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Management of accounts receivables often tops the list of priorities in the medical practice business office.

However, careful control of accounts payable is crucial to managing cash flow and to protecting the assets of the practice. In a time of increasingly thin operating margins, it is essential to have proactive strategies in place to manage the money flowing out of the medical practice to pay its bills for goods and services. In addition, an accounts payable system with strong controls is the first line of defense against internal fraud.

Neglect of accounts payable operations can seriously affect the bottom line of the medical practice. It can result in paying invoices more than once, paying fines and late payments, paying charges that suppliers should pay and failing to take advantage of special pricing offers. It can be costly to fix errors. The practice can certainly be affected adversely if critical insurance premiums are not received on time. The accounts payable system also provides the most frequent opportunity for fraud within the practice.

There are four primary components in accounts payable best practices. These are management of payments to maximize cash flow, internal controls, minimization of paper, and clear and traceable audit trails. Payment management and internal controls are the most essential to daily business operations.



Payment Management

Management of payment timing is important; use of an automated accounts payable system can be very helpful. Establish clear payment policies that are put into practice. Are payments made based on invoices or statements? Are payments made upon receipt of the goods or service, or upon receipt of the invoice? Is the practice taking advantage of prompt pay discounts and negotiating with vendors for favorable payment terms?

While it is desirable to manage payments in a way that will maximize cash flow, it is important to be cautious about aging payables. Bills should never be allowed to age more than 45 to 60 days unless special payment arrangements have been made. Outstanding and aging balances drive interest penalties. Also, it has been observed many times by bankers, attorneys and accountants that nothing signals financial problems as much as slow payments.

Conduct a big picture review of accounts payable operations. Each week review the aged payables, copies of invoices matched with payment checks, and reports of late charges and early payments. It is also important to review the chart of accounts (COA) to make certain entries are correctly reported. Usually problems are the result of miscommunication, encoding errors or sloppy or inadequate recording keeping.

However, accounts payable problems can be the result of fraud. Fraud is a big problem that cost businesses in the United States more than $660 billion in 2004. Medical practices are not exempt from fraud and the significant financial losses that result. Credit cards, travel and entertainment reports, false invoices and receipts, and office supply accounts provide particular opportunity for fraud. A strong system of internal controls that segregates duties and includes checks and balances will discourage fraud and enable the quick discovery of attempted fraud.



Internal Controls

A good internal control system involves lots of detailed procedures. Don't consider these procedures an impediment to efficiency; take them very seriously. Internal controls are proactive commonsense steps organized in a system of checks and balances. These procedures, when combined with regular internal tests and audits as well as independent audits, will protect the financial well-being of the practice.

There is a long internal controls checklist that every office, small or large, should have in place. Some of the numerous items on the checklist include:

· Disbursements are made by pre-numbered checks.

· There is a prohibition against drawing checks payable to cash and against signing checks in advance.

· A detailed cash disbursement voucher is prepared for each invoice or request for reimbursement.

· All expenditures are approved in advance by authorized person(s).

· The check signer reviews the cash disbursement voucher for approved authorization and supporting documentation of expenses.

· No one processing checks has check signing authority, prepares bank reconciliations or maintains vendor files.

· Invoices from unfamiliar or unusual vendors are reviewed and approved for payment by personnel who are independent of the invoice processing function.

Make certain the internal controls checklist includes knowing who is hired and who is working in the office. Do background and credit checks. Conduct random audits. Enforce vacation policies for everyone. Bond all employees.

Frequent, clear internal and external oversight is important in every step of accounts payable management. Substantial financial assets and goodwill can be lost if accounts payable is not appropriately managed.

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