What is compliance in your invoice processing and how to get it right?
In the digital era, it’s very challenging to maintain compliance with legal and taxation protocols without putting in place an automated AP process. With manual or partially automated invoice processing, the AP team has a tall task in entering and verifying all the invoice data into the AP system while ensuring reliability, consistency, and efficiency.
71% of companies reported manual data entry and inefficient AP processes as one of their top pain points - Levvel's Payables Insight Report 1
Understanding the Accounts Payables process and implementing best practices is crucial in tackling compliance issues within your invoice processing cycle. Not only that but addressing such problems also leads to savings that improve your bottom line.
During an audit, the last thing you want is not to know where an invoice and its supporting documents are stored or see erroneous payments that don’t correspond to a genuine invoice. Being compliant means your Accounts Payable (AP) team should have superior governance & business process controls to drive improved accountability and reporting standards. Let’s look at what it is like for the AP team to be compliant.
Top Compliance Pain points for the Accounts Payable (AP) team
Many AP teams struggle to ensure compliance adherence across the company. They cannot retrieve the necessary document, follow its path, and generally lack a considerable amount of transparency to pinpoint the changes made and by whom. Here are some other pain points:
Why does compliance matter in invoice processing?
Compliance matters to the Accounts Payable (AP) team because it helps prevent fraud and avoid unnecessary penalties in the invoice processing cycle. Businesses want to comply with all the financial regulations, get their payment documentation in order, and follow an ethical payment system to avoid fines and legal liabilities in the future.
Companies want to mitigate all AP risk; they wouldn’t want high transaction throughput to jeopardize their company. Moreover, transparency in monitoring and tracking all the activities associated with invoice processing is also required. Being transparent and compliant means companies can avoid frauds, fines and mitigate losses.
AP department needs to be aware of its compliance requirements, procedures, and the potential impact to your company of non-compliance. Therefore, a modern invoice management solution should be in place incorporating the compliance and audit requirements of the organization.
What do you need to have in your invoice processing cycle in terms of compliance?
Your AP team needs a defined business process and a documented audit trail to get your invoice processing to be more compliant.
To have a compliance-specific invoice processing ecosystem, your business must first have the capability to store documents and log changes on invoices. These conditions are prerequisites to meeting internal controls on financial reporting. This level of compliance reduces risk while maintaining efficiency.
Auditors must have full access to this detailed invoice processing history at any time. They should be able to locate and retrieve a file quickly. A historical audit trail, where the files sit in an archive, helps auditors access and review files in a matter of seconds. They don’t need to skim through spreadsheets, screenshots, and physical copies of invoices. The AP team will save a lot of time by finding the correct documentation to respond to audit requests quickly.
Typically, all invoices need to include specific components to meet the minimum regulatory compliance standards. Business rule validations in place can ensure that every invoice processed is compliant to the same standard set by your organization. Here are all the mandatory invoice processing prerequisites:
Modern Invoice Management – Making your AP Team compliance and audit-ready
End-to-end visibility to track and report every transaction is essential for the Accounts Payable team. It helps them address every compliance-related concern swiftly and accurately without having to go through endless physical copies of every invoice ever processed. Record retention and easy retrieval are something that matters to the AP team.
The ability to do so in a convenient and time-efficient manner makes compliance procedures easier for your AP team. Let’s take a look at all the benefits you stand to gain by deploying an Invoice Management Solution
1) Saves time – The AP team wastes a lot of time accessing and retrieving earlier documents (invoices) for audit. Manually trying to locate past invoices is time-consuming. Whereas a historical record, something like an archive, document management system, allows easy access to the AP clerks.
In an audit or grievance filed against your business, your AP team will be able to retrieve the necessary invoice-related documents and produce valuable reports swiftly and confidently, without any time-consuming delays and disruptions. Saving time means you can streamline the correspondence and grievance process for the AP team.
2) Data entry errors or frauds – Quite often, the AP team ends up processing a fraudulent invoice or enters the wrong information. This leads to a cash outflow situation, wherein the money leaves your account but doesn't end up at the right place. In most cases, the AP team won't be in the know-how about the misdirected cash until it's too late (audit day).
Imagine you received fewer physical copies or most of the docs arrived in electronic format; it would mean far less reliance on manual AP system. The OCR and AI-enabled invoice processing cycle with business rules validations will ensure you capture data much faster, and that too with fewer errors. If the details in the invoices are correct, or there is a way to verify it, then the chances of wrong payments come down substantially.
This closes the gaps, reduces the risk of liability for a company, reduces incorrect settlements, and brings down additional costs for an enterprise for failing to comply with the regulatory practices. With automation, you don't need to worry about human errors creating risks and failing your compliance.
3) Seamless audit processing – Both internal and external audits need complete access to all the invoices and their corresponding payments. Going through a database of asymmetrically stored invoices can make it hard to locate the correct invoices and their supporting documents. You might even come across irrelevant invoices in the process. What helps is having an interface that shows all the invoices within a time frame. All the payments done against those invoices will be valid for any audit of that financial year or quarter. However, employees find it hard to track these invoices because many of these exist on multiple channels, such as mail and collaboration tools. There have been times when necessary invoices were lost or got deleted, thereby raising suspicions for auditors.
A centralized interface with robust compliance functions such as business rules validations, exception handling with detailed audit and approval log will make audits much more straightforward. Every key employee has complete visibility on every invoice that was ever paid.
4) Avoid non-compliance penalties – Not having your accounts in order can lead to hefty fines. Missing invoices lead to distrust and the auditors may want to scrutinize your dealings even more minutely and if unregistered invoices are found or they can’t see a clear audit trail, it may incur heavy fines.
Every AP team must ensure that there is a management approach embedded in the invoice processing platform to manage, monitor, track and retrieve invoices as and when required.
5) Better security – Ideally, no invoice and its contained info should ever leak outside the AP team. Therefore, storing and managing confidential invoices and other connected documents digitally strengthen the security of these documents. Relying on unsecured channels or managing the same offline greatly compromises the invoice information.
Using a secure interface means your documents are seen only by those who have been given access. This prevents any outside entity from making modifications to your invoice data. This also reduces the likelihood of fraud or even duplicate invoices. From receipt through scanning, storing, indexing, and delivery, all the data stays within your prescribed team.
6) Adapt with ease - Countries pass new regulations and policies and it can get a little intimidating for the AP clerks to follow these changes and adhere to them. Plus, these codes can vary greatly from country to country. However, you can ensure your AP team has up-to-date information regarding compliance procedures for every nation that you operate in.
The solutions need to support any changes in business rules validations in a less complicated and faster way, even without the involvement of the IT team. The ever-evolving compliance landscape can be hard to keep an eye on, but by using an easily configurable solution you can adhere to the regulations seamlessly.
Preparing for an audit can be daunting, even more so when paper invoices are misfiled, misplaced, or lost, or when your grievances response time isn’t up to compliance standards. Accounts Payable (AP) automation eliminates the likelihood of incorrect data, lost documents, human errors and reduces the risk of failing an audit.
With AP automation, everyone has end-to-end visibility, ensuring 24/7 access, changes, approvals, and sharing of invoices, for every permitted individual. Plus, all the changes are automatically logged, and all your financial data stays secure due to the customized access restrictions in place. Auditors won’t find it challenging to validate which invoices were approved by which AP clerk or have to ever worry about misplaced or damaged invoices.
InSITE from Applexus is a next-generation Invoice Management Solution powered by AI/ML. InSITE’s advanced capabilities help your AP team be fully compliant while running the entire auditing process like a breeze.
1 Levvel Research, 2019 Payables Insight Report: Understanding the Value of Holistic Invoice-to-Payment Automation for Enhanced Business Outcomes.