Prevent AP Errors at the Source: How to Action Root Cause Analysis
If your organization is paying for something like an accounts payable (AP) audit – that’s designed to recover your lost funds – you want to make the most of the time and money you spent on it. But many companies get stuck in a loop, finding the same recoveries every year, stemming from the same errors. What’s holding them back from resolving those errors rather than cleaning up after them every year?
After an AP audit, finance and AP teams receive a report detailing their errors and follow-up recommendations. But the problem is that many recovery audit companies are not incentivized to help you prevent future errors…that’s how they get paid. So that report is usually pretty surface-level without transparent, deep insight into the reason your errors occurred – leaving it to collect dust on the shelf until your next audit.
What Is Root Cause Analysis in Accounts Payable?
For many errors, prevention is an option long before the incorrect payment is sent out. The only way to do that is by addressing erroneous payments at the root. Conducting a root cause analysis is, in short, zooming out and then zooming back in to assess the deeper reason errors occurred…in order to prevent them from happening in the future.
Zoom out: First, all claims need to be examined and sorted into identifying categories. Some of the ways claims can be sorted include:
Claim type, such as duplicate payment, quantity mismatch, incorrect currency, open statement credits, etc.
Suppliers
Operators / employees involved
Software
Department
Category
And more
Many recovery audit companies wait months or even years before reviewing past claims, and that’s when it gets so tricky to identify root causes. Businesses are always changing. The further you get from the transaction, how can you get granular with error analysis? How do you know which change in your ever-evolving business caused each individual error?
Analyzing claims closer to the transaction date ensures that you can accelerate that timeline, review errors as they occur, and pin down exactly what might have caused them. If a payment is sent out today, capturing that error today can stop your money from going out the door at all.
Dive in: With the context of your past and current errors defined, that’s when you can finally take a deep dive into the potential causes of errors. Finding commonalities in errors, like timeline, source, and coding, you can draw your analysis significantly deeper to address errors at the root.
If any claim categories stand out more than others, that’s a warning signal to keep an eye on them moving forward. What adjustments can you make today to correct yesterday’s errors, and prevent tomorrow’s? Depending on what you find, some common next steps might be volume analysis of transactions, a review of your key suppliers, or a number of other routes.
Prevent AP Errors with Root Cause Analysis
Identifying errors is a great place to start – but if you stop there, they’ll just keep coming back. Error prevention isn’t possible until you trace the error back to the root…and when you do that, you’ll usually go a lot further than just preventing ONE kind of error. You’ll find a source of friction that’s likely seeping into many aspects of your AP.
Even beyond your AP, payment errors can permeate many departments and aspects of an organization. If your AP processes aren’t up to par, chances are that AP isn’t the only department facing that roadblock. Uniformity and consistency in technology and processes are key – so establishing efficient workflows and best practices organizationally is key.
Sometimes, the root of your AP errors might be something unexpected or seemingly inconsequential. If you have errors coming back time and time again, or you’ve started to notice some new types of errors creeping in, you might want to look into the following potential root causes.
AP Error Root Cause #1: Employee Challenges
The job market has been a volatile environment the past few years, and the world’s workforce has had to adapt to market forces at a rapid pace. With the rise in work-from-home, challenging economic and hiring conditions, and technological changes impacting the definitions of many roles, few workplaces are recognizable from just 5 years ago.
Employees are under more pressure than ever before, whether they’re new to a company or have been there for decades. This has led to an increase in the expectations and responsibilities placed on many employees, and a consequent mass-diminishing of the global workforce.
With a rotating door of overworked employees being replaced with new, less experienced ones, it’s immensely difficult for employees to stay informed on company practices and what they need to look out for in their payment data. They aren’t as familiar with red flags or abnormalities they should keep an eye out for – and the employees that are familiar are simply too burnt out to care.
AP Error Root Cause #2: Business Evolution
Evolution is a sign your business is moving forward, but while the changes that occur within your organization are a sign of progress, they’re also an entryway for payment errors.
Business growth can often coincide with technological growth, whether it’s due to mergers and acquisitions, system migrations, or new workflows designed to make teams more effective. However, whether you’re adopting new tech or sticking with your old tools, changes in an organization might not always line up with the way your systems are configured. Without proper updates and integrations, technology might operate differently or simply become incompatible with your evolving business environment.
AP Error Root Cause #3: Efficiency Efforts
Finance and accounts payable teams have spent decades bogged down by manual processes and paper documents. Automation of processes and tech has made their jobs easier, faster, and less prone to human error. Unfortunately, efficiency efforts don’t come without their own fair share of challenges. New technologies are ALWAYS going to introduce friction, and companies are racing to keep up with today’s tech landscape.
Many AP departments adopt AP automation because they think it will help them be faster, more efficient, and more accurate – but automation actually opens the door for errors to flood through. Adopting automation or other efficiency-driven technology is rarely a perfect replacement for the humans that came before it. Automation, like AP tools or your ERP, isn’t designed to catch certain small nuances or the context surrounding some errors. A complete reliance on that technology – though it’ll certainly make you faster – can lead to even more inaccurate payments than you had without it.
How to Action Root Cause Analysis to Optimize Accounts Payable
Once you’ve identified the underlying cause of errors, you need to introduce new robust procedures to address them. While traditional approaches to AP audit are more reactive in nature, more modern strategies focus on the proactive, preventative measures AP departments can take. By actioning your root cause analysis to prevent AP errors at the source, you’re building a dam and stopping the flow of errors before they float down the river.
AP Solution #1: Vendor Management
Even if you’re doing all of your homework and maintaining a healthy AP department, you don’t have the same level of control over your vendors. Regularly checking in with vendors and requesting statements from them can help you stay on top of what’s going on in your engagements and identify their errors / oversights as they occur.
Inconsistencies with vendors such as open credits, differences in currencies, and variances in invoice amounts are common and much easier to address the sooner you catch them. Staying on top of vendor errors also helps maintain more positive vendor relationships as you won’t have to come in months and years after transactions requesting documentation or cooperation from them.
AP Solution #2: Process Optimization
Ironing out the kinks in your internal processes is a key component to error prevention. Whether your organization has adopted 20 new tools in the past year or they haven’t changed your manual processes in the past decade, it’s easy for errors to slip through the cracks when technology is evolving so rapidly.
Technological advancements and automation are signs of a growing business – but to keep that growth healthy, organizations need to make certain adjustments. Ensuring your technology is updated and integrated with the rest of your tech stack is crucial to ensure that you aren’t surprised by any errors.
If you’ve recently adopted any of the following, it may be a good time to check in and make sure they haven’t caused any clogs in your processes:
Invoice automation
Accounts payable automation
OCR solutions
AP Solution #3: Data Maintenance
Think about how much data your AP department ingests every day, how many input sources you have, and the sheer amount of opportunities for errors to pass through. There might be incompatibilities with how you upload data, factors your technology has trouble computing, or even the ever-present chance of human error.
Keeping your data clean is imperative for error prevention - it’s the foundation of your AP function. Regularly reviewing your data and the way it’s entered into your system can help you stay on top of any erroneous inputs or suspicious activity.
AP Solution #4: Staff Training
Your people are your most valuable asset: even if your tech and processes are optimized, employees are the last line of defense between your AP and incoming errors. Payment accuracy is a team effort, and everyone needs to be aligned on best practices and company policy when it comes to error documentation and resolution.
It would be impossible for just one person, or even just a few people to keep track of every erroneous payment. There are certain payments or suppliers that only certain people have the context for – making them more likely to catch any fishy activity going on within that account. Error documentation needs to be a mandatory, common practice at any company looking to prevent and resolve payment errors. It makes employees more mindful of transactions, more aware of risks, and more likely to prevent future errors when they’re actively on the lookout for them.
To make sure the whole organization is on the same page, employee training should be a regularly scheduled activity in the business – especially if any major changes in tech, processes, or the workforce have taken place. Prioritizing employees’ knowledge and action around erroneous payments is the best way to address errors at the root, regardless of their cause. And when the entire team is marching in the same direction, to the beat of the same drum, they’re significantly more equipped to catch and prevent errors altogether.
Left unattended, accounts payable errors can be a huge mystery and headache for the finance teams trying to unravel them. But without identifying the root causes of AP errors and taking action to resolve them, those errors will just keep coming back year after year, hurting your cash flow and slowing your team down.
The sooner you start addressing the larger issues causing your AP errors, that’s when you can finally focus on growth and prevention rather than reaction and remediation. That’s why we’ve built FlexTrap to catch errors AS THEY HAPPEN instead of months and even years after the fact. With over 300+ customizable checks, FlexTrap addresses errors at the root so you can stop financial leakage, enhance your payment processes, and free up your day from the mountain of fire drills that plague the average AP department.
Modernize your AP controls with FlexTrap – find out how here.