Best practices in Accounts payables.ppt

1. Best Practice Financial Processes:
Accounts Payable

2. 2
PwC175b(1)
Accounts Payable
Objectives
Organisation People
Processes
Controls
Measures
Information Systems
 To maximise processing efficiency
 To ensure invoices are processed to agreed
terms
 To ensure payments made only when due and
payable
 To ensure liabilities are fully recorded and
distributed correctly
 To achieve effective balance between extending
credit and maintaining good relations with
suppliers
 To take full advantage of opportunities to recover
VAT
 Centralised processing
 Outsourcing potential
 Maintaining supplier
details
 Process vouchers
 Process payments
 Period end
processing and
reporting
 Authorisation rules
 System access controls
 User procedures
 Validation and matching
rules
 Speed of processing
supplier amendments
 Invoices processed
 Invoice processing
time
 Number of payments
 Period end closure
time
 Interface between
Accounts Payable and
other related processes
 Shared employee and
supplier details
 System validation and
approval checks
 Supplier relations
 Creditor control
Accounts Payable - Best Practice Objectives

3. 3
PwC175b(1)
Accounts Payable - Best practice features
 Authorise and set
up new suppliers
payment details
 Maintain supplier
payment details
 Segregation of
duties between
supplier set up,
voucher
processing and
payment
processing
 Accounts payable
process vouchers:
invoices, expense
claims, credit notes,
debit memos and
prepayment requests
 Suppliers required to
use PO number on all
documents and three
way match wherever
possible
 Consolidated periodic
invoicing for high
frequency suppliers
Process Features
Maintain supplier
details
Process vouchers
 Optimisation of
early payment
discounts
 Payment runs
properly
authorised
Process payments
 All transactions
completed before
period closed
 Reconciliation of
Accounts Payable
activity and
reconciliation with
General Ledger
control account
 Management
reports run once
period is finally
closed
Period end
processing
and reporting

4. 4
PwC175b(1)
Accounts Payable - Best practice features
 Single supplier
database
 Single employee
database
 Audit trail of
changes to
supplier
payment details
 Purchase invoices
transacted via EDI with
major suppliers wherever
possible
 Electronic validation and
approval of invoices
 Automatic matching of
invoice to order and goods
received note (GRN)
 Interface with General
Ledger, Purchasing, Fixed
Assets and Project
Accounting
 Use of workflow software to
resolve queries and monitor
process
System Features
Maintain supplier
details
Process vouchers
 Electronic payments
 Default payment terms
held on supplier file with
manual override at P.O.
and invoice
 Production of forward
payment entry schedules
to aid cash flow
management
 Interface with General
Ledger, Fixed Assets,
Project Accounting and
Cash Management
 Facility to suspend
payments
Process payments
 Integration with
General Ledger
minimises
reconciliation
adjustments
 Transaction
processing
prevented for
closed periods
Period end
processing
and reporting

5. 5
PwC175b(1)
Accounts Payable - Measures/Cost drivers
 Number of invoices received per month
 Number of suppliers
 Number of different terms and conditions
 Complexity of authorisation process
 Proportion of invoices automatically matched with PO's
 Number of supplier queries
 Proportion of invoices received electronically
 Proportion of payments made electronically
Median
16 days
90 percentile
49 days
90 percentile Median 10 percentile
Number of purchase invoices per FTE per annum
15,000
7,000
3,000 or less
Cost per purchase invoice processed
10 percentile
Median
90 percentile
£2
£6
£17
10 percentile
6 days
Invoice processing time in days Cost drivers
Source: statistics taken from Benchmarking database 21 January 1997

6. 6
PwC175b(1)
Accounts Payable - Trends
From To
 Separate AP module
 Payment by cheque
 Manual matching
 Performed by finance department
 Integrated systems
 Electronic payment
 On-line matching
 Shared Service Centres or
outsourced services

7. 7
PwC175b(1)
Accounts Payable - Critical Success Factors
These are a summary of the key business requirements, which must be met to
achieve the objectives.
 Single supplier database
 Staff trained in AP process and have clear roles and responsibilities
 Payment terms defined and agreed with supplier
 Effective communication and feedback mechanisms in place to handle queries
 Establish and maintain good supplier relations
 Process in place for monitoring the status of invoices and payment schedules
 AP calendar in place and communicated to staff
 Authorisation levels and payment terms held on the system
 Automated workflow to route documents to relevant personnel when problems need to be
resolved
 Forward payment schedule to cashflow management
 Flexible matching criteria

8. 8
PwC175b(1)
Accounts Payable - Appendix 1 : IDEF Process Flow
The diagram below provides a key to the process diagrams used in this document.
Process
/ activity
Controls
(i.e.
 Procedures
 Standards
 Requirements for rework)
Output
(i.e.
 Information
 Material)
Resources
(i.e.
 People
 Functions
 IT systems
 Machines)
Input
(i.e.
 Information
 Material)

9. 9
PwC175b(1)
Accounts Payable - Level 0 Context Diagram
Group / Mgt.
team
Fixed Asset
Register
Purchasing
General
Ledger
Suppliers /
Employees
Supplier/Employee
amendments
Invoice
/
Payment
details
Human
Resources
Cash
Management
Project
Accounting
Accounts
Payable

10. 10
PwC175b(1)
Accounts Payable - Level 1 Overview
Voucher approved for
payment
New period open
Payment details ready to
post to General Ledger
Payment and
remittance advice
Voucher : Invoice/expense claim/
Credit note/prepayment request
Notification of changes
from supplier or employee
Maintain
supplier details
AP 1.1
Process
vouchers
AP 1.2
Process
payments
AP 1.3
Period end
processing and
reporting
AP 1.4
Voucher processing procedures
Authorisation rules
Matching rules
System validation and approval checks
Exception handling procedures
AP dept
AP system
PO system
Supplier
Requisitioner
Batch controls
Authorisation rules
Reporting guidelines
Posting controls
Reconciliation procedures
Period end timetable
AP dept
AP system
Payment device
Authorised personnel
AP
AP System
HR
Authorisation procedures
System access controls
Up to date
supplier
records
Vouchers filed
AP dept
AP system
GL system
Management Reports
Employee joiners and
leavers details
Maintenance request
Approved vouchers ready to
post to General Ledger
Voucher details available on-lne to Fixed
Assets and Project Accounting
Cancelled vouchers reversed
out of AP and filed
Payment details available
on-line to cash
management
Payment cancelled

11. 11
PwC175b(1)
Accounts Payable - Notes Maintain Supplier Details
Best Practice Features
 Shared supplier database with Purchasing. Purchasing responsible for approving suppliers (having made
the required checks), agreeing terms and conditions and maintaining general and purchasing related
supplier details on the database, including payment terms. Accounts Payable responsible for maintaining
all payment related supplier data, such as bank details, payment method, payee name and address,
payment contacts.
 Shared employee database with Human Resources. Employee details are maintained by Human
Resources, but sufficient details must be held and maintained by Accounts Payable, to allow payment of
expenses. Employee details required include payment method, bank details, remittance address, payee
name and employee cost centre. Accounts Payable should not have access to other confidential employee
data.
 One payment address for each vendor. Where a vendor provides goods or services from a number of
locations, the consolidation of the payment process not only reduces the number of payments necessary
but also removes the potential need to reconcile a number of individual accounts.
 Centralise the vendor set-up capability in order to minimise the risk of unauthorised or duplicate vendors
being set up more than once. From an audit point of view, the control over vendor set up is also viewed as
a critical activity which needs to be tightly controlled.
 Changes to supplier details are processed expeditiously.
 If, the vendor is also a customer, details are consistent in both databases.

12. 12
PwC175b(1)
Accounts Payable - Notes Maintain Supplier Details
Internal Control requirements
 New suppliers must be checked and approved by Purchasing in accordance with company policy.
Similarly, Purchasing are responsible for processing any mergers, acquisitions or deletions. To enable
efficient invoice payment processing and ensure segregation of duties, Accounts Payable are responsible
for the maintenance of all payment related supplier data. In addition, authorisation for payments within
Accounts Payable should be separate from the responsibility of maintaining supplier payment data and
processing vouchers. Audit of changes to supplier payment details must be possible.
Key Performance Indicators
 Time taken to process supplier amendments.

13. 13
PwC175b(1)
Accounts Payable - Notes Process Payments
Best Practice Features
 Use of electronic banking systems for payments, thus minimising the need for manual
intervention in the process.
 Centralisation of the payment processing in order to minimise the risk of making duplicate
payments.
 Payments made no sooner than the due date in order to maximise cash flow benefits.
 Facility to suspend individual payments. The withholding of payment can be a powerful tool in
ensuring that the vendor complies with any requirements asked of it.
 Avoid payments in cash. Apart from being costly to administer, the potential for fraud is
greatly increased.

14. 14
PwC175b(1)
Accounts Payable - Notes Process Payments
Internal Control requirements
 Payment processing needs to be tightly controlled and totally segregated from
vendor set-up and invoice processing activities.
Key Performance Indicators
 Number of payments per FTE.
 Number of overdue payments.
 Number of payments made too early.

15. 15
PwC175b(1)
Accounts Payable - Notes Process Payments
Cost Drivers
The following generate the costs for the processing of payments:-
 Number of payment runs.
 Number of manually prepared payments.
 Number of payment media (cheques, vouchers, diskettes, etc.).
 Number of foreign payments.
 Varied payment terms.
Reports
 Summary of payments per run.
 Payments on hold.
 Reports on Key Performance Indicators.
 Overdue unpaid invoices

16. 16
PwC175b(1)
Accounts Payable - Notes Period end processing and reporting
Best Practice Features
 Automatic process requiring little or no manual intervention.
 Posting to GL should be daily. This ensures GL data is up to date and also reduces the time
taken for the period end posting as fewer records are being processed.
Internal Control requirements
 The basic requirement is to ensure that the data transmitted to the general ledger is
complete and on time. There is a requirement to ensure that the information recorded in the
general ledger agrees with the output from accounts payable.
Key Performance Indicators
 Delivery of information to general ledger on time
 Timely delivery of end of period reports
Cost Drivers
 Volume of transactions
 Time to close periods
 Degree of automation in the interface with general ledger