How to Prevent the AP Errors Your ERP Is Missing
Finance functions like AP and shared services are BUSY places. Once completely manual, they’ve now adopted technology to help them lift the burden of endless invoice processing and error prevention. Among those solutions, the ERP has been a consistent, long-term favorite of finance leaders.
Unfortunately, fans of the ERP have been disappointed time and time again when they learn an ugly truth the hard way: the ERP is NOT a perfect solution. It can’t prevent every error that might pass through the AP department. It’s designed to catch SOME errors…but certainly not all of them.
And when finance teams are betting everything on the accuracy of their ERP, that’s when errors go unchecked, unprevented, and unresolved.
What will the ERP prevent?
The ERP is designed to catch duplicate invoices that are exactly matched to one another. An example of one of these straightforward dupes might look something like this:
Inv No Inv Date Value Vendor
5253 01/01/24 1200.00 John Smith Inc
5253 01/01/24 1200.00 John Smith Inc
This is an obvious error, and an ERP will prevent the creation of the second invoice. The thing is when it comes to less obvious errors, the ERP’s vision isn’t 20/20. And most of the errors that the average accounts payable department will encounter are going to be a lot messier than the ones seen above.
What won’t the ERP prevent?
There are countless possibilities for the tricky, unexpected errors that can confuse the ERP. However, there are a few that come to light in almost every AP audit that is completely preventable (when teams know what to look for).
The ERP won’t prevent fuzzy-matched duplicates like:
Inv No Inv Date Value Vendor
5253 01/01/24 1200.00 John Smith Inc
S253 01/01/24 1200.00 John Smith Inc
The ERP won’t prevent appended duplicated invoices like:
Inv No Inv Date Value Vendor
5253 01/01/24 1200.00 John Smith Inc
5253a 01/01/24 1200.00 John Smith Inc
The ERP won’t prevent different vendor duplicates like:
Inv No Inv Date Value Vendor
5253 01/01/24 1200.00 John Smith Inc
5253 01/01/24 1200.00 J Smith Inc
And the list goes on and on.
Many teams are shocked to find out how much their ERP is actually missing. It can be disheartening to learn that the tool teams are so reliant upon isn’t really perfect as they think.
The thing about the ERP is that it was never designed to be perfect in the first place. It’s really good at catching one specific problem – but countless errors can occur in any accounts payable department that ERPs can’t account for.
Because there are so many points of entry for errors to seep into the AP workflow, it’s important that teams treat the cause – not just the symptoms. They need a solution that goes beyond ERP, which was designed to identify just one of those causes. They need to understand the root issues behind AP errors so they can attack them from all the right angles.
To do that, it’s important to understand why the errors are happening.
Top 6 Causes for Accounts Payable Errors
Even when the AP department is doing everything right, it’s rare that AP errors happen for no reason at all. Usually, there are some deeper issues that the team can diagnose to help them prevent unexpected losses.
1. Invoice Data Entry Errors and Inconsistencies
Invoice entry errors are still the most common reason for AP losses. Many organizations use a mix of manual and automated invoice entry, and as a result, they experience inconsistencies in how each invoice is entered.
For example, an AP team might utilize manual entry alongside technology like electronic data interchange (EDI) or self-billing. Technology can be sensitive to even the slightest difference in the document’s presentation. The invoice number, date, values, and other key information are all susceptible to potential misreadings or errors that lead to financial leakage.
2. Unclean Vendor Master File
The source of many duplicate payments can be traced back to one of the AP department’s most critical assets: the Vendor Master File (VMF). An unclean Vendor Master File can cause duplicate vendor names and even entirely duplicated vendors – including their addresses and other contact information.
AP departments almost always have strict data entry standards for the Vendor Master File, but with the sheer amount of data they process every single day, even the most advanced accounts payable team can fall victim to an unruly VMF. Additionally, even if the organization has exceptional data entry standards for invoices, those same standards might not extend to the Vendor Master File.
3. Purchase Order Mismanagement and Over-Reliance
The implementation of an ERP isn’t the only mechanism bringing the AP department a false sense of financial security. Many teams believe that requiring purchase orders (POs) automatically gives them complete control within the purchasing department, driving down the number of erroneous payments. In reality, though, only 5% of PO-to-invoice matches are 100% accurate on the first try – indicating that maybe they aren’t bringing as much protection to the table after all.
Most of the time, the culprit is a blanket purchase order (BPO), which omits the item quantity and price that is usually present in a PO. BPOs grew in popularity following the adoption of accountability measures like the Sarbanes-Oxley Act. However, the problem with them is that they dilute the validity of POs as reliable source documents for AP – rendering them virtually useless as a loss prevention measure.
4. Temporary Personnel and Employee Turnover
Finance teams tend to experience higher turnover rates compared to many other industries, with a significant portion of Accounts Payable (AP) departments facing ongoing staff changes. This could be the case for a variety of reasons: whether it’s due to transitions in permanent employees or temp staffing for cyclic demands, new faces lead to new errors.
The growing pains of a new AP employee are numerous. First of all, the timeline of accounts payable errors can be a long one – whether errors are caught right after the fact, or in an AP audit several months later, it’s much easier to resolve the error if the current employees have all the context for how it occurred. New team members might not have the same knowledge of the supplier, transaction, or department to easily spot and remedy erroneous payments.
Furthermore, there are some inevitable learning curves that come along with a new role. Data entry skill requirements and processes are rarely the same from one company to the next, especially if the organization utilizes a great deal of temp staffing. There are just too many nuances in the average accounts payable ecosystem. Beyond that, many AP teams don’t have the bandwidth to conduct thorough, consistent employee training to make sure all team members are on the same page – whether they’re new or not.
5. Incomplete or Flawed Implementation of New Systems
When ERP skyrocketed into popularity in the late nineties, it changed the face of many accounts payable departments. An industry so long reliant on manual efforts was suddenly ushered into an era of software dependence, introducing a host of errors along the way.
The entire business landscape was upended. Organizations became reliant on the new systems and software, altering every aspect of their employees’ day-to-day roles – but the technological revolution came on faster than companies were ready for. Tools like ERP were rushed into implementation, leaving blindspots unattended as unexpected negative side effects began to plague AP departments.
When companies underwent any further change, like mergers and acquisitions (more on that in a moment), the gaps only got wider. Situations involving multiple ERP systems, especially when the companies didn’t integrate the tools or their invoice history, multiplied the possibility of duplicate and erroneous payments.
Since the eruption of the ERP, many new AP tools have entered the arena, such as AP automation, optical character recognition (OCR), and EDI feeds that streamline data entry. Even all these years later, technology is still moving more quickly than the average AP team can keep up with. AP departments are busy places: they don’t always have the time to constantly check in on the efficacy of their tech stack, or to test and update their defenses on a regular basis.
Some common errors that have come about as a result of newer technology include OCR misinterpretations, duplicated EDI feeds, or in the most simple of errors, duplicated spreadsheet uploads (even Excel hasn’t been perfected).
These technologies show great promise, but what they lack across the board is reliable safeguarding that enables organizations to capture and prevent duplications.
6. Merger and Acquisition Transitional Failures
When a company undergoes a merger / acquisition, key stakeholders tend to spend months preparing for countless new changes to their organizational landscape. However, a side effect that impacts almost every major business change such as a merger is an influx of accounts payable errors.
There are so many moving parts during a merger or acquisition, and one of the biggest changes is the staff. They’re new to the environment and often to the role – they don’t know all of the key nuances that AP professionals need for thorough error prevention and remediation. They’re adapting to a completely new position, and that leaves them susceptible to erroneous payments.
Here’s a common example: when both companies in a merger share common vendors, the vendor may panic – how are they going to get paid? Their solution is to send the invoice to both of the companies during the transition. Sometimes, the merged companies will utilize a shared service or outsourced model, hoping to quell some of the transitional upheaval. But unfortunately, many of those companies are surprised to find that that model only introduces more errors than their in-house, decentralized solution would.
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Preventing Duplicate Payments: AP Best Practices
While minimizing these risks can seem like an insurmountable task, there are actually a number of practical ways to avoid losses in accounts payable. Below are just a few of the tactics that can help.
AP Best Practice #1: Improving Invoice Standards
As always, everything in AP begins and ends with invoices. The average AP department processes around 1,000 invoices a month – that’s a lot. With those numbers, it’s clear that the receipt of invoices is perhaps the most important step of the process. It’s as simple as implementing a single location for invoices to go, every time. With a straightforward reception workflow, invoice processing becomes timelier and more structured – with payment predictably following suit.
To maintain a high-functioning invoice workflow, it’s imperative that AP staff communicate clearly and consistently. With everyone on the same page, the AP department can form a united front against errors.
AP Best Practice #2: Deactivating Old Vendors
The perils of duplicate Vendor Master files have been made clear, but there’s an issue that goes even beyond that: the presence of old, inactive vendors. Hygiene in this area of the Vendor Master is critical to ensure that data is accurate and up-to-date.
To avoid inactive vendors in the Vendor Master, AP leaders should declare a time limit after which vendors will be removed if they haven’t been used in that period. The time limit can be any value: for some businesses, it might be as soon as 18, some as many as 36, and for some even more. Regardless, the number should reflect what makes sense for the company’s standards and business processes.
AP Best Practice #3: Hard Stop Implementation
The problem with many AP error prevention and remediation tools that exist today is that they’re able to find errors, but not prevent them. These are referred to as “soft stop systems” because they alert the user that the error exists (such as a duplicate invoice number, date, amount, vendor, etc.).
Alternatively, a “hard stop system” is one that puts a halt to errors altogether. When a duplication or error exists, they completely block the entry of the invoice. In an environment where hundreds of invoices might hit an AP clerk’s desk in a single day, they need that kind of assurance that errors won’t make their way through.
AP Best Practice #4: Root Cause Analysis
Correction is vital to prevention. When an error is brought to light, there’s usually a deeper issue that’s causing not just that singular error, but many others like it. It’s critical that AP teams hone in on those root causes to put an end to the core problem at hand.
To keep track of the root causes linking certain kinds of errors together, AP teams likely need to conduct some level of historical analysis. For example, each time an error is discovered, the department should keep a log of what happened along with the root cause. With time, they can understand the issues behind all of their most common errors and put a sweeping end to them, once and for all.
Very often, teams focus on what happened rather than why it happened. With a laser focus on causation, they can develop effective solutions that will save them in the long run.
Conclusion: Don’t Just Fix AP Errors – Prevent Them
Among their many responsibilities and goals, finance leaders have one key objective that reigns above them all: prevent duplicate invoices and AP errors.
Technology exists today to make that possible…but it is NOT the ERP.
Most of the AP error prevention tools on the market can help you treat the symptoms of financial leakage, but they don’t address the root of your problems. That’s why we built FlexTrap. FlexTrap was created to be a true AP error prevention technology, identifying and stopping duplicate payments and invoices with criteria that are completely customizable to your unique organization.
FlexTrap flags true errors, reducing the noise of false positives and giving AP teams the space to focus on the transactions they need to worry about. With built-in root cause analysis, you can address the reasons you’re experiencing errors and continuously improve the complex machine of your AP function.
We’d be happy to give you a free demo whenever you’d like. Get in touch today.