3–1. Pay Based on Receiving Approval Only

The accounts payable process is one of the most convoluted of all the processes that a company can adopt, irrespective of the department. First, it requires the collection of information from multiple departments—purchase orders from the purchasing department, invoices from suppliers, and receiving documents from the receiving department. The process then involves matching these documents, which almost always contain exceptions, and then tracking down someone either to approve exceptions or at least to sign the checks, which must then be mailed to suppliers. The key to success in this area is to thoroughly reengineer the entire process by eliminating the paperwork, the multiple sources of information, and the additional approvals. The only best practice that truly addresses the underlying problems of the accounts payable process is paying based on receipt.

To pay based on receipt, one must first do away with the concept of having an accounts payable staff that performs the traditional matching process. Instead, the receiving staff checks to see if there is a purchase order at the time of receipt. If there is, the computer system automatically pays the supplier. Sounds simple? It is not. A company must have several features installed before the concept will function properly. The main issue is having a computer terminal at the receiving dock. ...

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