The 9 most common Accounts Payable problems (and their solutions)

For too long, Accounts Payable teams have relied on standard controls for common problems such as fraud risks or payment errors. However, these methods consistently fall short. Some organisations still lose a whopping 5% of their revenue to fraud and overpayments each year.

With the industry evolving rapidly and fraudsters growing more sophisticated, Accounts Payable teams need to look beyond outdated legacy processes and embrace new technologies to solve problems that lead to fraud or overpayments such as three-way matching, poorly managed master vendor data, auditing weakness and more.  

In this article, we'll cover the nine most common audit and control problems in Accounts Payable and give you solutions to  overcome them.  

1. ERP controls aren't sufficient 

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

Human error is inevitable in P2P - incorrect coding and keying of invoice details is commonplace. ERPs employ rules-based controls and will therefore 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 don't talk to each other. All too often, information is siloed and fails to tell a holistic story.

Additionally, ERPs are programmed to perform standard tasks. They're not good at detecting fraudsters who understand AP’s internal controls and develop strategies to overcome them.

To improve controls, many AP teams implement additional methods such as Excel lookups or internal audit tools like ACL. However, these can often be counterproductive. Clunky by nature, rules-based controls can 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. 

Solution: Find a bolt-on solution to enhance controls 

To enhance your ERP's limited controls, you can opt for a bolt-on software designed to catch all the errors your ERP can't.  

2. Three-way matching is limited 

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

Three-way matching often doesn't account for 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.

Today’s AP environment is highly complex and dynamic. Invoices and other critical documentation arrive in multiple formats, and payments are made in different ways. Three-way matching can't cope with this complexity and can be circumvented, which means it should be a first line of defence rather than a bullet-proof option. 

Solution: Accounts Payable automation 

You can implement Accounts Payable automation tools to automatically match purchase orders and receive reports and invoices.  You find these services with platforms such as SAP Concur, which offers invoice automation solutions that integrate with existing systems to automatically match purchase orders and goods receipts. Tipalti is another provider which offers a comprehensive AP platform that automates purchase order matching and manages vendor payments.

Tools such as these streamline the invoice processing workflow, which then reduce manual intervention and minimise human error. With a tool to automatically match purchase orders, receiving reports and invoices, you can ensure faster and more precise reconciliation and move away from a reliance on three-way matching.  

3. AP recovery audits come after the fact 

Recovery audits are inefficient and expensive, with negative implications for working capital and staff productivity. They struggle to pick up complex errors, and they often fail to recover most overpayments.

Recovery audits should be a final check, yet many organisations have come to rely on them as a primary control. The remaining errors and overpayments lead to unnecessary costs, reputational damage and risk of unsuccessfully recovering funds. Most firms want to use data to enhance processes, but when it’s backward looking in the form of an audit, data can't offer truly meaningful insights.  As a result of this lack of clarity and visibility, decision-making suffers at the highest level.  

Solution: Proactive payment monitoring 

The best way to protect cashflow and get enhanced visibility to analyse trends is to audit payments proactively and ensure money doesn't leave your business to begin with.  

With proactive transaction auditing from a provider like Xelix, you can prevent duplicate and overpayments from happening in the first place. You won't have to spend 15-25% of every error found to a recovery audit firm or waste time trying to recover money back into your business.  

Xelix also helps you perform root cause analysis by surfacing data and trends around duplicate and invoice error reasons. Beyond spotting errors, you can stop them from occurring altogether by using data to optimise internal processes.

4. Invoice fraud risk is high

Often overwhelmed with manual processing or inadequate software, Accounts Payable teams may unintentionally overlook suspicious activities. This combined with increasingly sophisticated fraud methods means it's getting progressively more challenging for AP teams to prevent invoice fraud.  

Invoice fraud has several negative consequences, including a disrupted payable process and cashflow, strained relationships with vendors and ultimately, substantial financial losses.   

Solution: Implement an AP automation tool 

Automation is a powerful tool to mitigate the risk of invoice fraud and helps you streamline and digitise processes to minimise human error and enhance accuracy. Automated systems can cross-check invoices against purchase orders and contracts, ensuring authenticity and catching discrepancies early. Automation can also reduce the amount of human intervention necessary, which cuts down opportunities for fraudulent activities, such as duplicate payments and unauthorised approvals.  

5. Inefficient master vendor data and vendor management challenges 

Working from a master vendor data set that hasn't been optimised poses a number of risks. For one, inconsistent vendor data can create duplicate entries, increasing the likelihood of duplicate payments. This not only strains cash flow but also complicates financial management and auditing processes. Additionally, inaccurate vendor details lead to processing delays and can prevent timely payments. This in turn negatively affects vendor relationships and potentially leads to late payment penalties.  Inconsistent data can also complicate communication, leading to misunderstandings and further strained relationships with vendors.  

Crucially, poorly managed vendor data increases the risk of fraud, as inconsistencies in data make it easier for fraudulent activities to go undetected.  

Solution: Optimise master vendor data 

Cleansing master vendor data leads to more efficient processes, better supplier relationships and a decreased risk of fraud. The first step in this is to implement a centralised and integrated vendor management system to consolidate all vendor information. This ensures consistency and accuracy across your organisation. From there, you can conduct regular audits and cleanse your vendor data to identify and correct any discrepancies or duplicates, including cross-referencing invoices with the master data.  

You make it simple to cleanse your master vendor data with a solution that offers duplicate detection capabilities. These tools can automatically alert payable managers to potential duplicate records or invoices. The Vendors module from Xelix uses AI to monitor your master vendor file daily and alert you to missing data, changes and potential threats.  

6. Lack of visibility and control 

 A lack of visibility and control is a common Accounts Payable challenge for teams who don't have access to real-time financial data.  

There are a number of reasons for this lack of visibility, ranging from outdated systems, a lack of automation, data silos, complex approval workflows and more. These reasons can all lead to missed invoices, late payments and duplicate payments, which in turn disrupt cash flow. Late payments can also damage vendor relationships and result in penalties or loss of early payment discounts. Additionally, a lack of control makes it difficult to identify and correct these errors, opening the door to potential fraud and compliance risks.  

Solution: Streamline your controls process 

First and foremost, your team should look for a AP automation solution to streamline invoice processing, which in turn will reduce manual errors and provide the real-time access to data you need.  

Once you have an automation solution, you can look at enhancing controls. You can improve visibility and control in your Accounts Payable process by increasing supplier statement reconciliation coverage. Because this task is heavily manual and tedious, many AP teams aren't reconciling many supplier statements.  

An automated statement reconciliation solution like Xelix can help your team reconcile statements in minutes, giving you confidence on your transactions and preventing overpayments, late payments, fraud and more.  

With a high reconciliation coverage, your team can conduct regular audits and generate detailed reports to identify discrepancies, track performance and maintain control over the AP process. 

7. Audits and reporting can be weak 

A significant consequence of lack of visibility and control in Accounts Payable is audit and reporting weaknesses. Weakness in auditing or reporting can lead to unnoticed errors and duplicate payments, late payments or even fraud, which can significantly harm a company’s financial standing.

This lack of insight also makes it difficult for AP managers to spot or prevent errors, which can then disrupt cash flow. Not to mention, inadequate reporting practices often hurt AP teams' abilities to make timely payments, straining supplier relationships and creating challenges in negotiating favourable payment terms or early payment discounts.

Externally, an unhealthy audit trail can cause issues with compliance with financial regulations and expose an organisation to legal and financial penalties. 

Solution: Automate your controls 

There are a number of steps Accounts Payable teams can take to strengthen their audit and control processes. A good place to start is to review your existing audit and reporting system to determine what's missing and implement regular reviews for your audit protocols. From there, you can look to automation solutions that will give you more visibility to prevent errors and protect the business. 

As mentioned, increasing supplier statement reconciliation coverage provides greater visibility and control. Manual tedious processes lead to low coverage. This low coverage leads to missing credits, painful external audits, unhappy suppliers and more. The Statements module from Xelix provides you with an end-to-end automated workflow so your team can reconcile 100% of your supplier statements, in less than half the time. 

8. Compliance issues

It's key for Accounts Payable teams to maintain compliance with regulations such as the UK Sarbanes-Oxley (SOX), US SOX, and other regulatory frameworks like the Payment Practice Code (PPC). However, manual processes and a lack of visibility leading to a poor audit framework can cause errors to slip through the cracks, including delayed payments or even fraud. 

If organisations don't adhere to these regulations, it can lead to a host of issues, including legal repercussions, fines and sanctions. These penalties all severely impact a business' financial standing and reputation. 

Beyond these external negative effects, missing regulation deadlines can increase the risk of fraud and leave your business prone to costly errors. 

Solution: Supplier statement reconciliation coverage

Staying prepared and meeting compliance deadlines is all about visibility and access to data. This is another area where increasing the percentage of supplier statement reconciliation with an automated solution will greatly increase your visibility and thereby reduce audit time. 

For FM Conway, increasing their statement reconciliation cut their external audit time by 12 weeks, and they now have 100% Prompt Payment Code compliance. 

Another area to look at is strengthening vendor management. When you can maintain clear communication lines with vendors regarding invoice processing and payment terms, this can reduce the risk of late payments and help address any discrepancies in vendor invoices. The Vendors module from Xelix monitors your vendor master data daily, helping you stay on top of duplicate or inactive vendors and strengthen existing relationships. 
 

9. High AP attrition rate 

Many Accounts Payable tasks are heavily manual, which can be unrewarding and require a lot of work from team members. This in turn can lead to a high AP attrition rate with low morale and a high turnover rate. Additionally, when remaining members are expected to pick up the work of those who have left, this can leave your business prone to errors. 

When it comes to replacing those that have left, recruitment is difficult, time-consuming and expensive. 

Solution: Get a tool that empowers your team 

The solution to a high AP attrition rate is to find a technology that empowers AP team members to complete their tasks and focus time on strategic initiatives that are more rewarding than tedious, manual work.  

Xelix harnesses the power of AI to automate those tedious tasks AP teams would rather do less of, whether that's checking for duplicate payments, reconciling supplier statements, cleansing master vendor data, responding to vendor queries and even creating reports.