Armoring Accounts Payable: Safeguarding Every Transaction
Aug 30, 2023
Accounts Payable (AP) is an essential part of running a successful business. It’s the process of tracking, approving, and paying invoices and other bills incurred by a company. As such, it’s important to safeguard AP transactions against fraud and financial loss.
Strategies for Safeguarding AP
The first step in safeguarding AP transactions is to establish internal controls. Think of Accounts Payable as another gear in your systems and processes. Internal controls are policies and procedures designed to ensure that only authorized purchases are made and that all transactions are adequately documented and reported.
Risk Assessments
The first step in establishing internal controls is to conduct a risk assessment, which involves analyzing potential risks and establishing policies and procedures to address them. With a risk assessment, you’re looking to identify and mitigate risks associated with accounts payable.”
Segregation of Duties
The second step is to ensure segregation of duties, which just means assigning different responsibilities to different people to reduce the risk of fraud. For example, one person should be responsible for approving invoices, while another person should be responsible for entering the payments into the system. Especially in small businesses, keeping responsibilities separate can reduce risk and improve efficiencies.
Formalized Processes
The third step is to establish formalized processes for approving and paying invoices. Like we said – make AP part of the processes that predictably run your business. Include a clear set of guidelines for how invoices should be handled, such as requiring multiple approvals and providing a detailed audit trail for each transaction.
Minimizing Fraudulent Risk
In addition to establishing internal controls, several other steps can be taken to minimize the risk of fraud.
Setting up Payment Authorizations
One way to minimize fraudulent risk is to set up payment authorizations. This involves requiring multiple levels of authorization before a payment is made. For example, a company may require that invoices be approved by the accounts payable manager and the chief financial officer before they can be paid.
Automating Payments with Technology
Another way to reduce the risk of fraud is to automate the payment process with technology. Automation can help reduce the risk of human error and also make it easier to track and monitor payments.
Running Credit Checks on New Vendors
Finally, companies should run credit checks on all new vendors before entering agreements. This will help to ensure that the vendor is legitimate and financially stable.
Money-Saving Opportunities Through Better AP Systems
In addition to safeguarding AP transactions, several money-saving opportunities come with better AP systems.
Streamlined Processes
By streamlining the AP process, you can save time and money. We mentioned how automation can help minimize risk. Automating the process can also help reduce the amount of manual labor needed to process invoices, freeing up staff to focus on more strategic tasks.
Reduced Manual Labor
Automating the AP process can also reduce the amount of manual labor needed to process invoices. According to Financial Executives International, automating accounts payable can reduce the time spent on AP tasks by up to 75%.
Improved Reporting and Tracking
Finally, better AP systems can provide improved reporting and tracking. Automation can make it easier to monitor payments and ensure that they are being made in a timely and accurate manner.
In Review
Armoring accounts payable is essential for any business. Establishing internal controls, minimizing fraudulent risk, and automating the payment process can all help to safeguard AP transactions. Additionally, better AP systems can save money by reducing manual labor and improving reporting and tracking. By implementing these strategies, companies can ensure their AP transactions are secure and cost-effective.
