A myth in AR departments is that AP departments don’t want to pay on-time. There are several reasons why this is not true. One of the most compelling reasons is audit requirements.
Here is why AP needs to make on-time payments to avoid audit issues.
If payments are not being made on-time, it is a sign that policies and procedures are not being followed. This can raise control and compliance issues. Auditors review policies and procedures for control weaknesses, then test to verify compliance with them. If there are compliance issues which cannot be adequately explained, auditors will increase testing to see how extensive compliance issues are.
Inadequate controls and lack of compliance are control weaknesses, which are written up and discussed with management and the Audit Committee. AP departments follow policies and procedures and pay vendors on-time to avoid control weaknesses.
Non-compliance with AP policies and procedures, can be a sign of AP fraud. When vendors are not paid on-time it may mean that cash is being used to make improper payments to fraudulent vendors.
In this case a fraud audit may be necessary. Fraud audits can be an expensive, time consuming review, which may lead to a delay in the audit and issuance of financial statements.
Not paying vendors on time could cause problems with AP confirmations. Balance discrepancies such as late charges and deductions could cause reconciliation problems and delay this audit step. Confirmation of AP balances can be difficult under normal circumstances, and may be more problematic when payments are late.
Cost and Delays
Problems caused by late payments can increase the cost of an audit and cause a delay in the audit and issuance of financial statements. This is an important issue for public companies which must meet reporting deadlines, and may cause problems with shareholders and creditors.
These problems are why companies want to make on-time payments. Automation makes on-time payments possible by eliminating manual steps that can result in delays. Automation increases efficiency, reduces costs and results in increased profits and cash flow.
With a connected accounting solution for your AR and AP teams to coordinate work with customers and vendors, you can go digital and enjoy the benefits of office automation.
Lockstep, a leader in cloud-based connected accounting solutions, can help you boost productivity and optimize cash flow with:
- Digital Onboarding – Collect master data directly from your customers and vendors
- Accounting Inbox – Make it easy to divvy up work and track progress
- Smart Automation – Automate menial task with accounting integration
- Online Accounts – Give customers and vendors online access to their accounts
Lockstep is an experienced software partner that can help you increase efficiency and accelerate cash flow.
If you would like to learn more about how you can benefit from connected accounting solutions, please contact Lockstep at www.lockstep.io