How many of us get paid in cash, take it all home and put a pile on the kitchen bench, or under the mattress, and let the family take what they need at any time? Probably nobody (let me know if that is how you handle your personal finances, happy to pop round for a coffee).
We all have controls, we decide what we are spending money on, pay the kids some pocket money so they have their own funds to spend, but we don’t give open access to the funds. Sure there are times that we have blow-outs on spending, meaning we have to tighten our belts until pay day, but in general there is a process to allocate our spending across the things we need to cover.
In business, we should be more controlled. You go to great lengths to set budgets, allocate authority levels per manager and divide the business up into business units and set account codes up to track spending. Blow-outs can be more significant in business, overspending in one area takes away the ability to carry out business activities in others that could be a more beneficial activity for the profit of the company.
What many organisations fail to do is to set controls around the actual spend in the same manner that the budgets were set up.
Invoices turning up from your suppliers with no prior written authority for spending is not a controlled means of spending. You are reacting to an invoice that in many cases the situation has happened, and the company is committed to the spend.
Best practice is to have a system in place that you give spend access to your users based on the delegations set down by management, and controls in place to help limit and monitor what is being spent.
This is all best controlled with the use of Purchase Orders with a workflow for approval before issuing to the supplier. A purchase order should be your contract with your supplier, so you know what costs are coming in, the supplier has more surety of being paid and you can use it as a tool to speed up month end close.
Often purchase orders are seen as hard to use, prohibitive to ‘getting the job done’ and hard to deploy across the business. What you need to counter that perception is a system that is easy to use, does a lot of the work for you (defaulting in pricing, item codes and GL codes) and ideally can be automatically matched to an invoice so that your business users can forget about invoices. If you can capture invoices from emails, even better!!
If you can tie the purchase order process to an efficient accounts payable process the time savings to your staff can be huge. Make it easy for them to purchase the things that they need within the controls you want in place.
Bevan Wright is an Accounts Payable process expert. Having spent over 20 years working as an accountant, he is now dedicated to helping businesses streamline their Accounts Payable and Procure to Pay processes, improving efficiency, increasing accuracy, saving money, and reducing the risk of fraud.
If you are interested in finding out more contact Bevan.Wright@Fusion5.co.nz to arrange a demonstration of the technologies which could assist your organisation.