6 Risks of Ignoring Your Payables’ Check Engine Light
Most of us have experienced that sense of dread the moment our car’s check engine light come on. The light indicates a problem with the car’s engine or related systems. The problem could be as simple as a loose wire. But the fear of costly car repairs causes many people to ignore the warning sign – at the risk of bigger, more expensive problems down the road. More than 9 million U.S. drivers have ignored their car’s check engine light for three months or more, CarMD.com says.
Car owners aren’t the only ones ignoring warning signs.
Most finance organizations are turning a blind eye to the warning signs that their processes for paying suppliers are not as efficient as they should be. Less than one-quarter of accounts payable departments describe their operations as being highly automated, with few manual processes, the Institute of Finance and Management (IOFM) says. The warning signs of payables problems include:
- Manual supplier onboarding processes
- Late payments and/or delayed shipments
- Inability to scale or enter new markets
- Manual check/ACH/wire transfer/PayPal minutiae
- Tax and regulatory compliance issues
- Cumbersome/inadequate reporting
While the burden of meeting the day’s transaction processing demands may tempt organizations to delay their payables automation initiatives, doing nothing causes bigger, more expensive issues later.
The six risks of ignoring your payables warning signs include:
- Poor financial control and reporting
Manually reconciling payment data increases the chances of information being misreported because of human error, which leads to a lack of trust and potential regulatory fines.
- Tax and regulatory penalties
Ineffective tax-form collection and reporting is a big contributor to Foreign Tax Compliance Act (FATCA) violations. In addition, poor management of payables policies increases the risk exposure for a business. Without the correct processes in place, tax reporting is more onerous and prone to errors. All this can cost lots of time and money.
- Fraud losses
The lack of controls for manual invoice-processing and payment-disbursement leaves businesses vulnerable to fraud losses. Improper payment-reconciliation also increases the chances that payment fraud will go undetected. U.S. businesses lose the equivalent of 5 percent of their revenues each year to payments fraud. Can your business afford the loss?
- Costly errors
Manual accounts payable processes increase the chances of payment errors that damage supplier relationships and result in wasted time and expense to resolve. Incorrect and duplicate supplier payments – some of which are never found – also chip away at margins.
- Burdensome staff hiring
Relying on manual processes makes it harder for accounts payable departments to hire qualified knowledge workers – particularly millennials – as the business grows. This will become a bigger issue as the economy continues to improve and the labor market tightens.
- Competitive disadvantage
Accounts payable departments can never achieve best-in-class results without standardizing their rules and processes with a scalable, automated solution. In today’s increasingly competitive global economy, businesses need their accounts payable departments to be a partner with the enterprise in supporting cash management and spend management.
These risks are why finance departments must heed the warning signs that their processes for approving invoices and paying suppliers are not operating smoothly.