Accounts payable process under sales depa

SONU THOMAS, CHARTERED ACCOUNTANT
P2P
PROCURE TO PAY
PROCURE TO PAY
ACCOUNTS PAYABLE
ULTIMATE GUIDE
FOR
INTERVIEW PREPARATION
S O N U T H O M A S
C H A R T E R E D A C C O U N T A N T

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No part of this document may be reproduced, circulated or used in any
manner without the prior written permission of the copyright owner.
Copyright © 2022 Sonu Thomas
P2P – INTERVIEW Q & A – SONU THOMAS Copyright © 2022
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Explain end to end process of Procure to Pay?
Procure to Pay process is the process of Procuring any goods or services from a vendor, process the invoice and finally
release the payments. For simplicity there are 3 broad groups, which are Procurement, processing and payment.
PROCUREMENT
• Identification of the purchase Requirement
• Initiate a Purchase Requisition document and seek Approval
• Check the existing Inventory or Identification of Vendors – Existing vendors or Empanel new vendors
• Initiate a Purchase order and seek Approval. Share the Purchase order to the vendor.
• Delivery of goods or Services – Raise a Goods Received Note for materials received
PROCESSING
• Receipt of Invoice pack from vendors
• OCR Scanning of invoices and extracted invoice level information is loaded into systems
• Invoice is reviewed and Validated by Accounts payable team
• Seek clarifications, handle exceptions and obtain Service delivery approvals as the case may be
• Invoice is reviewed and approved by Accounts payable team and as per the approval matrix or approving limits.
PAYMENT
• Approved Value could be lesser than the Invoice value on account of disputes, retentions and net of withholding tax.
• Payments will be initiated on the due date based on contracted Payment Terms timelines
• Payment Batch will be run on the due date for all such payments due on that day
• Seek internal Approvals from the designated approving authorities to release bank payments to vendors
• Finally the Accounts are reconciled to give effect to the payment and knocked off from payables.
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Teams involved in P2P process?
There are few teams involved in end to end P2P process
• User Department - Team requesting goods or services
• Procurement team - Procures the goods or service
• Vendor Master team - Onboards the Vendor into systems
• Accounts Payable team - Process the invoices for approval
• Settlement or Treasury team - Releases the payment
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Advantages of a sound P2P process
• Seamless purchasing and payment
• Standardized and streamlined processes
• Improved Vendor management
• Cost advantage of centralized purchasing including volume discount
• Negotiate higher payment terms to support working capital management
• Spend analytics, reporting and decision making becomes easier
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Role of Procurement team?
• Vendor due diligence and selection
• Vendor negotiation
• Floating of RFP and receipt of 3 Bids/Quotes
• Review of Purchase requisitions
• Issue of Purchase orders to vendors
• Vendor training, Compliance
• Vendor performance management
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How do you approach Vendor due diligence
• Can the Vendor deliver the requirement ? – High Quality products and services and delivery timelines
• Is the Vendor credit rating good ?
• Are they financially secure ?
• How long have they been in business ?
• Do they have any references from existing clients ?
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Vendor selection process?
• Analyze the business requirements
• Search for the best vendors in terms of Quality, Pricing and Credibility
• Request for Proposal (RFP) or Quote (RFQ)
• Atleast 3 quotes are required to get a competitive advantage as per market prevailing rates.
• Evaluation of the proposal and Vendor selection
• Contract Negotiation (Pricing /Payment terms/Other terms)
• Master contract signing and
• Finally, Onboard the vendor in systems
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What are the Key points for Vendor negotiations ?
Key points for discussions and negotiations
• Pricing vs actual market costs – Lowest price
• Payment terms – Highest payment terms
• Discounts – Volume and early payment discounts to better overall cost and working capital
• Quality – Specify the standard requirements
• Maintenance services – Additional supports
• Warranty coverage – Coverage in terms of Defects or rework free of cost for a limited period.
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Importance of Vendor Credit rating?
• Supplies are integral part of business operations and Supply chain needs to be healthy
• Crucial Vendors should have a healthy working capital to avoid any disruption or delay in supplies.
• Credit rating can indicate financial health of the Vendor and
• Credit rating is one of the critical parameters of identifying the right vendors to do business.
• Factors like Quality of goods or services, Prices, Delivery timelines, Financial stability, Credibility, etc. are taken
into consideration for Credit rating.
• The objective of assessing the Vendor credit rating is to identify and engage with Suppliers or Vendors who
have good credit rating.
• Purchases for internal operations or for client support cannot be compromised at any cost. Hence, it is critical
to onboard the best Vendor and suppliers
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What is Vendor blacklisting?
• When a Vendor is not complying with the specifications, Quality or timeline and if the Vendor engages in Bid
rigging or Unethical conduct or there are frequent billing errors inspite of multiple reminders and warnings, we
may resort to blacklisting the vendor.
• We blacklist the vendor to avoid operational issues, rework, loss of reputation.
• In such instances the Vendor would be delisted, removed or suspended. No further business would be given to
this vendor.
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How do you onboard a Vendor?
• It begins with capturing of Vendor data
• Induct them to Organization’s Procurement policy and Invoice submission guidelines
• Emphasize the Quality, Compliance and delivery requirements
• Explain the Communication channels
• Encourage them to partner with us for any cost saving opportunities
• Get the Vendor to Sign and acknowledge the Antibribery clauses and disclosure of related parties etc.
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What is a Vendor Master ?
Vendor Master is the master set up in our systems where Vendor records are captured in a consistent manner. The
details captured are
• Vendor Name
• Vendor contact information
• Complete address of the vendor
• Payment terms
• Discount details if applicable
• Names of important contact persons
• Currency used for ordering, etc.
• Tax identifying information
• Bank setup / Bank account no.
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HSN and SAC codes?
• HSN is Harmonized System Nomenclature and SAC is Service Accounting Code
• It is internationally adopted system for commodity description and product nomenclature system developed by
the World Customs Organization (WCO) under the Goods and Service Tax regime
• HSN codes are used for goods and SAC for services
• All goods and services under GST in India are classified by an HSN code and SAC code. These HSN or SAC codes
are mentioned in the GST invoice.
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Contract based Purchases?
• Contract document is an agreement to purchase a goods or services from vendor as per contractual terms
• It forms the basis for payment against invoice
• Example : Contract to rent a facility.
• Contract will specify the parties involved, purchase specifications, price, period of contract, etc..
• Start date and end date is crucial
• Renewals are to be monitored
• Rate hikes may be applicable after a certain period if mentioned in the contract.
• Contract will also have various other terms like contract termination, liability, Audit etc..
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Purchase request and Purchase order
Purchase Requisition
• PR is a form used by user department to request purchase of goods or services
• User department notifies the requirement to procure raw materials for production, Office stationery, Software
licenses, Transport services etc
Purchase Order
• PO is a commercial document with an intent to procure goods or services from vendor.
• Buyer sends the PO to the Vendor
• With Product specifications and
• Purchase Quantity and Purchase price
• Also Indicating timelines for delivery
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Difference between PO and Non PO invoice?
PO invoice
• Purchase requisition process in place
• Purchase order sent to Vendor
• Invoice processed with 2 way or 3 way match
Non PO invoice
• Purchase requisition and Purchase order not in place.
• Invoice processed with approvals for budget
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Need for a Purchase order and approval?
• It prevents duplication of Order as PO is tracked
• Track the schedule of upcoming delivery of goods
• It helps in preventing price increases as this is a negotiated price
• Critical document to track approved purchases
• Authorize the purchase requirement and the spend as per the budget
• Every purchase has to be approved by a different hierarchy level in the organization according to the Purchase
value. More the purchase value, the higher would be the level of approval required to issue the purchase
order.
• This approval matrix is detailed out in a delegation of authority matrix. This matrix will have the approval levels
against different monetary limits set by board.
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PO Modification/Cancellation?
• PO modification/Cancellation should be an exceptional scenario
• Follows the same approval workflow
• Supported by a narrative for change
• It should be promptly communicated to the Vendor before the dispatch is initiated
• Any loss to the Vendor may impact the Vendor relationship
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GRN and MRN
• GRN/MRN stands for Goods Received Note or Materials Received Note
• It is deemed as a document to confirm the acceptance of goods or materials. Sometimes, we might receive the
ordered quantity in full but we might reject the damaged goods and accept only partial quantity. Hence the
need for a separate column in GRN “Accepted Quantity”
• Critical for a 3 way match during invoice processing and approval for payments
• If any of the items mentioned in the invoice is not found in GRN, those missing items value will be subtracted
from the invoice and balance amount only to be paid.
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Sample format : GOODS RECEIVED NOTE
GRN No. : GRN Date : Supplier Name : PO Reference :
Sl.No. Item
description
Pack Size Rate Ordered
Quantity
Received
Quantity
Accepted
Quantity
Comments
Received by : Verified by :

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How do you handle Purchase returns?
• Purchase return is return of goods back to the vendor. It can be partial or in full.
• It can be on account of Excess quantity, Different goods, Defective or damaged items.
• Ask for a revised invoice or a credit note for invoice and payment processing.
• ACCOUNTING ENTRIES
Purchase of Inventory/Asset on credit (Liability booking)
DEBIT - Inventory / Asset
CREDIT - To Accounts Payable
Purchase RETURN of Inventory/Asset on credit (Reversal of Liability )
DEBIT - Accounts Payable
CREDIT – To Inventory / Asset
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What is a Tolerance limit?
• Tolerance limits can be set for minor Variances in purchase receipt quantity or amount.
• Nature of the material if it is in tonnage or litres, a small variation is normally allowed as a tolerable variance
• This allows the system to make a payment beyond a 3 way match, to the extent allowed in tolerance limit.
• Tolerance limit is normally defined as a percentage and as a monetary amount.
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Example : Tolerance limit
Sl.No. Item
description
Ordered
Quantity
Received
Quantity
Variance Variance % or
Tolerance %
Tolerance
Limit
Accepted
Quantity
Comments
1 Metal
Sheets
2.000
Tonnes
2.010
Tonnes
+0.010 0.5% + 2% or
– 2%
2.010
Tonnes
Within Tolerance
limit, hence
accepted in Full

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How do you read payment terms?
• Payment term - 1/10, n/30.
• Here 1 represents 1 Percentage discount if paid in 10 days
• n/30 represents Net 30 days terms
• So the normal payment term for this Vendor is Net 30 days without any discount.
• If we pay in 10 days, we will get 1 Percentage early payment discount.
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Invoice
Invoice is
• Record of sale by Vendor
• Obligation of the customer to pay for goods or services provided by vendor
• Document which provides product or service details, quantity, price, value, discount, tax etc..
• It has Payment due date based on payment terms
• Commercial invoice is used for recording a Purchase
• Proforma invoice is not final invoice. Commitment for the sale.
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Mandatory fields in invoice?
• Invoice number and date.
• Customer Name
• Shipping and billing address
• Tax identification nos.
• HSN / SAC code
• PO reference and Buyer reference
• Item description, quantity, price, value
• Discounts and taxes
• Digital signature
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How is invoice inputted into systems?
• OCR based Intelligent data capture system scans and extracts the following information from Invoice.
• Vendor details - Name, Address
• Invoice details - Invoice number, Invoice date, Invoice amount, Payment due date, Discount, PO number,
Currency etc..
• Tax details - Tax ID, Tax amount
• Line level details - Product Description, Quantity, Price, Line Amount
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Supporting documents
Supporting documents are different for difference goods or services. Few examples for consideration.
• Services - Work completion certificate (WCC)
• Proof of delivery of goods - Delivery challan
• Weight confirmation of truckload of goods - Weighbridge tickets
• Training program - Attendance sheet
• Any effort based billing like physical security, facility maintenance staff - Time sheet or logs
• Transport - Vehicle logs
• Consumables - Third party Invoice
• Quality – Good inspection report
• Software – License unique reference
• Maintenance – Service logs
• Oil or fuel - Dipstick readings
• Power, Generator - Meter readings
• Travel & Entertainment - Air tickets, Accommodation supporting
• Proof of any payments on our behalf /Reimbursements - Payment receipt
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Invoice processing flow?
• Preliminary review of invoice
• Preliminary review of supporting documents
• Review of data captured from invoice scans
• Review of invoice, supporting documents
• 2way or 3 way match
• user department approvals (if necessary)
• GL codes, discounts, taxes are correct
• Reviewer 1st level clearance
• Approver (2nd level review)
• Rejection for modifications
• Approval clearance for payment
• Scheduled for payment
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Difference between CAPEX and OPEX?
CAPEX or Capital expenditure
• Incurred for future benefit.
• Increases earning capacity of business
• Expense to add value to the existing asset
• Purchase of fixed assets, new buildings, Equipment, Patents
• Depreciated over life of Asset across many years
OPEX or Operating Expenses
• Incurred for day to day functioning of business
• General and administrative expenses
• Transport, Office expenses, Salaries
• Opex is fully expensed /deducted in the current year
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Difference between Credit & Debit Memo?
Credit Memo and Debit Memo are documents which are generated to make a billing adjustment to a existing invoice for a
completed sale.
In case of overbilling, Credit Memo is a negative change in invoice amount to reduce the receivables in Vendor books
• Credit Memo is issued by the Vendor (Seller), Representing a credit
• This may be used to offset against the next payment.
• Net receivables = Invoice – Credit note
In case of overbilling, Debit Memo is a negative change in invoice amount to reduce the payables in Buyers books
• Debit Memo is issued by the Customer (Buyer) , Representing a debit
• This may be used to offset against the next payment
• Net Payables = Invoice – Debit note
In case of underbilling, Debit Memo is a positive change in addition to the invoice amount to increase the receivables in Vendor
books and increase the payables in buyer or Customer books.
• Debit Memo is issued by the Vendor (Seller) , Representing a debit
• Net receivables = Invoice + Debit note
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Difference between 2 way, 3 way and 4 way match?
2 Way Match Is between the
• Purchase Order and Invoice
• Additionally, Confirmation of service acceptance is taken to understand if
• 1.Invoice Quantity and price with 2.PO quantity and price
3 Way Match
• Purchase order, Invoice, Goods Received Note
• Invoice Price with PO price
• 1.Invoice Quantity with 2.PO quantity and 3.received quantity from GRN.
4 Way Match
• Purchase order, Invoice, Goods Received Note
• Invoice Price with PO price
• 1. Invoice Quantity with 2.PO quantity 3. received quantity from GRN and 4. accepted quantity from GRN
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Exceptional invoice processing?
• Business or operational exigency
• Deviation from standard protocols
• Document clear justification for audit purposes
• Deviation approval from leadership as defined or Approval matrix.
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Steps for Vendor payment
• Once the invoice is approved for payment, these invoices are in the system to be picked up for payment as per
the payment terms.
• Approved Value could be lesser than the Invoice value on account of disputes, retentions and net of withholding
tax.
• Payments will be initiated on the due date based on contracted Payment Terms timelines
• Payment Batch will be run on the due date for all such payments due on that day
• Seek internal Approvals from the designated approving authorities to release bank payments to vendors
• Payments can be done through check, Electronic fund transfer or even procurement cards
• Finally the Accounts are reconciled to give effect to the payment and knocked off from payables.
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One time Vendor Payment
• One time Vendor is a scenario where a Vendor will be used only once
• It occurs when we have to release a payment on account of
• Emergency purchase not in line with the normal procurement process. It is more or less an exceptional
payment processing
• Customer refund process is also through a one time vendor payment process.
• Automatic deactivation after the payment will be an effective internal control for one time vendors
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When do you make a short payment or Partial payment?
Short payments are Partial payments on account of
• Damaged items
• Delivery not fulfilled in entirety
• Discounts not applied
• Early payment discount deducted in payments
• Retention clause applied
• Missing items
• Delays or Penalty
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What is a retention amount?
• Retention is Holding back a portion of approved payment
• Generally a Percentage of deduction in progressive payments
• It acts as a security for completion of deliverables
• Retention amount is released after meeting deliverables, timelines, milestones
• We can hold back retention amount only if it is agreed in the contract or PO
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Taxes - GST?
Goods and Service Tax is an Indirect tax levied on the consumption of goods or services. It is similar to VAT or value
added tax, followed in some countries.
• CGST -Central Goods and Services Tax. Charged on Local Sales within State which is collected by Central
Government. CGST will replace taxes like Central Excise and Service tax
• SGST - State Goods and Services Tax. Charged on Local Sales within State. SGST is charged and collected by State
Government. SGST will replace taxes like VAT
• IGST -Interstate Goods and Services Tax. Charged on Central Sales (Sales Outside State) which will be charged
and collected by Central Government on Interstate Supply of Goods and Services. IGST will replace taxes like
CST(Central Sales Tax).
• GST on purchase is known as Input GST and on sales is known as Output GST.
• If the Output GST > Input GST = GST payable, If input GST is more, it is GST credit.
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TDS and its applicability?
• TDS is Tax deducted at source, similar to Withholding tax (WHT) in some countries.
• A person who is making a payment is liable to deduct tax in the form of TDS or WHT – if applicable and remit to
government.
• The Deductee would be entitled to get the tax credit in their account based on Tax certificate
• Different Tax rates are applicable for different services.
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Different modes of Payment?
Physical Check, Electronic Fund Transfer (EFT), Credit Card and Digital payments are some of the modes of payment
used while making purchases.
• Physical check has a longer float time of 5-10 days, as it is couriered to the vendor and then it is deposited with
the bank.
• Electronic Fund Transfer in the form of ACH or Wire transfers typically 1- 3 days
• Card and Digital payments gets credited on the same day
Purchasing card (P-Card) - Form of company charge card that allows purchase of goods or services. Issued to
employees who are expected to follow their organization’s policies and procedures related to P-Card use, including
reviewing and approving transactions. P-Card are replacing other payment modes
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Role of AP team in ensuring sound P2P process?
• Timely payments
• Vendor relationship management
• Working capital optimization
• Cost reductions
• Compliance
• Eliminate fraud or excess payments
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What is Accounts Payable and AP ageing?
Accounts Payable is amounts owed to Vendors, for purchase of goods or services, on credit. It is shown as a liability
in Balance sheet
AP Ageing review
• Aged items needs to be researched
• Disputed invoices will need a discussion with vendors for actions or closure
• Partial amounts not paid on account of excess billing may be squared off immediately
• Retention invoices can be kept on hold under the respective category
• Instances of invoices including duplicates may be identified during such reviews and such invoices needs to be
cancelled out
• These reviews help in reflecting the correct liability
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What does debit balance in Vendor ledger signify?
• Vendor balances are normally in CREDIT as they are payable to Vendors.
• If the Vendor balance is DEBIT, then it only signifies that it is a RECEIVABLE from vendors.
• Debit balance in Vendor account maybe on account of Payment to Vendor more than what is actually due –
For example, Duplicate, excess or advance payment.
Actions we can propose:
• Ask for immediate refund
• Adjust in the immediate next invoice payment
• As a last resort, send a legal notice.
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Review of Open PO’s and Capital commitments?
• Capital commitments are forecasted or projected capital expenditure on a long term asset in the near future.
• High value open Purchase orders which can affect the future cash flows and working capital are to be disclosed
• It is important for Internal and external stake holders to understand the future cash outflows on account of
such High value capital commitments.
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Accruals and Prepaid expenses
• Accruals refers to the expense incurred but not recorded in books. Typically these are expenses incurred - Invoice not
raised by vendor for expense booking.
Adjustment entries are passed to record these entries in the form of accruals to reflect the correct expense in financial
statements.
Accrued expense is shown as a liability. Prudent accounting practice to book the cost in the period when it is incurred.
This helps in avoiding risk of unrecorded liability
• Prepaid expenses are expenses where payments have been already made but services will be received only in the
future period.
Initially the entire amount paid is shown as Prepaid expense under Current Asset in Balance sheet.
As we start receiving the services, the proportion of the service received will be treated as expense in that period and
the balance amount will continue to be shown as Prepaid expenses under Current Asset.
For example, Prepaid Insurance paid in advance for 12 months, and expensed out every month
Review of Accruals and Prepaid schedule will help in identifying if the expenses are booked accurately in the right
period.
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Prepayment or advances?
• Vendor may have a clause for advance or prepayment
• Sometimes it may even be 100 Percentage
• Prepayment should be applied to the vendor account to avoid duplication of payments.
• Prepayment should be knocked off in the next invoice payment.
• Review the ageing of such unadjusted advances and take suitable actions
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Review of Deposits
• Deposits are paid to vendors as per the agreement or sometimes based on government mandate.
• For example, Rental deposits under rental agreement, Electricity deposits etc.
• They are shown under Assets, since they are refundable deposits.
• Proof of payment needs to be retained for recovery of refundable deposits.
• Deposits tracker with due dates and acknowledgement reference to be maintained
• Review of deposits schedule/tracker monthly will help in initiating refunds when the service or contract expires
or ceases to exist.
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What is DPO?
• Days Payable Outstanding
• Financial ratio or measure
• Average time to pay vendors
• High DPO is desirable from working capital perspective
• High DPO can also signal a cash shortfall and inability to pay vendors on time.
Days Payable Outstanding (DPO) computed as below:
(Accounts Payable / Cost of Goods sold) * No. of days in the period
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Travel expense reimbursements
• Every organization will have a Travel Policy for its employees– which clearly lays down the travel guidelines. How each cost
element of Travel, whether it is Travel booking, Accommodation, Meal expense, local transport, Client entertainment expenses
etc. are handled. Guidelines of the mode of travel expenses claim, timelines, supporting documentation, approvals etc.. Also
the Definition of Allowable expenses, not allowable expenses, personal expenses are defined clearly.
• Amounts are advanced to an employee in the form of Cash Advances / T&E Card prior to travel or even recharged during the
travel which is subsequently adjusted in the travel claim
• Travel mode like flights, trains even cab Bookings and Accommodation bookings are to be done through the Travel Desk and
well before time to take advantage of lower or discounted fares.
• Employee can submit claims on actuals expenses or on Per Diem Allowance( which is a flat rate of allowance per day depending
on the company policy. If the claims are on actuals then all supporting documents are to be submitted along with the claim. If
its on Per diem allowance then supporting documents are not required
• The claims are then reviewed by the Travel expenses team
• If there are any clarifications, they are sought from the employee and if there are any claims which is not in line with the
process, then it is dealt as per the policy or exceptional approvals are sought for deviations.
• If the claim is complete in all aspects and line with the company policy and approvals, then it is approved for payment
• Pay-out or Settlement is made directly to the employee bank account
• If there are any unsettled amounts/ advances, then Payroll recovery is initiated.
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What is SOD ?
Segregation of duties or SOD is an internal control designed to prevent error or fraud, by having two or more
persons in separate activities to complete one task or one transaction.
Maker and checker, Preparer and reviewer, Initiator and approver etc.. are some common examples.
• Accounts Receivables team – Collection/cash custody and Cash application/reconciliation team
• Accounts payable - Vendor master bank account updation and approval, Purchase order and approvals, Invoice
processing reviewer and approver
• HR /Payroll – Recruitment/Hiring and Compensation team
• Settlement team – Fund transfer or payment initiator and approver. Payment and Bank reconciliations.
• General Ledger - Journal entries – Preparation and approval
• Assets – Receiving and maintaining assets
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Fraud red flags?
• Collusive bidding by vendors – winning in turns
• Related party vendors – Hand in Hand with employees
• PO splitting to circumvent approval limits
• Invoices just below the approval threshold
• Unapproved or Ghost/Fictitious vendors
• Multiple large payments to one vendor
• Duplicate payments to same vendor
• Vendors price which is Unusually high or low
• Buying from Vendors with frequent quality concerns
• Unauthorized bank account changes
• Management override
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How important is Access reviews ?
Physical Access – Only authorized team members should have access to physical documents, checks etc..
System Access – Access to all financial and non financial information through systems
• Role based access – Need based only
• Team - Read/Write/Modify
• Approver – Approve and Read access alone
• Auditors – Reports - View access alone etc.
• Access reviews should identify any access which needs to be removed or retained
• Ideally, if an employee resigns or moves out of the role, the access has to be revoked before the Last working
day.
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Finance Head reviews?
• PO Ageing – Invoice non submission/PO Duplicates
• Invoice Ageing - Disputes
• GRN Ageing – Invoices non submissions
• Deposits – Refund schedule
• Advances – settlement plan
• Pre-paid expenses - Expensing
• Accruals – Liability booking
• Taxes – unreconciled items
• Open items in BRS – unreconciled items
• Control account balances – Unreconciled items
• Budget versus Actuals - Variances
• System access – Unauthorized access termination
• Exceptions during the month – Design controls
• Audit observations – Remediate
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Preventive Controls
Preventive controls are designed to stop errors or irregularities before occurrence
• PO Approval
• Invoice approval
• 3 way matching
• Duplicate invoices checks
• Segregation of duties
• Centralized invoice receipt
• Physical control over assets (Cash/Checks)
• Vendor due diligence
• Rotate employees in AP function
• System access controls
• Policy and procedures
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Detective Controls
Detective controls are designed to identify errors or irregularities after its occurrence
• Review of Exceptions or error reports
• Random audits
• Vendor master deactivation
• Confirmation of balances from vendors
• Variance or Flux analysis
• Review of journal entries (Non standard)
• Monthly review and reconciliation of balances
• System access reviews
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Corrective Controls
Corrective controls are designed to remove errors or irregularities after they are detected
• Blacklisting of Vendors
• Non PO purchases ratification
• Exception handling procedures
• Rectification of Journal entries
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How is a duplicate payment avoided or addressed?
Adhere to following Controls before the payment is released
• Regularly review your vendor master files to remove duplicate vendors.
• Have all invoices sent to a central location first.
• Double check for data entry errors.
• Don’t pay from multiple source documents.
• Only pay from Original invoice
• Get vendors to provide appropriate PO numbers.
• Review for duplicates - set combination rules - Vendor, invoices, dates, amount, service period or quantity
combinations
If the payment has been released
• Issue a debit note to the vendor and get the amount adjusted in the immediate next payment
• If there are no transactions, then ask for an immediate refund from the vendor.
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SOX Compliance
• Congress passed The Sarbanes-Oxley Act (SOX for short) in response to major accounting scandals that took place in the early
2000s, including Enron, WorldCom and Tyco International. These scandals led to significant losses of assets among
shareholders of these companies.
• The SOX Act is a US federal law enacted in 2002 to improve financial disclosures of publicly traded companies and to protect
investors and clients from accounting errors and fraudulent practices in corporations. In short, to emphasize Internal control
over financial reporting
• Section 302 - Corporate Responsibility for Financial Reports. CEOs and CFOs must certify that they have reviewed the report
being submitted and that it “does not contain any untrue statements”. Signing officers are required to evaluate these controls
and ensure they have been effective within 90 days leading up to the report and that any “deficiencies” in the design or
operation of these internal controls have been identified and communicated to the issuer’s auditors.
• Section 404 - Management Assessment of Internal Controls. Management establish “adequate internal control structure and
procedures for financial reporting” and each registered public accounting firm that prepares or issues the audit report for the
issuer shall attest to, and report on, the assessment made by the management of the issuer.
KEY CONTROLS
• Vendor payments controls - excess or duplicate payments, DOA – Approving limits, Accruals – Accuracy and completeness
• Vendor recon, Accounts Payable and General Ledger recon, Tax Recons, 3 way match.
• Review of AP Ageing, Advances, Deposits, Prepaid expenses
• Segregation Of Duties controls, Access controls
ST

58
How do you measure overall AP efficiency?
• Invoice cycle time
• Percentage of invoices processed straight (PO/Invoice/GRN) – First pass match Percentage
• Cost to process each invoice
• Percentage Payment errors (incorrect amount)
• Percentage E-invoices
• Unresolved exception invoices
• Ontime payment Percentage
• Early payment discount availed Percentage
ST

59
Challenges in AP processing?
• Manual data entry
• Missing Invoices
• Duplicate invoices
• Incomplete supporting documents
• Vendor queries
• Payment errors
• Non PO invoices
• Approval from incompetent authority
ST

60
Cost savings or reductions?
• Automations – Reduce manual efforts
• Consolidation of invoices – Reduce volume
• Consolidate purchases – Avail volume discount
• Eliminate underutilization
• Eliminate rework
• Use Robotic Process Automation for repetitive tasks
ST

61
Query management?
• Inbound Query – Payment status, Tax certificates, GST, Audit confirmations
• Outbound Query – Invoice clarifications, Invoices not submitted, vendor setup documents, GST
• How to reduce Queries
Publish Frequently asked questions (FAQ)
Publish invoice submission guidelines
Publish invoice processing timelines
Exclusive portal for knowing invoice processing status for each vendor, Access restricted with login
ST

62
Key Achievements?
Some of my Key achievement includes:
• Operational Efficiency – Paid vendors on time (high Percentage) , Error rates were low (Low Percentage)
• Month end close process (Efficiency, streamlined, faster close)
• Automations – Workflows, Accruals, Data capture, Chatbots, Visual dashboards - (Quantify efforts saved in
Man-days)
• Cost savings – Discounts, utilization benefits (Quantify in acceptable currency)
• Documentations – Policy, SOP, Checklists, FAQ - (Benefit/Appreciations)
• Internal Controls – (Robust control mechanism/Automated/tools)
ST

63
Improve performance – Based on Future trends of Accounts payable?
• Optical Character Recognition
• Robotic process Automations
• Artificial Intelligence
• Software supporting remote working
• Data security - Cyber crime
• Digital payments
ST

64
Why do you think you would be the best fit into this accounts payable role?
• I am Process oriented
• Have required domain expertise – Be it Processing, Month end close or Management reporting
• Acumen for financial savings and cost reductions
• Eye for details and am Control conscious.
• Strongly believe Automation is the key to process efficiency and improvement
• Have experience in handling Audits, Vendor, Bank, Third party management
• Have led large teams
ST

65
What will you do when you know that vendor is a related party to Procurement/other teams?
• Act with high level of integrity and professionalism
• Review if the POC is part of the review or approval of such PO’s, GRN or invoices
• Seek additional approvals as deemed necessary to avoid conflict of interest
ST

66
What will you do when you know that vendor is a related party to you when you are in Accounts Payable
team ?
• Inform immediate manager that I am a related party
• I will not be a part of the review or approval of such invoices
• Avoid conflict of interest
• Act with high level of integrity and professionalism
ST

67
What will you do when you get a request for Bank account change?
• Validate the request
• Is it from the Authorized representative of the Vendor ?
• Is it in the Vendor company letter head ?
• Is the new bank account supported by a bank letter or crossed check leaf ?
• Get a telephonic confirmation on the bank account details directly from the Vendor AP team (Important point
for consideration, I will use the Telephone no. from our Vendor master database and not from the contact no.
provided in the request letter). We would need a independent confirmation.
• Then proceed with the change if we are satisfied with all of the above.
ST

68
What will you do when you find unreconciled BRS items?
• Review the nature of unreconciled items
• Review the ageing of unreconciled items
• Reverse stale checks
• Account amount returned or refunded
• Research other open items and agree on the action plans and timelines to get it to closure.
ST

69
What will you do when you see underutilization of goods or services?
Ask for
• reasons or justifications for underutilization
• immediate plan for utilization and obtain assurance
• Utilization trends for past purchases
• Check with the vendors
~ if materials with short expiry can be replaced free of cost or for a small charge
~ If licenses can be extended for a small charge.
• Ensure these expenses are tracked for subsequent spend budgets.
ST

70
What will you do when you see similar goods purchased at higher rate from vendors?
• Raise it with the procurement team
• Ask for the justification of purchasing at higher rate
• If justification is not convincing, get it to the attention of Internal audit or Compliance team for further review
or discussions.
• Ensure there is a conclusion on this concern and guidance is provided for subsequent purchases and tracking.
ST

71
What would you do if a senior asks you to release payments to vendors before due date?
• Understand the justification or reasoning for such requests
• If it is a reasonable request, follow the exceptional invoice processing procedures for the organization. Get
necessary exceptional approvals as per the defined process.
• If it is not a reasonable request and more of management override of controls, Involve the compliance team to
make the final recommendation and provide guidance.
ST

72
How do you handle Invoice disputes?
Invoice disputes are on account of
• Difference in pricing or quantity
• Concerns on quality of product
• Invoicing errors – Excess or double
• Missing reference to the Purchase orders
• Discount not applied
• Taxes applied incorrectly
To resolve this
• Notify the Vendor and seek clarifications or resubmission of correct invoice
• Reject the incorrect invoice from system – with Reasons
• Notify the buyer department on the status.
ST

73
What would you do when you see frequent concerns in the invoice submissions?
• Provide training/organize workshops to the vendors and emphasize the following
• The importance of timely submission of invoices
• The Accuracy and completeness of the invoice
• Adequacy and completeness of the supporting documents to process the invoice
• Share invoice submission guidelines and checklists
• Highlight past errors and what needs to be corrected in future submissions.
• In essence, we need to handhold the vendors and partner with them to resolve these concerns. If there is no
intent of improvement, we may have to blacklist the vendor and not engage with them.
ST

74
How will you set a new AP process?
• Procurement policy, Standard operating procedures and invoice processing checklists.
• Define roles and responsibilities
• Clear Segregation of duties – No conflicts
• Process oriented team which understands compliance requirements as well
• Approval matrix
• Exception handling procedures
• Automated workflow solutions
• Embedded controls to mitigate financial risks
• Define Key performance Indicators
• Visual Dashboards for Leadership
• Monthly schedule reviews and Signoff’s
ST

75
How well do you work when there is a deadline for payment?
• Assess the situation and the time on hand to meet a deadline. It will help me identify the best course of action
to achieve desired outcomes.
• With the solution on hand, I will focus on the requirement and prioritize following activities to meet the
deadline
• Reviewing the Invoice for correctness
• Reviewing the adequacy of supporting documents
• Engage with Vendors for any clarifications
• Address all concerns to have the invoice processed and scheduled for payment
• I will take this as an opportunity to serve the Vendors better and create a lasting relationship.
ST

76
What will you do if a Vendor offers you a gift?
• I would politely refuse the gift, stating that it is against the Organization policy to accept gifts.
• If the vendor insists on giving a gift
~ If it is below the monetary limit of acceptable gifts as per policy, accept it with an intimation to your
immediate manager
~ If it is above the monetary limit as per policy, check with your compliance team for recommendations to
handle the situation with this sensitive vendor partner.
ST

77
Your relative is looking for a job and the Vendor offers a role in their company. Your response?
• I would politely refuse the offer, stating that it is against the Organization policy to accept such favors.
• If the relative had already applied for the job and is getting it on own merits, then it should not be a
problem.
ST

78
Opportunities for Automations
• Monitor reordering levels and place orders
• Purchase requisitions workflow – avoid duplicate requests
• Purchase order approval routing as per approval limits – Approval and Budgetary control
• Purchase order coding to GL accounts – streamlines accounting
• E-Invoicing – Electronic Data Interchange (EDI)
• Invoice scanning – Intelligent data capture
• 3 way matching and approval workflows
• Automated payments and standing instructions for recurring payments
• Query management – Chat bots
ST

79
Would you be able to give a Projected cash outflow-(Vendor payments) for next 2 months?
• Cash outflow on account of vendor payments can be projected based on available information
• Approved Invoices in system – payment schedule dates or due dates (ideally same) can be used
• Invoices in review queue – Payment due date based on payment terms can be used
• Invoices not received – Accruals can provide a rough idea on amount and when it may be paid.
• This will provide a forecasted cash outflow requirement with indicative timelines only.
• Timely invoice submission plays a crucial role in cash flow projections.
• This Projected cash outflow has to be computed regularly to reduce the gaps and make it as complete and
accurate as possible.
ST

80
Tell me a scenario where you made a wrong payment and how you handled it?
• I had made a duplicate payment for the same service period to a vendor, since the invoice was billed twice
under different invoice nos.
• However, I took responsibility for the error and took the following actions.
• Discussed the issue with the vendor and asked for an immediate refund.
• Instructed the vendor to not repeat such inadvertent errors
• Established an automated control for duplicate checks, which included the service period as well with other
combinations of duplicate checks.
• It was a learning experience to acknowledge an error, own it up, correct it and ensure it doesn’t recur again.
ST

81
What will you do when you see excessive purchase on account of volume discount?
Ask
• If we did a Cost benefit analysis before purchase?
• Check the basis of arriving at such a high requirement ?
• Ask for consumption plan of this volume ?
• Keep the senior management informed on any potential monetary loss.
ST

82
Controls around PO
Two critical internal controls around Purchase orders are :
• Ratification of PO or Backdated PO – Normally the Purchase order nos. are auto generated numbers and
would be in a sequence. When we review the sequence of PO’s generated, the dates also has to be in
chronological order. If we find a PO with a back date or a date which is out of place, then that PO may not
have followed the normal PO process and this PO could be a PO in ratification to normalize a purchase without
a purchase order. In some cases, this can be a Fraud red flag.
• Circumventing PO Process – In some cases, we may observe that there are multiple purchase orders to the
same vendor in a short duration. We may have to research these transactions to understand if one high value
purchase which required a high level approval was split into multiple low value purchase orders to circumvent
the PO approval process. With a low value purchase you may need approval from a lower authority than it
actually should have been. In some cases, this could be a Fraud red flag.
ST

83
How will you explain the role of a Vendor to prospective Vendors
• Strategic vendor partner’s role will include
• Adhering to Organization’s Procurement policy and Invoice submission guidelines
• Ensuring the Quality, Compliance and delivery requirements are never compromised
• Identifying any process improvement – cost saving opportunities
ST

84
What will you do when a vendor reconciliation exercise shows a lower balance in Vendors books?
• Identify the specific invoice or invoices which are not matching
• Research if it is an internal error and correct it in our systems to reflect the correct balance.
• If its not an internal error, discuss with the vendor and have this clarified.
• It is imperative to be transparent with the vendors and act with high level of integrity and professionalism.
ST

85
If you are hired, what will be the first thing you will do in your new role in AP?
• I will review the available documentation and understand the existing process and controls (AS-IS process)
and
• Suggest or recommend improvements (including automations) in process and controls (TO-BE process)
My Focus areas would be :
• Operational Efficiency – Paid vendors on time (high Percentage) , Error rates were low (Low Percentage)
• Month end close process - Efficiency, faster close
• Automations – Workflows, Accruals, Data capture, Chatbots, Visual dashboards
• Cost savings – Discounts, utilization benefits
• Documentations – Policy, SOP, Checklists, FAQ
• Internal Controls – Robust control mechanism, Automated and inbuilt checks, Audit tools
ST

86
Your contribution to working capital optimization?
• Recommended to change the payment terms from invoice received date instead of Invoice date
• Brought in discipline of timely invoice submissions
• Lesser pressure on accruals accounting
• More time for the teams to process the invoices
• Standardization of Vendor payment terms in line with the customer payment terms.
• This helps in keeping the working capital intact.
ST

87
Basic accounting journal entries ?
Purchase of Inventory/Asset on credit (Liability booking)
DEBIT - Inventory / Asset
Expenses incurred on credit (Liability booking)
DEBIT - Expense
Payment made to creditor
CREDIT - To Bank
Payment made to creditor after discount
CREDIT - To Bank
CREDIT - To Discount
ST
Advance to Vendors
DEBIT - Advance to Vendor
CREDIT - To Bank
Purchase of Assets against advance
DEBIT – Asset
CREDIT - To Advance to Vendor
Prepaid expense - Insurance premium paid in advance
DEBIT - Prepaid Insurance
CREDIT - To Bank
Expense booking every month against the prepaid expenses
DEBIT - Insurance expense
CREDIT - To Prepaid Insurance

P2P
PROCURE TO PAY
SONU THOMAS
+91 98849 09770
sonujaison@gmail.com
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