Payin’ the Bills

We pay a lot of bills for our clients. It seems simple but it's a key function and even more important in an era of increased fraud. So we've created a foundational Accounts Payable process with documentation to help businesses tackle such a vital function seamlessly.

Here’s a step-by-step approach to do it right.

Step 1: Vendor Set-up or Update

There are certain steps that should be followed when onboarding a new vendor or changing a vendor’s information:

New Vendor Set-up:

1. Request and receive the vendor’s W-9

   1. This is required for new vendors and a best practice to receive annually for existing vendors Note: Vendors should not be paid if W-9 is not received. It is a legal requirement to be collected as part of payment.

2. Understand the source: Is the contact known/credible? Is the email address known/credible? Here are the steps to confirm:

   1. Call the contact’s accounting department to verify the bank information or remittance address received with the vendor over the phone. Then document the verification, including the name, title, date, and time of the person you spoke with.

   2. There should also be a bank letter or copy of voided check to support the vendor's bank information. A vendor bill shouldn't be sufficient because anyone can create a vendor bill.

   3. The phone number used for the call verification should be from the vendor's website. If the vendor doesn't have a website, this is a red flag!

   4. As a best practice, include the qualified approver(s) on all communications to assist with verifying the source.

   5. During this verification process, it is best practice to also confirm the new vendor's FEIN.

3. Make sure the remittance email address is noted so remittances can be sent to the correct person.

4. Obtain any contracts from the vendor to confirm the payment terms and save them in a folder.  

Vendor Information Change Process:

1. We should receive an email confirming the information that has changed.

   1. Once received, you should perform a call verification verifying this information, and confirm the following:

      1. The old information

      2. The vendor's FEIN or Tax ID

      3. The last three payments made to the vendor. If three payments haven't been made, then confirm the payments that have been made. The amounts, payment dates, and vendor bill numbers should be confirmed in addition to this.

         • If bank information or remittance address changed and this is how the vendor is paid, there should also be a 30-day waiting period from when we were informed of the change before payments will be made using the new banking information. Old bank accounts typically remain open for at least 30 days, and this also ensures the change is legitimate.

Step 2: Receive the Vendor Bill

Set up a good process for receiving all vendor bills and purchase orders in one place. This is usually a designated email inbox  or bill payment processor portal. You should be receiving vendor bills directly from the vendors (once verified)

Step 3: Review Accuracy of Input

Before you enter a vendor’s bill into your system, you’ll want to verify everything on the bill is correct.  This is done to minimize losses due to errors on the bill, double-billing or bills that were sent to you fraudulently.

Prior to payment, there should be a process in place to verify the accuracy of inputs through a multi-layer review process. For example:

• Steve, an Associate enters a bill’s information (due date, amount, vendor) into the Accounts Payable platform, based on the information provided on the bill. The information should be reviewed by a manager prior to payment.

• Set up a dollar threshold that requires another layer of approval. For example, vendor bills that are over $50,000, it is mandatory that a second team member review all the information inputs. Example of information to be verified for accuracy:

  • Date and due date

  • Dollar amount

  • All bill details including vendor name, vendor address, payment method, terms, and description.

  • Bank information (routing and account number)

Ensure the bill number is unique for that vendor, and not a duplicate. The vendor name and payment details should be consistent with previous bills from the same vendor; inconsistencies are a red flag.

Step 4: Approve the Bill

The AP process should ensure that all bill payments are being approved by a qualified approver prior to payment. A qualified approver will be a person who has been established as personnel who can approve bill payments.

Please note that a qualified approver can be either a:

• Relationship approver – The person on the team that owns the vendor relationship and can verify that the vendor is legitimate, and the work was performed.

• Financial approver – The person on the team that has insights into the company’s finances and has the authority to approve and/or release payments.

Documentation: the bill payment approval should always be documented, meaning there is a record of approval from the qualified approver. Examples:

• Email documentation

• Documentation through bill payment processor (preferred)

Ensure that you have a workflow that captures approvals so they are auditable and documented. If you are using a payment processor, you can set up approval workflows directly in the software.

Step 5: Pay the Vendor Bill

Once the approval process is complete, the final step is to get the bill paid. Releasing the payment includes:

• Clicking “pay” in  payment in the payment processor.

• Releasing wires initiated in the client’s bank portal.

Step 6: Code to the Chart of Accounts

Now you’re ready to enter all your vendor and bill details. Coding to the correct accounts to properly track your accounts payable workflow.

1. Compare the newly entered bill to the vendor bill to make sure the entity billed is consistent with the location you're booking the entry under.

2. If sales tax is reported, noting the service location is important since we want to ensure the tax is reported correctly and consistently. This is key for vendors who operate out of different states, especially Canada.

Step 7: Reconcile with General Ledger/Accounting Software

Once the payment is sent, the vendor bill is ready to be marked as paid in the accounting software and can be made even easier by automating the reconciliation. Here are some examples of how to review for accuracy:

1. If you have a client has a clearing account, you should ensure that it reconciles to zero each month.

2. AP should always be reviewed for aged payables.

3. Confirm that bills are recorded in the proper period for cut-off purposes.