Lost capital - Overpayment or fraud?

Andrew Jesse, VP Basware UK, shows how taking control of the purchase-to-pay (P2P) cycle can help reduce cash loss

Leakage can sometimes be down to fraud – and in 2010, 90 per cent of companies did report an attempted or actual payments fraud. This is not an anomaly, as 86 per cent have seen corporate fraud in the last 10 years. However, fraud is not the only explanation for lost capital. The truth is that there are inefficiencies in the P2P lifecycle that are far more damaging.

Recent research demonstrates that 23 per cent of companies duplicate invoices being paid; 26 per cent pay the wrong supplier and 10 per cent pay for goods that haven’t been received. These are all instances where money goes out the door unnecessarily and where, with a review of P2P procedures, companies can bring under control. In many cases this can prevent up to 80 per cent of lost cash.

For those companies that do not have automated control of their purchase-to-pay process, over-payments exist. But these can be eliminated through a three step process of: automating document management in the P2P cycle, centralising documentation to unify the business and analysing that centralised information to identify further improvements.

Step 1 – Automate

The first step to eliminating the human error that causes the vast majority of overpayments is to automate the process. Making all documentation for procurement and payments electronic enables a series of cross-checks and verifications that did not exist before, or were at least subject to human error.

PO numbers and delivery receipts can be automatically matched against invoices to verify incoming payment requests and alert the accounts payable team to any exceptions and anomalies. Automating the approval and validation process across the Purchase to Pay cycle in this way not only prevents errors in payment to suppliers but also provides controls to prevent fraud, by enforcing business rules and creating a full audit trail.

With this step in place, companies suddenly have a platform from which they can make a range of process improvements. Automation not only ensures greater accuracy, but also creates a more flexible purchase-to-pay lifecycle that drives efficiency further down the line.

How much of the money lost through the payments process is easily recoverable overpayment, how much is the harder to stop result of fraud?

Step 2 – Unify

Automation can only be truly successful if it also eliminates multiple processes. If it doesn’t then the same risks of duplication and error remain. It’s important that companies not only achieve an automated P2P lifecycle, but that their processes are fully aligned.

By having one copy of a document stored centrally, companies can facilitate approvals and input across departments. Multiple stakeholders can be prompted for their action, which speeds the process up and helps guarantee that only a single version of the document exists within the company.

This process encourages far greater collaboration across the business, which can enable some far bigger benefits to be achieved.

Step 3 – Analyse

The final step in the process is to analyse the entire P2P cycle. With everything fully automated and all processes unified into one central repository, analysis of existing processes and trading partner agreements can be made, helping improve the business.

This analysis not only ensures that there are no duplicate supplier profiles or any other similar process anomalies that can cause mistakes, but it also enables companies to optimise their supplier relationships.

Visibility of exactly how much is being spent with business ‘A’ or company ‘B’, no matter how many individual relationships existed before, means making the most of purchasing power and securing discounts. So many organisations have multiple relationships with a supplier without ever realising it and end up paying more than they need to as a result. This is a different kind of overpayment, but another than can be eliminated through analysing an automated, centralised P2P process.

Achieving process improvement

There are many examples out there of companies streamlining their procurement and invoicing processes and achieving a purchase-to-pay structure that cuts out duplications, human error and missed opportunities.

Technical University Delft is one such example in the Netherlands. It processes 130,000 invoices and bills per year and previously had 35 FTEs working on them. Through implementing a purchase-to-pay solution, it has been able to match all orders and invoices automatically, reducing the time and resource required to achieve improvement and cut overall costs by over half a million Euros.

Ton Visser, who manages the Basware application in the Shared Services Centre for Finance and Control at TU Delft outlines his challenges:

“When invoices came into the faculties, for example for temporary staff and office materials, they sometimes had to be approved by 20 or so people. Each invoice would make the long journey by internal mail to and from the various faculties and support services. Invoices would get stuck on a pile somewhere and sometimes we completely lost track of them.”

In addition, sometimes order numbers would be changed, or signatures forged in the manual process – opening up the way for both fraud and overpayment.

And now? Ton Visser continues: “All invoices are scanned at the Shared Services Centre and then sent digitally to the various ordering parties and budget holders who have to check and approve them. We are able to see whether a specific invoice has been received and signed and can track where it is. The process is 100 per cent transparent. We haven’t lost track of a single invoice since we automated the process.”

The improvements that can be made are real – it takes an approach that realises a reliance on paper documents in the company leads to mistakes, the consequences of which are costly. Electronic P2P eliminates the causes of these mistakes, delivers real financial benefits and ensures a better relationship with suppliers.