Eliminated $80K in Duplicate Vendor Payments

Eliminated $80K in Duplicate Vendor Payments

Executive Summary

Pacific Gate Capital, a growing wealth management firm, struggled with inefficient vendor payment processes that led to $80,000 in duplicate payments annually. By implementing enhanced compliance controls focused on automated invoice matching and approval workflows, Pacific Gate Capital, with the leadership of Benjamin Chow, eliminated these errors and streamlined its vendor management, resulting in significant cost savings and improved operational efficiency. This case study demonstrates how a strategic approach to compliance, powered by technology, can directly impact a firm's bottom line.

The Challenge

Pacific Gate Capital, managing over $500 million in assets for high-net-worth individuals, experienced significant challenges with its vendor payment processes. The firm relied on a largely manual system, involving multiple individuals and spreadsheets for invoice processing, approval, and payment. This lack of automation led to several critical issues:

• Duplicate Payments: The manual reconciliation process was prone to errors. Invoices were sometimes processed and paid multiple times, resulting in an estimated $80,000 in duplicate payments annually. These errors represented a direct loss of capital and negatively impacted the firm's profitability.
• Time-Consuming Reconciliation: Each month, the finance team spent approximately 40 hours reconciling vendor payments, searching for discrepancies, and resolving payment issues. This represented a significant drain on resources, diverting valuable time away from more strategic financial activities.
• Increased Audit Risk: The lack of robust controls increased the risk of errors and potential fraud. During a recent internal audit, the auditors highlighted the need for improved vendor management and payment processes to comply with regulatory requirements and industry best practices. Specifically, auditors noted a 15% error rate in vendor invoice coding, potentially leading to misreporting and compliance violations.
• Lack of Visibility: The manual system provided limited visibility into the vendor payment process. It was difficult to track invoice status, identify bottlenecks, and proactively manage vendor relationships. This lack of transparency made it challenging to optimize payment terms and negotiate better rates with vendors.
• Missed Early Payment Discounts: Due to the delays in processing invoices, Pacific Gate Capital frequently missed opportunities to take advantage of early payment discounts offered by vendors. This resulted in an estimated loss of $5,000 per year.

These challenges collectively created a significant financial burden and operational inefficiency for Pacific Gate Capital. The firm recognized the urgent need to modernize its vendor payment processes and implement stronger compliance controls.

The Approach

Pacific Gate Capital, under the guidance of Benjamin Chow, implemented a multi-faceted approach to address the challenges in its vendor payment processes. This approach focused on streamlining workflows, automating key tasks, and strengthening internal controls:

1. Process Mapping and Redesign: The first step was to thoroughly map the existing vendor payment process, identifying pain points, inefficiencies, and areas for improvement. This involved interviewing key stakeholders, reviewing existing documentation, and analyzing data on vendor payments. The team then redesigned the process to eliminate redundancies, simplify workflows, and introduce automation.

2. Technology Selection: Based on the process redesign, Pacific Gate Capital evaluated various vendor management and invoice processing solutions. They selected Coupa, a cloud-based platform that offered robust features for vendor management, automated invoice processing, and payment automation. The decision to use Coupa was influenced by its ability to integrate seamlessly with their existing accounting system and its comprehensive reporting capabilities.

3. Implementation and Configuration: The team worked closely with Coupa's implementation team to configure the platform to meet Pacific Gate Capital's specific needs. This included setting up vendor profiles, defining approval workflows, and configuring invoice matching rules. Special attention was paid to integrating the new system with the firm's existing general ledger to ensure accurate financial reporting.

4. Policy and Procedure Development: New policies and procedures were developed to guide the vendor payment process and ensure compliance with internal controls. These policies outlined the roles and responsibilities of each stakeholder, defined approval limits, and established guidelines for vendor selection and management.

5. Training and Communication: Comprehensive training was provided to all employees involved in the vendor payment process. This training covered the new policies and procedures, the use of the Coupa platform, and the importance of adhering to internal controls. Regular communication was also conducted to keep employees informed of updates and changes to the vendor payment process.

6. Vendor Onboarding: Existing and new vendors were onboarded to the Coupa platform, allowing them to submit invoices electronically and track payment status online. This reduced the need for manual invoice processing and improved communication with vendors.

7. Continuous Monitoring and Improvement: The vendor payment process was continuously monitored to identify areas for further improvement. Regular audits were conducted to ensure compliance with internal controls and identify potential fraud risks. The team also solicited feedback from employees and vendors to identify opportunities to optimize the process.

This strategic approach, combining process redesign, technology implementation, and policy development, enabled Pacific Gate Capital to transform its vendor payment processes and achieve significant improvements in efficiency, accuracy, and compliance.

Technical Implementation

The technical implementation of the new vendor payment system involved several key components and integrations:

• Coupa Implementation: Coupa was configured to manage the entire vendor lifecycle, from onboarding to payment. Vendor profiles were created for each vendor, including contact information, payment terms, and banking details.
• Automated Invoice Processing: Invoices received from vendors were automatically scanned and uploaded to Coupa. Optical Character Recognition (OCR) technology was used to extract data from the invoices, such as vendor name, invoice number, date, and amount.
• Invoice Matching: Coupa's invoice matching engine automatically matched invoices to purchase orders and receiving reports. This ensured that invoices were only paid if the goods or services had been received and the invoice amount matched the agreed-upon price.
• Approval Workflows: Automated approval workflows were configured to route invoices to the appropriate approvers based on predefined rules. Approval limits were established for each approver, ensuring that invoices exceeding a certain amount required higher-level approval.
• Integration with Accounting System: Coupa was integrated with Pacific Gate Capital's existing accounting system using a secure API. This allowed payment information to be automatically transferred to the accounting system, eliminating the need for manual data entry.
• Payment Automation: Coupa's payment automation feature allowed the firm to pay vendors electronically, reducing the need for paper checks and improving payment efficiency. Electronic payments were processed securely through a bank integration.
• Reporting and Analytics: Coupa provided comprehensive reporting and analytics capabilities, allowing the firm to track key metrics such as invoice processing time, payment accuracy, and vendor spend. This data was used to identify areas for improvement and optimize the vendor payment process.
• Calculations: The $80,000 figure was calculated using the following method: A manual review of the previous year's invoices uncovered multiple instances of duplicate payments, ranging from small amounts ($100-$500) to larger sums (over $5,000). A sample of invoices revealed a duplicate payment rate of approximately 0.8% of total vendor spend. Assuming a total annual vendor spend of $10 million, the potential loss due to duplicate payments was estimated to be $80,000 (0.008 * $10,000,000). The integration with the general ledger allowed for identification of these duplicate entries, previously undetectable.

Results & ROI

The implementation of enhanced compliance controls and automated vendor payment processes yielded significant results for Pacific Gate Capital:

• Eliminated Duplicate Payments: The firm eliminated $80,000 in duplicate vendor payments, recovering these losses and improving its bottom line. This represents an 8% reduction in wasted vendor expenditure.
• Reduced Invoice Processing Time: The automated invoice processing system reduced invoice processing time by 75%. What used to take, on average, 5 days, now takes about 1.25 days.
• Improved Payment Accuracy: The automated invoice matching system improved payment accuracy by 95%, significantly reducing the risk of errors and fraud.
• Reduced Reconciliation Time: The automated reconciliation process reduced monthly reconciliation time from 40 hours to just 5 hours, freeing up valuable time for the finance team to focus on more strategic activities.
• Increased Visibility: The new system provided enhanced visibility into the vendor payment process, allowing the firm to track invoice status, identify bottlenecks, and proactively manage vendor relationships.
• Improved Compliance: The implementation of stronger internal controls improved compliance with regulatory requirements and industry best practices. Internal audits showed a 90% reduction in invoice coding errors.
• Early Payment Discount Capture: Pacific Gate Capital was able to capture 80% of available early payment discounts, leading to an estimated annual savings of $4,000.
• ROI Calculation: The initial investment in Coupa and implementation services was approximately $50,000. Considering the $80,000 in recovered duplicate payments and $4,000 in captured early payment discounts, the firm achieved a return on investment (ROI) of 68% in the first year. (($80,000 + $4,000 - $50,000) / $50,000).

Key Takeaways

1. Automate for Efficiency: Implementing automated invoice processing and payment systems can significantly reduce errors and improve efficiency in vendor payment processes.
2. Strengthen Internal Controls: Robust internal controls, including automated invoice matching and approval workflows, are essential for preventing duplicate payments and fraud.
3. Invest in Technology: Investing in technology solutions can streamline vendor management, improve payment accuracy, and provide valuable insights into vendor spend.
4. Train Employees: Comprehensive training is crucial for ensuring that employees understand the new policies and procedures and can effectively use the new systems.
5. Monitor and Improve: Continuously monitor the vendor payment process to identify areas for further improvement and ensure ongoing compliance.

About Golden Door Asset

Golden Door Asset builds AI-powered intelligence tools for RIAs. Our platform helps advisors optimize compliance workflows. Visit our tools to see how we can help your practice.