The problem with Accounts Payable – and how to fix it

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For too long, Accounts Payable teams have relied on standard controls to spot risks and avoid costly payment errors. But these traditional processes fail to prevent many types of fraud and overpayments, exposing organisations to serious risks. Indeed, some organisations lose a whopping 5% of their revenue to fraud and overpayments each year.

Standard controls like ERPs, three-way matching, and recovery audits are used by almost all companies. But they’re a product of their time – when the AP landscape was far less dynamic, fast-moving and complex. With the industry evolving rapidly and fraudsters growing ever more sophisticated, Procure-to-Pay teams need to look beyond outdated legacy processes and embrace new technologies.

The old model

Your ERP systems and internal controls are not enough to protect your bottom line

ERP systems offer almost no support in managing supplier and payment risks.

Human error is a fact of life in P2P, where incorrect coding and keying of invoice details is commonplace. The move to OCR and automation hasn’t improved the picture – with typical accuracy rates of 97%, you can expect 30 errors per 1000 invoices scanned. ERPs will only flag duplicate payments when all columns match, and provide no anomaly detection capability for other issues such as incorrect postings or tax issues. Many large companies still rely on legacy systems, and this problem is exacerbated by having multiple ERPs that do not talk to each other. All too often, information is siloed and fails to tell a holistic story.

ERPs are programmed to perform standard tasks – they are not good at detecting fraudsters who understand AP’s internal controls and develop strategies to overcome them.

In an attempt to improve controls, many AP teams implement additional controls such as Excel lookups or internal audit tools like ACL. However, these can often be counterproductive. Clunky by nature, rules-based controls tend to deliver a large volume of false positives. As a result, AP staff may become fatigued and end up missing actual errors in the sea of false positives.

The limitations of three-way matching

Many firms rely on three-way matching to reconcile purchase orders, invoices and goods receipt notes, ensuring that the right person gets paid the right amount for the right goods. Except, it fails to prevent many instances of fraud and overpayment.

Three-way matching struggles to deal with issues such as exceptions, open and duplicated purchase orders, and human error. Errors will always happen when individuals are able to bypass workflow processes, and three-way matching fails to flag these instances and stop payments from going through.

The present day P2P environment is highly complex and dynamic. Invoices and other critical documentation arrive in a multitude of formats, and payments are made in different ways – three-way matching cannot cope with this complexity and can be circumvented. It should really be thought of as a first line of defence rather than a bullet-proof option.

The problem with recovery audits

Of course, it’s possible to conduct recovery audits to identify losses and seek to recover them. But audits are inefficient and expensive, with negative implications for working capital and staff productivity. They struggle to pick up complex errors. And they typically fail to successfully recover most overpayments.

Recovery audits should be a last resort and yet many organisations have come to rely on them, leading to unnecessary costs and reputational damage. Most firms have embraced data, but when it’s backward looking, it cannot offer truly meaningful insights. Large businesses in particular suffer from this affliction, lacking agility when it comes to deriving insights from data. As a result, decision-making suffers at the highest level.

The way forward

What’s needed is a proactive approach to protecting disbursements with purpose-built software that can spot payment errors and fraud before money leaves the organisation.

In recent years, new technologies have emerged that can help forward-thinking AP professionals to do their jobs better, quicker and with more confidence. AI gets a bad press, but the fact remains that many finance teams don’t have access to the data they deserve. Technologies that automate mundane processes free up people to work on higher-value tasks.

To some, embracing a new way of doing things might seem risky, expensive and time-consuming. But the truth is, many organisations simply don’t realise how broken their approach to payments really is. Adopting a preventative approach is key in a P2P environment that’s becoming more complex and risky. Firms need to be forward-looking, using continuous controls to identify risks and treat the root causes of problems rather than addressing symptoms. A proactive approach to Accounts Payable – powered by purpose-built AI technology – can enable them to do just that.

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Xelix is the world’s first invoice intelligence platform. We empower Accounts Payable and Procure-to-Pay teams with AI-powered software that intelligently uncovers payment risks and delivers meaningful insights.

Our pattern-based detection methods identify hidden threats and errors while minimising false positives, enabling us to detect errors that would be missed by other controls. Get in touch to find out more and discover how we can help.

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