Streamline Your Accounts Payable Process

Remarkably, one of the most archaic processes identified in today’s CPA firms is the accounts payable process, which in many cases is a digital attempt to emulate long outmoded, manual processes designed to deter fraud and jump through multiple approval layers that are not necessary for every invoice. A large percentage of firms still utilize highly manual processes to move and approve invoices, write physical checks, and still maintain individual vendor file folders to store the invoices in case there is a question, even though paperless solutions have been around for more than a decade.

Taking an objective Lean Six Sigma look at firm accounts payable processes points out the inefficiency of traditional processes, which is one of the easiest to streamline today. The first step is for the firm to visually chart out the actual path that invoices go through to be paid. Often times, invoices are sent directly to an approver (sometimes as an email that is then printed out), to initial and physically deliver to the accounts payable person. The accounts payable person then may age the invoice in a binder to pay it before the due date or may receive the invoice and enter the information in the accounts payable system to be approved, then aged and paid before a specific deadline. The designated invoices to be paid are then pulled, checks written, and physically merged with the invoice, so the signer can sign the check and have easy access to the invoice if there is a question. The signed stack is next physically moved to a firm administrator that separates the checks to be placed in an envelope (usually with a copy of the invoice), stamped and placed in outgoing mail. Meanwhile the firm’s copy of the invoice is filed in the vendor’s file folder, which some firms have created digital directories for each vendor and scan in the invoice at the back end of the process, even though it started out as a digital file! In the worst cases, the physical file folders are kept onsite for a few years and then sent to offsite storage and paid for until they are shredded according to the firm’s retention policy (if the firm has one for payables).

A core issue with this process is that it was designed in the days of manual invoices where errors often occurred, so multiple checks and balances had to be put in place. The reality today is that 85% or more of the approved invoices within a firm are with “trusted vendors” that are monthly/recurring invoices and may have a different amount each month, yet they follow the same production path as the small percentage of questionable invoices. Simply put, with the advent of digital accounting and bill pay systems this is extremely wasteful in processing time, physical handling, and materials (envelopes, postage). The solution is to implement today’s digital solutions that will effectively capture the information at its “root” source and make sure they are properly approved and efficiently paid, which means utilizing the digital capabilities available today to do so in bill pay systems and on automatic credit card payment.

Consider as a first step, centralizing the receipt of all invoices in a digital format to your accounts payable person. Most vendors prefer to email a designated accounts payable person a digital invoice which can either be saved in an accounts payable directory on the firm’s network or processed with a bill pay service such as The payables information can then be entered into the firm’s payable/aging system with the due date or electronically imported from the payables service into the firm’s accounting application and then digitally sent for approval. While services such as can then manage the invoice images by vendor, firms that choose to manage their invoices internally can save them to a dedicated accounts payable directory on the network. In today’s Microsoft Windows environment, these invoice images can be placed in a single accounts payable directory and saved with a name that can easily identify the invoice. For instance, 20161219 TimeWarner Scottsdale would designate the date of the payment/charge within the accounting system, the name of the vendor that was paid, and an identifier that could include the office location, responsible person, or a descriptor of the invoice. Most of today’s accounting products can actually link (paperclip) the invoice to the payable/vendor file so the invoice can be “drilled” down to from within the accounting system. If not digitally linked, the accountant can search on the vendor name within the accounts payable directory and the invoices meeting the search criteria will fall within date order. A link to the invoice can then be sent to the approver who would do so digitally through the payment system, workflow tool, or via email.

In addition to payables services, utilizing automatic charges on a dedicated accounts payable credit card is another method that can streamline the accounts payable process for the majority of trusted vendors. For vendors where the amount of the invoice is seldom challenged, the approval process is reversed in that the vendor sends the accounts payable person the invoice and the date it will be charged. The accounts payable person enters the coding in the accounting system the same as a check would be coded, saves the invoice digitally, and then forwards it to the approver stating that it will be charged unless they have an issue with payment. In the event of an incorrect amount, the payables person can contact the vendor to correct it, or dispute the charge for a period of usually six months. Additional advantages of this process is that automatic payments cannot be missed (eliminating possible late charges), eliminate aging efforts as they are paid on the last day due, and can also provide rewards such as cash back or airline points to be used for CPE travel.

For vendors that have invoices that are often challenged, the firm can still ask to receive a digital invoice and push it through the same information capture process, but these would not be on automatic payment on credit card. Instead the system would push them to be approved before payment. Once approved via email, the accounts payable person can call in the credit card payment, which is faster than issuing a physical check and sending it in by the due date. Firms have found that utilizing a credit card for large purchases (equipment, software licensing) after their credit card’s statement cutoff date can extend the time to pay the invoice to the following month’s deadline date. Many credit cards pay 1% to 2% cash back to the firm, which can be viewed as a firm discount on such purchases and is easier to use than the reward points offers.

However, using a credit card for paying firm expenses does have some pitfalls. For a firm credit card to be effective, it must be separate from all the other cards the partners utilize so the accounts payable person can maintain control of all charges and enter them as utilized. There must be separation of duties, so a different person should do the monthly reconciliation and another person should be responsible for reviewing the monthly statement and authorizing on time payment for the full amount, so the firm does not incur any late fees or interest charges. If the credit card number is compromised, the accounts payable person will need to contact all vendors that utilize automatic payment to update them with the new number. Finally, not all vendors accept credit cards, so in these situations the firm can use the bill pay services such as to either use automatic payments through ACH or have the bill pay service write and send the check.

Changing your processes to capture payables invoices at the front end and then using workflow and accounting tools to streamline and approve them will save the firm a significant amount of effort while still providing control. If you or one of your partners is still signing checks in your firm, it’s time to take a look at how to streamline your accounts payables process saving your firm time and money.

Roman H. Kepczyk, CPA.CITP, CGMA, LSS BB is the Director of Consulting for Xcentric, LLC and works exclusively with CPA firms to implement today’s leading best practices and technologies incorporating Lean Six Sigma methodologies to optimize firm production workflows. Roman is also the author of the 2016 Edition of “Quantum of Paperless: A Partner’s Guide to Accounting Firm Optimization” which is available to PCPS members.