Fact: CPOs say that supply chain transparency is poor, with 65 percent of procurement leaders having limited or no visibility beyond their tier 1 suppliers.1
What does poor supply chain transparency mean for organizations?
In one word: risk.
A global organization receives thousands of invoices in a month, ebbing and flowing in volume. Invoices typically follow a pattern set forth by local and global business rhythm and the general payment terms preferred by the industry that the company operates within. So, it’s easy to see how a company can receive hundreds or thousands of invoices in a day that must be processed rapidly to make payments on time, making it nearly impossible for humans to keep up with the details – especially in a manual environment. Couple that with poor visibility across the supply chain and you have the recipe for risky business.
What risks are posed by high volumes and poor transparency?
The sheer volume of invoice data increases the probability of erroneous invoices within the workflow.
Such flawed invoices include:
Incorrect payment details (e.g. bank account number or tax code is incorrect)
Duplicate invoices sent by mistake by company’s suppliers
Invoices that are not aligned with the general terms and conditions preferred by the company
Fake invoices sent by a fraudulent party looking to exploit the AP department’s weaknesses
What are the repercussions of risky business?
Erroneous invoices result in numerous unsavory repercussions for the organization, including:
Similarly, fraudulent invoices cost the company time, money and significant hassle.
How can you prevent risky business?
The first step in fighting erroneous invoices and fraud is to ensure that you create a single source of truth when it comes to your supplier information and maintain a vendor master data file. I cannot stress this point enough – the cleaner your supplier data is, the better you are protected from costly errors and fraud attempts. When you’re thinking about how to improve supplier information management to eliminate risk, think visibility. The more visibility you can get across your supply chain – the better positioned you are to identify and prevent issues before time and resources are wasted. Refuse to accept a lack of visibility and the excuse that you didn’t see it coming.
The second step is automating your AP process to ensure that no payments are issued unless the AP automation solution verifies the invoice is coming from an approved supplier with right payment details. This fundamental step will ensure a firm baseline for your invoice automation and significantly reduce your risk exposure.
With a growing mass of incoming invoices, additional means to identify errors, anomalies and fraud are required. Completely eliminating errors, innocent anomalies and fraud from your invoice process is impossible. However, leveraging technology, your own data and improving supplier information management will make a big difference.
Here are my recommendations:
Make sure your invoice automation system can store and learn from your own data for anomality and fraud detection.
Employ simple rule-based outlier detection (e.g. if an invoice is coming from an unverified vendor, create a rule that automatically rejects/sends it for manual processing)
Create profiles for each supplier or supplier type of standard data to easily identify invoice anomalies (e.g. flagging changing invoice sums, changing invoice details, etc.
Leverage emerging technologies to detect anomalies in your invoice data (e.g. a machine learning algorithm that scans invoices for issues without human supervision)
And, here’s a big one: augment supplier information management with third party data enrichment to verify, update and clean-up supplier data. There’s no beating accurate, verified supplier data, and third-party applications are the way to go. Stay tuned for Part 3 in this series to learn all about how third-party data enrichment works and how it helps prevent risky business.
How can Basware help?
At Basware, we believe in helping customers realize success with fully integrated purchase-to-pay solutions, a network that is easy for suppliers to join and augmenting financial processes with solutions that make tasks like supplier information management seamless. Ready to learn more? Reach out – we’re here to help.