not just about making some improvements.
3. Specific and measurable benefits to changing the way AP accounting is done and how the AP department works.

Accounts Payable shortfalls

Staying on top of your accounts payable accounting system is essential. Non-standardized and inaccurate purchase order processing, inaccurate bookkeeping, and imperfect account balances all create problems for the accounts payable department and the C-suite (once the company's general ledger and balance sheet are produced), as well as for suppliers. Late, missed, or short payments caused by those inaccuracies can damage vendor relationships because payment terms are not met. It also generates inaccurate financial statements for the FD and CFO, which negatively affects cash flow and, usually, adds burdens to AP accounting team members' already heavy workload. This then impacts productive workflow and encourages more errors.

In the age of COVID-19, B2C business employees are already under stress from worry, staff absences, potential illness, home-schooling demands, family emotions, and so on. Those problems and performance shortfalls escalate.

When they are working in isolation or as part of a skeleton crew, errors can increase. This wastes time and money and strains vendor relationships.

AP accounting success

Managing AP accounting well has the opposite effect:

1. Vendor relationships improve.
2. Staff workload goes down.
3. Morale stays high.
4. Costs go down.
5. Liquidity improves.
6. You get ahead of competitors who are not on top of everything.
7. Your profits rise.

In B2C accounts payable accounting, the ordering process tends to operate differently across each outlet, studio, store, or restaurant. In addition, if all truth lies in the balance sheet, you sow the seeds in the accounts receivable and accounts payable accounting functions.

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The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)

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The AP accounting cycle

Accounts payable is based on the expenditure and purchasing cycle. This, in turn, is part of the overall procurement to payment process (P2P). The steps include:

1. Customers place orders

These may be regular orders for in-stock items and services or included in regular delivery schedules. Consumer orders may be poorly explained (especially if done over the phone or by text) or may need to be corrected. Also, what could have been a bulk order often comes in parts. Servicing those orders requires that direct materials are available to meet known and expected customer demand. It also requires other items such as equipment, cleaning supplies, and office supplies.

2. You place orders with vendors

To meet display, production, customer use, or factoring demands, managers and other individuals in each outlet place purchase orders directly with vendors. Separate ordering systems develop, even if the vendor supplies other outlets Quite often, so do separate order- and delivery-monitoring systems. Vendors then deliver, often to separate sites or to one site for subsequent internal distribution to separate departments within the site.

3. Received deliveries trigger internal controls

Deliveries trigger internal controls, which result in delivery documentation receipts or vouchers. These are checked for accuracy against the original purchase order paperwork. The paperwork is then either passed for processing, or the vendor is contacted to check details or correct any errors.
Once delivery details are approved, vendor invoices are received and checked against delivery records. They are then passed to the AP accounting team for processing. Again, if discrepancies are noticed, then internal checks are made and the vendor is contacted to solve errors.

4. Documents receive approval and enter the system

After documents receive approval, AP accounting team members input invoices to the vendors' accounts as ready for payment. A single invoice for multiple deliveries, or situations in which items in a single delivery are allocated to different sites or functions, will then be analyzed and costs allocated accordingly to generate management accounts. In many B2C businesses, there are additional internal analyses and controls, all of which add to the pressure people feel.

5. Payments are scheduled and made

Unpaid invoices form part of current liabilities. So payment schedules must be prepared and approved. The purchase ledger balance includes trade payables and forms part of the liability account (which includes utilities, bank interest, etc.). Payments are then made according to the internal protocols and current liquidity.

How different B2C businesses handle AP accounting

Accounts payable accounting processes are detailed, complex, and time-consuming. Some businesses automate the entire cycle, while others process some of it manually and integrate those parts with automated financial accounting practices later in the cycle. Managing individual orders, monitoring each vendor's shipments and deliveries, handling paper invoices, and paying vendors by check is also how many B2C businesses operate now. It’s also how they see their future.

The inefficiencies systemic in accounts payable have grown because of COVID-19 lockdowns, social distancing, and basic human stress. There is a better way, and the pandemic can be the match that lights the fire of change.

Ebook

The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)

If your company’s balance sheet is not portraying an accurate picture, you’re shooting in the dark. Download the ebook to learn how to avoid this lethal pitfall.

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The fire of change for AP accounting

Successful businesses approach AP accounting as an integral part of the entire process, from ordering through to the paying cycle. Integrating and automating delivers real results. It begins with ordering via a centralized and controlled system. It then moves on to monitoring logistics, managing physical deliveries, and handling delivery and purchase records. Then, accounting for those purchases continues through to payment scheduling and to final payment.

This complete-cycle system generates a level of efficiency and accuracy that a traditional ordering and accounting system cannot. This comprehensive approach is, as we have said, called "Procurement-to-Pay" or P2P.

The result of introducing a full P2P system is that the time spent processing all those records goes down — and accuracy goes up. Costs go down, internal efficiencies rise, vendor relationships improve, and the net result is greater profitability. You also gain the real ability to increase your business's marketplace footprint without all the on-the-ground stress too many people are currently living under.

Customers may still place orders in their old, inefficient ways. But the time saved on P2P and AP accounting can improve the customer experience by introducing methods to raise their game. More time can go into assessing customer profitability so you can let the costly and unprofitable ones go. This enables systems to be put in place to coach the profitable customers to place their orders in ways that benefit them, your business, and your staff.

The practical benefits of fully automated and integrated AP accounting

It is easy to talk about increased efficiency and lower costs, but where do they show themselves? Consider these two different B2C examples, one in Japan and one in the United States. 
MINISO Is a retail business with 33 locations selling beauty supplies, household items, and fashion accessories. By introducing a consolidated vendor order and invoicing system, the process became streamlined, managers became more conscious of expenditure, and their hands-on involvement increased. Apart from obvious efficiencies, everyone saw better control, more staff involvement, and a feeling of empowerment. This boosted morale and created a real sense of camaraderie.

[solidcore] is a health and wellness business. It originally had 25 locations. By automating its AP accounting process, it then expanded to 50 locations. The company saved approximately 356 labor hours a month by not having to manage and reconcile separate purchase orders placed independently by studio managers operating their own accounts with common suppliers.

These two examples show that — by centralizing purchase orders and logistics management, and by automating accounts payable — real savings are there for the taking. It is much easier for individual staff members to contact a central hub online to place orders, check progress, and monitor processing using appropriate accounting software than for them all to do it separately and with no comprehensive standards to work to. Having all of that managed and controlled for them doesn't just relieve pressure. It also reduces the stresses associated with operating in lockdown isolation and eases the feeling of "it is all on my shoulders."

Delivering the solutions

Accounts payable accounting has always been bound up in complex inefficiencies. The way COVID-19 impacted businesses and team members made those inefficiencies worse. It was easier for many businesses to hunker down and hope.

There is an old adage in business, "Winners make it happen. Losers let it happen." Making AP accounting happen in ways that deliver worthwhile savings, greater efficiencies, greater accuracy, and better vendor relationships make financial planning easier and more certain. It also helps raise team member morale. Your marketplace footprint grows, and competitors are left behind.
In summary, when you link your AP accounting with Order.co's purchasing process — coupled with integrated payments and consolidated billing — you will:

1. Simplify your purchase order and AP accounting process.
2. Lose the traditional AP processes problems.
3. Shorten the whole accounts payable cycle.
4. Increase control over orders, supplies, the company's cash, payments, and reconciliation processes.
5. Lower operating costs and improve vendor relationships.
6. Boost team member morale.

Order.co's platform excels in maximizing the benefits of effective order processing and accounts payable systems. Request a free demo to learn more about how your business can remove AP processing problems and get the benefits. We look forward to working with you.

Whether small businesses or global giants, all companies must follow the same basic accounting principles — the Generally Accepted Accounting Principles (GAAP) standard in the US or International Financial Reporting Standards (IFRS) abroad.

Accounting according to these principles helps companies dutifully manage their cash flow to maintain stability and give employees confidence in the future of their workplace. These standards also protect investors and banking institutions by creating a trustworthy reporting standard for financials.  

These standards reassure current and prospective suppliers that your company is trustworthy for supplying goods on credit. This makes it easier to develop relationships and negotiate mutually beneficial deals. Without these partnerships, it becomes difficult for the business to maintain growth. 

A healthy accounts payable balance starts with an accounts payable audit program. This helps growth-minded companies detect and avoid damaging financial irregularities such as misreporting, overspending, and fraud.

To help AP audit procedures run as smoothly as possible, it’s integral to modernize your workflow. This article answers the following common questions about implementing an AP audit program: 

• What is an accounts payable audit program? 
• Why is an accounts payable audit program important to your business?
• How is an accounts payable audit conducted? 
• What standards should you adhere to when conducting an accounts payable audit? 

What is an audit program for accounts payable?

An accounts payable audit is a research activity that certifies the accuracy of financial statements. It ensures your accounts payable transaction reports are accurate representations of the financial activity in the company.

Typically, audits are conducted by professional auditors, certified public accountants (CPAs), or internal accounting employees. External audits are sometimes required for publicly traded companies to certify financial activity to investors. These audits are reported using an SEC reporting website called Edgar. 

Why are accounts payable audit programs important?

Audit procedures are used by the AP department to verify the amount of money listed in the balance sheets and accounts of companies. Any discrepancy or lack of information will cast a poor light on your company if the problems aren’t caught and resolved. Therefore it's important to support auditors and give them the best resources for their job. 

Accounts payable can be a particularly high-risk item to audit because of its subjectivity. This can lead to financial misstatements due to intentional fraud or accidental errors. Without proper internal controls, things like unrecorded liabilities, expense fraud, and duplicate payments could happen at any time — in businesses big and small. 

While the traditional methods of crunching these numbers are still fine and good, now is the time to modernize the process into something more efficient, more accurate, and more cost-effective than using a paper-based system. 

Moving to a totally paperless format can be difficult, and some companies aren’t in the position to do so. But even moving some of your accounts payable processes to a digital space will benefit your company.

Here’s why going paperless is so essential and how to enact these changes within your business.

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Financial audits gives companies an objective read of their financial statements. Use this checklist to get started.

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What is the most important objective when conducting an accounts payable audit?

The goal of every audit, internal or external, is the same — a “clean” audit result. Clean audits are achieved when the auditor certifies that there are no material misrepresentations or issues with the review of the financial statements. 

Depending on the type of audit, companies may also need to demonstrate the effectiveness of their internal controls. For instance, a Sarbanes-Oxley (SOX) audit result (called an opinion) certifies that the company uses sufficient internal controls in handling financial information and transactions.

How to conduct an AP audit

Before beginning an internal AP audit, it’s important to schedule a meeting with management and other stakeholders to nail down the scope and desired outcome. Planning ahead creates an outline for use during the fieldwork, reporting, and follow-up stages. 

Collect essential work documents

Some examples of essential work documents include:

• A review of existing internal controls for accounts payable
• A detailed period-end accounts payable ledger
• A comparison and comprehensive analysis of budgets as compared to expense reports, with clarifying information on any unexpected deviations
• Complete documentation of any unrecorded liabilities
• A detailed risk assessment of AP and expenses
• A summary of potential weak points in accounts payable controls
• An overview of planned audit procedures for accounts payable
• Documentation related to any fraud investigation required by weak or absent controls

Ask questions

You can also ask internal questions to further detail the goals of the audit:

Process questions

• What is the company’s annual expense budget?
• Who receives budget and expense reports?
• Is there a policy in place to ensure all payables are recorded within the proper period?
• Are purchase orders digital, physical, or both?
• What is the numbering system used for POs?
• Who authorizes purchase orders?
• Are purchase orders made by any methods other than PO? If so, what other methods are used in the payment process?
• Does the accounts payable department have a clear separation of responsibilities for approving, paying, and recording payables, as well as reconciling bank statements?
• How are new vendors evaluated and added to the approved vendor file?
• Who can authorize adding new vendors to payables?
• Are purchases limited to approved vendors?

Technology questions

• Is there a software solution in place to simplify the audit? If so, does the system support three-way matching?
• Is the software used in conjunction with a purchasing policy that follows generally accepted accounting principles (GAAP)?
• Are credit card purchases recorded and tracked by the system to avoid invisible spending? If not, how are credit card purchases approved, and what considerations are in place to limit or eliminate maverick spending?
• What methods, such as Automated Clearing House (ACH) or wire transfers, does the company use to make electronic payments?

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Download the free tool: Financial Audit Preparation Checklist

Financial audits gives companies an objective read of their financial statements. Use this checklist to get started.

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Accounts Payable audit assertions

An accounts payable audit can also include tests for these four main audit assertions:

1. Audit for completeness

Auditing for completeness focuses on the most fundamental auditing objectives and procedures during the accounts payable auditing process. Auditors use cut-off tests, reconciliations, and audit trails to verify the proper recording and calculation of AP documents. 

Reconciliation procedures determine if accounts payable ledger transactions are identical to summary figures in the general ledger. Purchase and cash disbursement cut-off tests determine if a company’s end-of-year financial statements include all transactions for the fiscal year.

Auditors use accounts payable audit trails to match payments to recorded payables. They look for open files with unmatched documents. 

2. Audit for validity

Auditors use accounts payable audit procedures for validity to ensure the legitimacy of AP transactions. The most common way of accomplishing this is to reach out to vendors and suppliers to get a confirmation request.

The number of requests sent out varies depending on the business. Most auditors contact regular vendors and suppliers regardless of whether there is an outstanding balance. 

If there are one or more open invoices, they will also reach out to a percentage of the business's partners. 

3. Audit for compliance

When evaluating compliance, auditors must discover proof that GAAP for AP transactions is being followed. This proof is often found by working backward, starting with the inspection of end-of-year financial statements like purchase orders, balance sheets, journal entries for both AP and inventory, and cash flow statements.

Auditors then choose random entries in the general ledger to trace back to their origin, creating an audit trail. This form of tracing allows auditors to examine the exact path of a transaction. They can then evaluate if the accounting procedures were used. 

4. Audit for disclosure

The final step of the accounts payable audit process is to ensure that your accounts payable balance is properly disclosed in your year-end financial statements. Auditors do this by inspecting financial statements to verify things such as current liability. They also verify if purchases are included in the cost of goods calculations. 

Using footnotes provides additional details regarding unusual transactions that may require further explanation beyond simply recording the transaction. 

A final method auditors use is asking a business to disclose a mandatory management representation letter attesting that all their financial statements fully represent accounts payable and purchase figures. 

Why going paperless is the present and the future

All of these steps are easier to complete via a paperless process. But going paperless is a real challenge.

Transitioning the entire department all at once isn’t always practical, and you may find out that your business isn’t equipped to go completely digital. But the benefits of a partly paperless accounts payable system are too substantial not to use.

Going paperless helps your company in the following ways:

Cheaper processing and storage costs

Fees to keep paper records storage add up fast, and records take up valuable space if stored on-site. It also takes more time and money to process physical invoices.

Incorporating automation to digitize vendor invoices allows your team to focus their energies on more important daily matters. 

Records are easier to access

Even if you have the best filing system in the world, finding that one piece of paper you need can take a frustrating amount of time. It takes even more time if you keep your records at an off-site location. Invoices can also get lost in the AP department and lead to:

• Unpaid orders
• Late fees
• Accounts payable audit issues in the future

By changing to a paperless system, information is easily accessible through a search engine built to serve up digital documents at a moment’s notice. Automated systems also initiate much faster invoice processing than doing so manually. 

Environmentally friendly processes

Going paperless isn’t just good for business — it’s good for the environment. A substantial amount of the paper used in accounts payable processing eventually ends up in the landfill once it’s no longer useful. Moving to a more digital system means fewer trees are harvested to support paper-based systems.

Use Order.co to bring automation to your company

AP automation is the best way to give your accounting team the ability to stay ahead of the competition and work in a less stressful environment. 2022 is the year to drop the paper trail. 

Order.co provides the perfect tools to automate and simplify many aspects of your business and allow you to focus on more pressing daily operations:

• Automatic general ledger (GL) coding for correct accounts every time 
• Three-way matching to ensure accuracy in the procurement process
• Vendor payments and consolidated billing to handle hundreds of payments with just a few clicks

These features decrease the number of invoices and other paperwork you’ll need to conduct your business, making the auditing process smoother than ever. If you are ready to take your accounts payable program to the next level, request a demo of Order.co.

Picture your accounting department at the end of every month — is it calm or chaotic?

If your staff is scrambling and cash reconciliation is always a nail-biter, your AP workflow may be broken. Accounts payable automation is the best way to avoid month-end madness and bring visibility and efficiency to accounting processes.

Automated AP workflows allow you to see issues in advance and access information that drives good decision-making. You can scale your department without increasing headcount, eliminate errors by reducing manual tasks, and accelerate your financial operations, approvals, and payable processes.

But what does an automated process look like, and can technology ensure you pay the right vendors on time without issues or delays?

To help you understand AP workflow automation, this article addresses the following questions:

• What is accounts payable automation?
• How does AP workflow software work?
• What are the benefits of automating AP workflows? 

What is AP workflow automation?

AP workflow automation uses technology to process your accounts payable activities, such as invoice coding, invoice matching, vendor payments, and month-end reconciliation.

A smooth accounts payable process ensures you stay on top of your debts by paying the right vendors at the right time. AP automation software streamlines your invoice management, payment process, approval workflow, accounting process, and procurement operations. 

Traditional versus automated AP workflows

In a traditional AP workflow, your accounts payable department handles various business operations by manually processing all steps from intake to payment. There is no continuous flow of information or centralized AP data source for visibility, verification, and auditing. 

Manual processing through traditional AP is slow — the average AP clerk can process about five invoices per hour. Human data entry also increases the occurrence of errors. The manual invoice exception rate averages around 23%. 

These issues result in late payments, missed payments, or even duplicate payments. This creates a continual backlog of payments and data, which makes it difficult for Finance to report accurate financials or plan future budgets. It’s expensive, too — profit margins decrease due to fees and increased hours. 

An AP automation software solution provides a single platform for your AP department and the rest of the organization. All supplier and vendor information is automatically collected. When invoices are transmitted, AI algorithms match them to the purchase order, detect and flag mistakes, and code the invoices for processing. 

The system also automatically routes payments to the correct approvers and provides access to bank accounts for fast payment processing. Automatic payment scheduling avoids cash flow deficits and ensures early payments. All taxation and payment details are stored for compliant documentation and easy auditing. 

In essence, AP automation provides Finance with all the information it needs to compile accurate and timely financial statements.

Ebook

The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)

If your company’s balance sheet is not portraying an accurate picture, you’re shooting in the dark. Download the ebook to learn how to avoid this lethal pitfall.

Download the ebook

The benefits of AP workflow automation

AP workflow automation takes the stress out of processing invoices and lets your AP team focus on higher-level projects that drive value. It also offers various other benefits, such as error handling, risk reduction, vendor management improvements, and better profitability.

Preventing overpayment

A traditional AP workflow is complicated and lacks automated checks that prevent overpayment. Without checks for invoice duplicates, supplier changes, or purchase order details, your AP department may overpay its vendors, resulting in losses. This disrupts critical cash flow necessary for business expansion and timely payments (which are essential to retaining vendor relationships). 

Software is the solution that introduces e-invoicing and digital purchase orders, all available on a single platform. With fewer paper invoices and manual processes, your AP department has increased visibility, accuracy, and control.

Improving your business’s credit score

Early payments and positive cash ratios indicate your business is capable of handling its finances and is likely to repay future debts. Both vendors and financial institutions look to your financial reporting when extending credit and continuing business relationships. 

A streamlined payment process reduces late payments, which boosts your creditworthiness. When it’s time to change suppliers, request credit, or ask for a business loan, a good credit score helps you access the necessary credit at lower interest rates.

Creating positive vendor relationships

Your business relies on suppliers to process purchase orders and deliver goods promptly in the agreed volume and condition. Vendors may be less willing to deliver if you pay late or have outstanding debts — and could terminate business altogether. Early payments motivate vendors and encourage discounts. 

Automated AP systems help you track all your invoices, as well as schedule and approve payments on one interface. You can check if you’re paying for goods supplied as ordered or withhold payment if necessary. 

Reducing financial fraud

AP fraud schemes are challenging to detect if you don’t have adequate data and don’t know what to look for. In the 2020 AFP Payments Fraud & Control Survey, 81% of companies admitted that they were AP fraud targets. Even large companies such as Google and Facebook have fallen victim to AP fraud scams and paid millions to individuals. 

Fraud happens through false billing, fraudulent checks, overpayments, and wrongful manual data entry. Automating your AP tasks helps you fight AP fraud at various levels, with processes such as: 

• Setting budgets and administering approvals through automatically routed invoice processes 
• Automated invoicing through artificial intelligence (AI) and machine learning (ML) to capture and match invoices to purchase orders
• Electronic audit trails for your accounting team and external auditors

Creating better audits

Audits are never pleasant, but they can be easier with a reliable AP platform and accurate data. With fully-featured electronic AP systems, auditors track invoice data to the proper purchase orders, approvers, and payments.

You avoid bottlenecks caused by manual data entry and lengthy paperwork reviews. With accounts payable automation, everyone benefits, including the procurement team, accounting teams, approvers, auditors, and the CFO. 

Ensuring better profitability

When your AP workflow is automated, you eliminate fees and control your overhead costs, which boosts your overall profit. An automated system requires fewer AP staff to manage the process, which reduces your hiring costs while scaling your operations. 

How automated AP workflow works

Your AP workflow is one of the most important business processes you’ll implement for keeping purchasing and invoicing on track.

Here are the basic steps of accounts payable workflow automation:

1. Order submission: Accounts payable receives an approved purchase order created during the larger procurement process. After a Finance review, AP transmits the purchase order to the vendor for fulfillment. AP enters the information into their centralized vendor information database to begin the invoice automation process. 
2. Processing and fulfillment: The vendor processes the order and submits an invoice to AP. Electronic invoices are automatically routed to the system. This can happen directly within an automated platform, electronically through an email address, or by capturing a paper invoice with optical character recognition (OCR) technology. The system codes the payment automatically for entry into the general ledger (GL).
3. Three-way matching: The system checks the invoice, purchase order, and receiving information to ensure they match. In an automated workflow process, this process happens automatically without human data input or interaction. 
4. Invoice reconciliation: Once the matching process is complete, the system reconciles the invoice and sets it up for payment. Vendor payment is submitted through an electronic invoices payment workflow according to the payment terms outlined in the invoice. 
5. Vendor payment: Payment information is recorded in the accounting system and (if integrated) into ERP systems. Finance teams have full visibility into the transaction. 

Ebook

The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)

If your company’s balance sheet is not portraying an accurate picture, you’re shooting in the dark. Download the ebook to learn how to avoid this lethal pitfall.

Download

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Best practices for AP Workflow

Use these best practices in your current workflow to increase your efficiency and results.

Implement spend analysis

With full data visibility, Finance is empowered to identify spending patterns and use them to your advantage. Spend analysis can identify spending patterns by department, role, category, or location. This information can be used to adjust budgets, bring excess spending under control, and identify issues or potential problems in the company’s finances.

Establish a checks and balances system 

Manual tasks and paper invoices reduce your audit trail efficiency and open your business to accounts payable fraud. AP automation software enables three-way matching from invoice, payment, and reconciliation. You can easily monitor and track the cash flow to check for suspicious behavior, whether alone or with an audit team. 

Accounts payable software also creates automatic routing to the right approvers after integrating with your ERP. You can track each invoice and purchase order to the approver during audits. What’s more, you can separate those who write and approve checks to monitor their approvals. Lastly, you can suspend, authorize, or delay payments depending on your budget and demand. 

Increase cost savings

AP automation eliminates redundant work, such as invoice matching, payment processing, and checking for duplicates, which optimizes your AP staff’s workflow. By removing these manual processes, your team can spend time on higher-value work, such as improving future contracts and benchmarking costs to realize savings.

FAQ on AP workflow automation with Order.co

Accounting and Finance often have questions about automating their workflow process. Here are some answers to common questions: 

How do stakeholders submit requests? The AP intake system is different for every company. Some companies choose an email or web-form intake process. Others use procurement software to fully automate the purchasing process. With a platform like Order.co, stakeholders purchase goods through their own vendors or a network of 15,000+ pre-approved vendors. 

What happens if vendors send multiple invoices? All invoices are entered into the system with all identifying information in appropriate fields. This means a vendor file contains all the necessary information to process the payment. Individual vendor invoices are identified by their invoice number. Duplicate invoices are automatically detected to avoid duplicate payments. 

What if there’s an issue with an invoice? Suppose the system detects problems with an invoice, such as incorrect or incomplete information, unusual activity, or duplication issues. In that case, the AP team receives a notification to review the information and remedy the problem. These types of issues are drastically reduced using an automated electronic system.

Is AP automation worth the money? The cost savings in employee time, wages, and vendor fees, paired with the potential for discounts from those vendors, give you net savings when you invest in an AP workflow automation tool. 

Automate your AP workflow with Order.co

The time is right to reap the benefits of a fully automated purchasing and AP workflow. With Order.co, buyers get access to the goods and supplies necessary while AP supports impactful business goals (instead of just processing invoices). 

Order.co has all the features needed to automate and digitize your AP workflows: 

• Centralized purchasing for stakeholders
• Automatic line-level GL coding for purchases
• Three-way matching capabilities for processed orders 
• Electronic payment of approved invoices
• Integration and exporting for better data visibility

To learn more about automating your AP workflow for greater efficiency and savings, check out the Finance Automation Guide. It provides in-depth information about centralizing your AP payment process, increasing visibility, and maximizing the savings potential of your accounting process.