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Accounts payable (AP) risk assessment is an important process for organizations to evaluate the potential risks associated with their accounts payable function. Accounts payable (AP) is a critical function for any organization as it deals with payments to vendors, suppliers, and other service providers. However, AP processes can be complex and time-consuming, and if not managed properly, can pose significant risks to the organization. In this blog, we will discuss the accounts payable risks, why AP risk assessment is important, and the questions you need to consider for an organization level risk assessment.

What are the various Accounts Payable risks?

There are various risks associated with the accounts payable process. These risks can be broadly categorized into two types: financial risks and operational risks.

Financial Risks and the need of risk assessment for Finance department

1. Duplicate Payments: Duplicate payments occur when a vendor is paid twice for the same invoice. This can happen due to errors in the AP process, such as paying an invoice twice, or due to fraudulent activities.
2. Overpayments: Overpayments occur when a vendor is paid more than the actual amount due. This can happen due to errors in the AP process, such as miscalculations or incorrect data entry.
3. Fraud: AP fraud can take many forms, such as vendor collusion, false invoicing, or ghost vendors. Fraudulent activities can lead to significant financial losses for the organization.

Download our Whitepaper- Accounts Payable Cheat Sheet for Detecting and Preventing Supplier Frauds

Operational Risks and the need of risk assessment for Operations.

1. Errors in Data Entry: Manual data entry is prone to errors, such as incorrect invoice numbers, amounts, or vendor names. These errors can result in delayed payments, incorrect payments, and cause operational disruptions.
2. Missing or Misplaced Invoices: Missing or misplaced invoices can cause delays in the payment process and result in vendor disputes.
3. Inefficient Processes: Inefficient AP processes can result in delays in processing payments, missed discounts, and lost productivity.

Why is Accounts Payable risk assessment important?

Accounts payable risk assessment is important for several reasons:

1. Mitigating Financial Risks: An Accounts Payable risk assessment can identify financial risks associated with the AP process and enable organizations to take appropriate measures to mitigate these risks.
2. Enhancing Operational Efficiency: By identifying inefficiencies in the AP process, organizations can streamline their processes and enhance operational efficiency.
3. Compliance: AP risk assessment can help ensure compliance with regulatory requirements and internal policies and procedures.
4. Cost Savings: An AP risk assessment can identify areas for cost savings, such as eliminating duplicate payments or negotiating better vendor terms.

The Zycus Accounts Payable Risk Assessment Quiz:

The Zycus AP Risk Assessment Quiz is a very short, 6-question quiz that tells you if your organization’s AP function is at risk or not,

Question 1: In what format do your invoices arrive at your office? Is it Paper/ PDF invoices or scanned and image invoices or electronic invoices?

This question is crucial to understand the level of manual effort required to process invoices. Paper invoices require manual data entry, which can be prone to errors and can take a lot of time. Scanned and image invoices still require manual effort to extract data. Electronic invoices, on the other hand, can be automatically processed with minimal manual intervention, making the process more efficient and less prone to errors.

Question 2: How do you get invoice data into your accounts payable system?

The process of entering invoice data into the Accounts payable automation software can vary depending on the organization. Some organizations may use manual data entry, while others may use OCR technology to extract data from scanned invoices. However, the most efficient approach is to have an automated system that can extract data from electronic invoices with minimal manual intervention.

Read Our Blog- The Benefits of AI-lead AP Automation Solutions over OCR Tools

Question 3: How often do you have missing or misplaced invoices?

Missing or misplaced invoices can cause delays in processing payments, leading to late payments and potential issues with suppliers. Organizations should have a system in place to track and manage invoices to prevent them from being lost or misplaced.

Question 4: How long does it take to process an invoice?

The time it takes to process an invoice can vary depending on the organization\’s AP processes. Manual processes can take significantly longer than automated processes. A streamlined AP process can help organizations reduce the time it takes to process invoices, leading to faster payments and improved supplier relationships.

Question 6: AP team spends most of their time on which tasks?

It\’s important to understand how your AP team spends their time to identify areas where processes can be improved. For example, if your AP team spends a significant amount of time manually entering data, then implementing an automated system could help free up their time to focus on more value-added tasks.

Question 7: On average, what percentage of work for your AP staff (i.e., AP manager, clerks, and administrators) consists of tracking down and collecting invoices?

Tracking down and collecting invoices can be a time-consuming process that can take away from more value-added tasks. By automating the invoice tracking process, organizations can reduce the time spent on manual tasks and improve efficiency.

By answering these questions, organizations can identify areas of risk and opportunities for improvement in their AP processes. This information can help inform decisions on implementing automation and technology solutions to improve efficiency and reduce risk.

Where does your organization fall in the 4 stages of AP Automation?

Nascent stage:

Your organization is at the Nascent stage when all your invoices are received and stored in paper form, and all AP processes are completely manual. At this stage, there is no invoice processing automation, and all invoice data is entered manually into the AP system. Your organization may also be using manual approvals, payments, and reconciliations processes.

At this stage, your organization should consider moving to AP automation, which can reduce your paper and pdf invoices from 80%+ to less than 10% in 3 years. By adopting AP automation, your organization can eliminate manual data entry and gain visibility into invoice processing, which can reduce the risk of fraud and errors.

Read Our Blog- The Ultimate Guide to Accounts Payable Automation

The evolving stage:

Your organization is in the Evolving stage when a majority of your invoices are captured through OCR engines, and paper invoices are scanned and converted to PDFs. In this stage, your organization may have some invoice processing automation, but there are still manual processes in place. Your organization may also be using legacy tools/OCR engines to capture invoice data.

Explore in our blog, Six Reasons Automation Can Improve Accounts Payable Processes

Shifting from your legacy tools/OCRs to AP Automation tools should be your priority as AP Automation tools are 50% more efficient than legacy tools. By adopting an AP automation solution, your organization can streamline the invoice processing workflow and reduce the risk of manual errors and fraud.

The mainstream stage:

Your organization is at the mainstream stage when fragmented but integrated software products are working in tandem or a single software product for invoice capture exists in your organization. At this stage, your organization has already implemented some level of automation, but there may be gaps in the process that need to be addressed. Your organization may be using multiple systems to capture, approve, and pay invoices.

At this stage, your organization should consider adopting a fully organic end-to-end automation tool that works in tandem with your S2P/P2P modules. Such a tool can increase your AP efficiency by 40%. By integrating all your AP processes, you can reduce manual errors, eliminate data entry, and gain visibility into the entire invoice processing workflow.

Download our Whitepaper- 4 Pillars to Accounts Payable Automation

The best-in-class stage:

At this stage, all your AP processes are automated and efficient, making your company the best in class. Your organization has already implemented an end-to-end automation solution that integrates all your AP processes, including invoice capture, approval, payment, and reconciliation.

However, even at this stage, it is important for your organization to compare your KPIs with the best-in-class AP organizations to ensure they are still operating at optimal efficiency. You should also consider adopting advanced features, such as machine learning (ML), which can help identify patterns in invoice data and detect anomalies, thereby reducing the risk of fraud and errors.

In conclusion, accounts payable risk assessment is an important process that can help organizations identify potential risks and take proactive measures to mitigate them. By asking the right questions and implementing the appropriate measures, organizations can reduce the risk of fraud, errors, and compliance issues in their AP processes.

Take the Zycus Accounts Payable Risk assessment quiz today and see how your organization is performing against the best-in-class AP organizations. Request a demo to discover how Zycus’ Accounts Payable Automation Software can help take your AP process to the next level.