Try this Approach to Improve P2P Operations
Slow invoice approvals and slow P-Card transaction review are two common issues that most organizations experience to some degree. Besides holding employees accountable for timely reviews and approvals, what else can you do? The answer, as described in this post, also helps minimize the time-wasting activity of correcting every coding error associated with invoices or card transactions. Further, it can contribute to invoice reduction in accounts payable. Think you know the answer? Keep reading to see if your thinking aligns with mine.
Recap of Issues
Slow invoice approval by buying departments
Slow transaction reconciliation—the review and approval of card transactions by cardholders and their managers
Time wasted correcting coding errors associated with invoices and card transactions
Too many low-dollar invoices piling up in accounts payable (AP)
Solution to Consider
Implement a “materiality threshold” for each issue. This term is often used in conjunction with audits. However, for the issues listed above, I use the term broadly to suggest your organization determine the dollar amount below which:
Invoices will be paid by AP without approval; for example, if the buying department has not approved such an invoice within “x” days. This might also help your organization take advantage of more early payment discounts when offered by a supplier.
Card transactions will be pushed through with some predefined account coding. With or without such a practice, some organizations impose an internal fee to a buying department that requests a coding change for an already posted transaction.
Account coding errors will be left as-is because the labor cost to make corrections is greater than the purchase total and the errors are not “material” to financial reporting. One organization told me their threshold is $200.
A P-Card purchase-to-pay (P2P) process must be used by the buying department if the supplier accepts cards; after all, P-Cards are ideal for low-dollar purchases.
A materiality threshold approach should not mean that organizations excuse or ignore employees who are not doing their jobs. It simply supports increased efficiencies under certain circumstances.
Final Thoughts
Not everyone will agree with this post. We likely all know someone who will drive 30 minutes across town to fill up their vehicle’s gas tank for $.05 less per gallon than what the filling station in their neighborhood charges. The hard-dollar savings are immaterial, yet they get some sort of personal satisfaction.
Similarly, some organizations are willing to spend extra time on something if it yields a particular result. But is there a business case to substantiate the decision? I encourage every organization to evaluate the risks and rewards of establishing a materiality threshold in one or more situations. You might be surprised on what can be achieved.
Related Resource
Blog post Aren’t P-Cards supposed to be efficient? provides examples of tedious procedures or controls that often come at a cost that exceeds the benefits.
Time is money
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About the Author
Blog post author Lynn Larson, CPCP, launched Recharged Education in 2014. With 20 years of commercial card experience, her mission is to make industry education readily accessible to all. Learn more…