How to mitigate accounts payable risks?
In 2020, nearly 74% of the companies will have been victims of account payable fraud. The COVID pandemic has led to a surge in online payment fraud increasing the risk of account payable fraud.
The radar was certainly on the finance professionals and treasury. Companies’ focus shifted to organizing their staff to function smoothly and efficiently as they worked remotely without affecting day-to-day operations.
It has affected the accounts payable process as the business has been going through tough times.
Here are three common accounts payable risks that one should look out for so that you can bring the accounts payable process back on track.
Three accounts payable risk one should look out
1. Missed Invoice Due date:
Late payment on the account payable invoice because of missed due dates not only affects the cash flow but also the budget and daily operations.
Obliging due dates is the part of accounts payable process to pay invoices on time. A penalty late fee is added to the accounts payable invoice amount to encourage early payment.
A company has to pay the original invoice amount along with late fees.
2. Identification of the Malpractices
External Party – Fraud Supplier and Invoices
- Duplicate Payments: It is one of the potential payment frauds. The supplier can be paid twice for the same invoice due to receiving the invoice in different formats or owing to employee error.
- Unapproved Suppliers: It happens when payment is done to a fictitious or unauthorized supplier for fictitious goods and services.
Internal Party- Fraudulent invoices
- Fraudulent payments: employees may indulge in unauthorized payment via check or an automated clearing house. So businesses must regularly check for unusual changes in financial reports.
- False billing: It happens when an employee creates false bills for self-payments. In this type of fraud, either an employee works independently or is involved with an external party.
3. Lack of invoice payment visibility:
The manual invoice payment process led to errors, rework, late fees, and savings that benefited the whole accounts payable team, especially the bottom line.
How can you mitigate the accounts payable risk?
1. Automate payment approval process:
Automation of the payment approval track every movement of the invoice. It also tracks the user’s activity related to invoice submission and approval thresholds. The CFO can have tight control over invoice approval and payment processes.
2. Verification of Supplier:
The AP and finance team ensure to add of the approved and verified suppliers in the system. Accounts payable management software helps to detect duplicate entries, suspicious address etc.
3. AI or automation software:
The use of AI technology or advanced software can detect duplicate invoices, suspicious activity, and extra charges and also complete regular spending analysis.
4. Audit trail:
Companies should have an AP management solution that constantly reviews transactions, and conducts random audit and electronic audit trails.
Final Words
With globalization, technological advancement, increased competition, and the risk of fraud, the accounts payable department should ensure transparency and tight controls throughout the financial process to detect any risk or fraud in advance.
The best solution here is Meru Accounting for managing your accounts payable process.
We are a team of dedicated CPAs, CAs, and accountants with years of experience and knowledge in managing accounts payable invoices. We are equipped with the latest technology and tools to get your AP automated.
