When you're asked to come up with statistics to benchmark your A/P operation against others, do chills run down your spine? Are your costs more than ten dollars per transaction and are you being asked why others can process an invoice for less than $2? Are the best practices you've been asked to put in place not applicable to your organization or, even worse, potentially harmful?

While benchmarking can give you ideas as to where to look, you should view the differences between your organization and others with a lot of questions. Your focus should be on figuring out what's included and what's excluded, what's similar and what's different.

One organization may treat each airbill that it receives and processes electronically as a transaction. You may treat one week's or even one month's airbills as a single transaction. Some A/P operations don't pay for space, computer time, check stock, postage, bank charges or off-site storage. Some get charged with allocated overhead costs that exceed direct costs. Those are just for starters. The functions performed within your A/P may differ greatly from those in other organizations. Who mails the checks? Who handles calls from vendors? Who handles fixed assets? Who reconciles the bank account?

One company's best practices are not necessarily the best practices for you. You may have many international travelers while another has none. Their process for handling employee expense reimbursements may be inappropriate for you. Your accounts payable system may not check for duplicate payments across paying entities. If so, you'll need procedures and controls that others may not need. If you have many decentralized locations and a corporate-wide network in place, you'll be able to do things that others can only dream about. If your volumes are very high, imaging may be cost justified but that may not be the case unless you can piggyback on a system justified by another department. However, if you can get most of your invoices electronically, you may not need imaging for the rest.

These are just a few of hundreds of examples of misapplying and misunderstanding of A/P benchmarking and best practices that we've encountered.

Weigh the Benefits of EDI against the Costs

Of the more than 12,000 banks in the United States, no more than 100 are EDI capable. However, new options for electronic data interchange (EDI) are behind the latest developments in corporate treasury management. New technologies that facilitate financial EDI include programs for EDI via email, electronic/lock box merge and electronic invoicing.

The clear benefits must be thoroughly weighed against less obvious costs prior to making the decision to implement EDI:

• Reduction in Document Processing Costs With financial EDI, the payment and remittance processes are brought together and finalized electronically rather than someone entering the data manually. Not only does this eliminate paper-based, labor-intensive transactions, but it frees up personnel and eliminates postage, phone, fax and courier.

• Improved Speed of Communication Via EDI, details of transactions can be sent, received, evaluated and processed in a fraction of the time usually associated with business processes. This dramatically reduces the purchasing and payment cycle.

• Reinforced Competitive Position EDI allows companies to reduce the cost of transactions and differentiate themselves from the competition by improving their business processes. For instance, allowing a trading partner to initiate an automated clearing house (ACH) debit is an easy way to differentiate oneself from the competition.

• Improved Invoicing By reducing communication time through EDI, invoices can be sent sooner and the invoice/payment cycle can be shortened helping save money on interest and loans.

Among the costs of electronic data interchange are the following:

• Limits to Capabilities Just being EDI compliant doesn't give a company the ability to implement it throughout the business process. Such companies may fail to reduce the amount of paper-based work and, if anything, actually increase work for themselves or their trading partner.

• Increased Risk of Duplicate Payments Vendors that claim they're EDI capable who do not have appropriate controls may send some invoices electronically as well as on paper thus significantly increasing the number of duplicate payments.

• Personnel and Training Costs Implementing EDI requires support and training. At least one full-time EDI Coordinator is necessary to maintain the EDI system and train management and users.

• Costs of System Existing business application software must be changed and new software must be purchased to support EDI. Costs for large corporations can exceed $10 million. New connections and monthly telephone and VAN charges of adding a new trading partner can be $20,000.

Vendor Management

Mergers, acquisitions, divestitures and name changes! It's almost impossible to really know who your vendors are, let alone how much business you're doing with them. A vendor management program can help you not only find out who you're doing business with, but help you do business with them more efficiently and effectively.

Here's an outline of a five-point vendor management program that will help you save significant dollars:

1. Identify your vendors

This may seem obvious, but many companies lack basic information about their vendors. Information in your purchasing and accounts payable files may be inaccurate, redundant, out of date or incomplete. Review your files to eliminate redundant vendors. Link related vendors to enable meaningful reporting.

These activities can take a lot of effort but are critical to achieving significant payoffs. Some direct immediate benefits are fewer duplicate payments, fewer checks, and lower postage.

2. Beef up vendor information

Augment your vendor files with information that's useful for analysis. Basic information you may want to add includes SIC codes, taxpayer identifiers, telephone numbers, type of organization, types of products or services, how long vendors have been in business, and size. More important, find out if vendors are EDI capable, are ISO 9000 compliant and take Procurement Cards. This additional information is a starting point for the financial planning and analysis that leads to smart decisions.

3. Analyze your expenditures

Determine where money is spent - by vendor, type of vendor, areas of your organization, trends over time. Build databases and analyze data to better understand how you're doing. Benchmark against others. Find where savings and opportunities exist.

4. Buy, spend and pay smarter

Here's where you begin to reap the dividends. With better information about spending, you can negotiate better deals.

5. Make life easier for vendors (and yourself)

Develop a vendor setup and verification process. Where appropriate, get electronic inputs from vendors using EDI or Procurement Cards. Approve, pay and reconcile electronically. Provide online access to vendors to reduce phone inquiries.

Imaging - Payoffs and Problems

An increasing number of corporations are turning to imaging systems to help manage the growing number of documents that pass through their organizations.

Imaging is a simple concept, replacing paper documents with digitally scanned images stored on optical disks. Millions of documents on servers can be accessed by multiple users.

Any imaging vendor can give you an excellent list of benefits for using imaging systems in Accounts Payable operations. However, imaging in Accounts Payable is unlike imaging elsewhere. You need to avoid what can be big problems!

If you're thinking about an imaging system for your Accounts Payable operation, make sure you consider the following:

• A/P receives documents in a wide range of sizes, shapes and colors. Format, content and print quality vary greatly from one vendor's invoice to another.

• Expense reports often have many small attachments. Scanners may have difficulty handling the documents you work with.

• Avoid optical character recognition of invoice images; error rates are too high. With 99% accuracy, every document you try to "recognize" will have at least one error!

• Screens should be at least 22 inches to allow your staff to accurately interpret information based on document images.

• Image Indexing should be integrated with entry of information into your payables system to ensure that you'll be able to find documents when you need them.

• Image indexes can get very large. Your staff should learn how to search efficiently.

• Images take up a lot of storage. Make sure you have enough for future growth.

• Transmitting images from a server to a workstation uses a lot of network capacity.

• Image retrieval time from a ‘jukebox' may increase exponentially as the number of users grows.

• Automatic faxing of retrieval results back to the requestor is desirable.
  • A system should allow selective retrieval when only part of a document is needed.

• When evaluating vendors, contact references who are using imaging in A/P.

Imaging systems can provide efficiencies and benefits for many. For some, however, the investment is too great. Before making the operational and financial commitment to an imaging system, be sure it is a solution that meets your organization's unique needs.

A/P - Before and After the Corporate Restructuring

With over 27,000 reported mergers in the last 3 years, many Accounts Payable managers have faced the nightmares of merging their function with another organization. For those of you faced with this prospect, we offer the following suggestions to smooth the transition:

• Assess your procedures and practices

  Before you consolidate, survey your own A/P operation as well as the operations you are merging. Look at your own with the same level of scrutiny as the others. You'll find that some of your practices should be changed or replaced by those of the acquired organization. Additionally, you may discover functions performed in the acquired operation that you will have to add to your own.

• Staff for the transition

  During the transition, your resource requirements may expand substantially. You are likely to lose some of the best people from the organization you're acquiring. A significant number of invoices and expense reports may "come out of the woodwork." Expect a decrease in the quality and timeliness of items getting to accounts payable. As submitters, approvers and procedures change, expect error rates to increase.

• Combine vendors files intelligently

  If you simply add the acquired organization's vendors to your vendor file, you'll be adding many duplicate vendors and creating potential future problems. Clean up your own vendor file and only add those vendors that are necessary. Typically, only 5 to 20 percent of the vendors in the acquired vendor file need to be added. The rest of the vendors are already in your file, are inactive, may never be used again, or have incomplete addresses.

• Retain relevant records and software

  Decide whether to convert automated A/P history files and how you'll retain electronic and manual records. Electronic history is useful for vendor MIS, duplicate checking and 1099 reporting but alternatives to a full conversion may save a lot of time and effort. Whether or not you convert, make sure you're in compliance with IRS Revenue Procedure 98-25. If you don't convert, make sure you keep around files and the programs needed to process them. If you do convert, make sure you document the conversion process and retain enough information to be in compliance.

• Implement special controls after consolidation

  The first 90 days after consolidation are critical. Typically, some things were missed in the pre-consolidation survey. Turnover within and external to A/P will adversely affect quality, timeliness and compliance. Inquiries from vendors and employees will increase.

Plan Now for 1099's

It's never too early to assemble data for 1099 reportable transactions, especially if you want to eliminate the necessity of filing corrected 1099's as well as notices and penalties.

For each payee, ask yourself the following:

• Do you know if a 1099 is required? Some payments to corporations require 1099s.

• Will the IRS consider the reported payee name and taxpayer ID to be correct?

• Do you need a W8 or W9 on file? Should you be withholding?

• Are you classifying payments correctly? Not everything should be reported as non-employee compensation.

• If the payee gave you credits or refunds, are they reflected in the 1099 amount?

• Does the amount to be reported reconcile with the payment history for the payee?

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