Why Accounts Payable Must Be Automated

Steve Sprague
June 25, 2015

This blog was last updated on June 27, 2021

Mexico will be putting your tax deductions under a microscope when new eContabilidad (eAccounting) requirements go into effect this September. The SAT, Mexico’s tax authority, will now have the ability to examine accounting reports and subsequent line item tax deductions, requiring added diligence in inbound To ensure tax accuracy, automation is your only option to minimize an audit riskprocurement processes to ensure compliance. This scrutiny demands complete accuracy on invoice payments by buyer’s in Mexico.  And the only way to ensure that your tax deductions are ultimately correct is to automate your three-way match which guarantees that your purchase order, goods receipt and supplier’s invoice are identical. Any deviations can trigger audits and result in fines, penalties and lost tax deductions.

Companies managing over 500 procurement invoices per month should consider full automation as the only way to ensure tax accuracy. Currently companies are approach the problem in three ways:

1) Manual entry: Almost a quarter of companies are having accounting clerks hand-enter the 30+ digit, case sensitive, alphanumeric unique identifier codes (UUIDs). These UUIDs, assigned to each individual XML, are the government’s tracking codes. If the UUID on the XML isn’t entered correctly into your ERP, the resulting reports required under Mexico’s eContabilidad will be inaccurate. Any discrepancy will trigger government scrutiny – for example, a single “I” instead of a “1” or an “A” instead of an “a” can trigger a hefty fine. In fact, we’ve found an approximately 7 percent error rate in codes entered manually! Clearly, these mistakes will add up quickly. Despite this risk, this process is SAP’s recommended solution – another reason why SAP is insufficient to manage Latin American compliance.

2) PDF format: Many companies also rely on PDF invoices instead of XMLs for accounts payable. However, when it comes to government compliance, the XML is the only invoice that matters. If you request an update from a supplier, return goods or don’t receive the correct order, the XML must be updated. Still, many suppliers will only update the PDF, and accounting will use that as the invoice of record. As many as 10% of XML invoices don’t match the PDF and are at risk of government penalties.

3) Automation: The final option is to automate the process, bringing the XML invoice into your ERP so that it links back to the government-approved document. Collection, validation and processing of invoices should all be automated, and journal entries and required reporting should all be linked from the ERP. This is the only way to ensure a three-way match and eliminate the chance of inconsistencies.

Option three is the only one that decreases your risk of an audit. The first two scenarios make companies employing these methods a prime target for government audits, as any errors will trigger the government’s automated checks. The SAT doesn’t care if it’s just a typo – any inaccuracy equals the inability to take tax deductions on the effected invoice coupled with a fine.

If your company is using one of the first two methods, an audit is virtually inevitable. Contact us to automate your accounts payable in Mexico and throughout Latin America to reduce your audit risk.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Steve Sprague

Como director comercial, Steve Sprague dirige la estrategia corporativa, las iniciativas de penetración de mercado y de field enablement para el negocio del impuesto sobre el valor añadido global (GVAT) de la empresa. El estilo de liderazgo de Steve se basa en su convicción de que, para que las organizaciones tengan éxito, deben comprometerse e invertir en los tres pilares estratégicos de la empresa: las personas, las prácticas y los productos.
Share this post

2025 tax filing season
North America Tax Information Reporting
November 21, 2024
Top 5 FAQs to Prepare for the 2025 Tax Filing Season

This blog was last updated on November 21, 2024 While “spooky season” may be over for most of us, the scariest time of year for many businesses is right around the corner: tax filing season. As they brace themselves for the flood of forms, regulatory updates, and tight deadlines, the fear of missing a critical […]

dtc shipping law updates
North America ShipCompliant
November 13, 2024
DtC Shipping Laws: Key Updates for Alcohol Shippers

This blog was last updated on November 13, 2024 When engaging in direct-to-consumer (DtC) shipping of alcohol, compliance with different state laws is paramount and so keeping up with law changes is critical. In 2024, the rules in several states for DtC have already been adjusted or will change soon. Here is a review of […]

sales tax vs. use taxes
North America Sales & Use Tax
November 8, 2024
Sales Tax vs. Use Tax, Explained. Who Reports What, and When?

This blog was last updated on November 19, 2024 One of the core concepts in sales tax compliance is also one of the most frequently misunderstood: the differences between sales tax and use tax. These tax types may look similar on the surface, but knowing the differences is essential for staying compliant and avoiding costly […]

2025 bond project
North America Tax Information Reporting
November 4, 2024
2025 NAIC Bond Project – The Insurer’s Guide

This blog was last updated on November 14, 2024 The regulatory landscape for insurance companies is undergoing significant changes with the Principles-Based Bond Project which is set to take effect on January 1, 2025. These changes, driven by the National Association of Insurance Commissioners (NAIC), will impact how insurance companies classify and value bond investments, […]

E-Invoicing Compliance EMEA VAT & Fiscal Reporting
November 1, 2024
VAT in the Digital Age Approved in ECOFIN

This blog was last updated on November 7, 2024 The long-awaited VAT in the Digital Age (ViDA) proposal has been approved by Member States’ Economic and Finance Ministers. On 5 November 2024, during the Economic and Financial Affairs Council (ECOFIN) meeting, Member States unanimously agreed on adopting the ViDA package. This decision marks a major […]