Accounts Payable

Mary S. Schaeffer is the Editorial Director and Publisher of Accounts Payable Now & Tomorrow, a newsletter devoted to payment issues. She also pens, e-News from the AP Front, a complimentary e-zine for the payment community. She's the author of ten books and numerous magazine, newsletter and newspaper articles. Her books have been used in several certification programs. She is a member of the New York Financial Writers Association. She is currently working on two additional books for John Wiley & Sons.

Preface xxi

Acknowledgments xxiii

Part One Processing 1

1 Invoice Handling 3

1.1 Introduction 3

1.2 The Invoice 4

1.3 Purchase Orders 5

1.4 Receiving Documents 6

1.5 Proper Invoice Handling 7

1.6 When Accounts Payable Receives Invoices Last 8

1.7 Entry by Month-End 9

1.8 Timely Approvals 10

1.9 Unidentified Invoices Sent to Accounts Payable 10

1.10 Use Best of Terms 11

1.11 Strategies to Use When Short-Paying Invoices 12

1.12 Goods Improperly Ordered Outside Purchasing 12

1.13 Nonpurchase Order Buying 13

1.14 Encouraging Others to Follow Accounts Payable’s Guidelines 14

1.15 Invoices without Invoice Numbers 14

1.16 Invoice Amnesty Day 14

1.17 Keeping Difficult Invoices from Disappearing 15

1.18 Using Vendor Statements: Theory 16

1.19 Using Statements: Reality 17

1.20 Filing: Batch versus Alpha Filing 18

1.21 Reducing the Number of Invoices 18

1.22 Handling Bills with Remittance Advices 21

2 Alternatives to the Three-Way Match 23

2.1 Introduction 23

2.2 Assumed Receipt 23

2.3 Evaluated Receipt Settlement 25

3 Check Preparation Printing and Filing 33

3.1 Introduction 33

3.2 A More Common Approach 33

3.3 Manual Signatures 33

3.4 Authorized Signers 34

3.5 Proper Check-Signing Procedures and Control 35

3.6 Limiting Time Spent Getting Checks Signed 37

3.7 Mailing versus Picking Up Checks 39

3.8 Check Filing 40

3.9 Time-Saving Techniques in the Check Production Cycle 41

3.10 Canceled Checks and Irate Vendors 43

4 Automated Clearinghouse and Direct Deposit 47

4.1 Introduction 47

4.2 Direct Deposit 47

4.3 Other Common Examples 47

4.4 Combining Electronic Billing And Payments 48

4.5 Terminology 48

4.6 Check Truncation and Check Conversion 49

4.7 What Companies Are Doing Today 49

4.8 Case Study: How One Company Gets Suppliers to Accept ACH Payments 49

4.9 The Future 50

5 Making International Payments 52

5.1 Introduction 52

5.2 Foreign Exchange 53

5.3 Bank Account Issues 53

5.4 Payment Mechanisms 53

5.5 International Payment Service 54

5.6 Benefits of International Payment Services 54

5.7 Payments to NAFTA Partners 55

Part Two Controls 57

6 Exception and Rush Processing 59

6.1 Introduction 59

6.2 Dealing with the Issue 60

6.3 Hard-Line Approach 62

6.4 Identify Rush-Check Troublemakers 62

6.5 Modify Systems and Procedures to Reduce the Need for Rush Checks 63

6.6 Publish a Newsletter 64

7 Errors and Duplicate Payments 67

7.1 Introduction 67

7.2 Statistics 67

7.3 Types of Erroneous Payments 68

7.4 Low-Tech Solutions 68

7.5 High-Tech Solutions 69

7.6 Employees: Your Most Important Resource 69

7.7 Tolerance Levels 70

7.8 Handling Discrepancies 70

7.9 Accuracy and Timeliness 71

7.10 Timing Issues 74

7.11 Eliminating Duplicate Payments without an Auditor 74

7.12 Duplicate Pay Audits: The Future of Accounts Payable and AP Audits 75

8 Paying When the Original Invoice Is Not Available 79

8.1 Introduction 79

8.2 Who Pays from Copies 79

8.3 Controls When Using Copies 80

8.4 Common Techniques to Ensure a Second Payment Will not Be Made 81

8.5 Controls When Paying from Copies 81

9 Master Vendor Files 84

9.1 Introduction 84

9.2 The Data 84

9.3 Cleanup Policies 85

9.4 When to Set Up a New File 85

9.5 Maintenance Policies 86

9.6 Good Master Vendor Policies 86

9.7 Establishing Vendor Naming Conventions 87

9.8 Tips on Setting Up the Master Vendor File 88

9.9 New Vendor Setup 89

9.10 Adjustments, Corrections, and Additions 91

9.11 Maintaining the Master Vendor File 91

Part Three Cash Management 93

10 Terms and Taking Discounts 95

10.1 Introduction 95

10.2 Should the Discount be Taken? 95

10.3 An Ongoing Process 98

10.4 Possible Problems When Paying Late 99

10.5 Are All Possible Discounts Being Taken? 100

10.6 Should You? 101

11 Cash Management 104

11.1 Introduction 104

11.2 Why Discuss Cash Management in Accounts Payable? 104

11.3 Payment Timing 105

11.4 Maximize Float 106

11.5 Purchasing Cards 107

11.6 Bank Fees 107

11.7 ACH Background 107

11.8 ACH: Types of Corporate Payments 108

11.9 Clean-Desk Syndrome 109

11.10 Games Companies Play 110

12 Petty Cash 111

12.1 Introduction 111

12.2 Petty Cash No-Nos 111

12.3 Recommended Procedures 112

12.4 Other Recommended Procedures 113

13 Payment Timing 114

13.1 Introduction 114

13.2 Can Another Day be Squeezed out of Payables? 114

13.3 Timing Payments in Difficult Times 114

13.4 Stretching Vendor Payments 115

13.5 Place Smaller Orders 115

13.6 Talk to Vendors 115

13.7 A Formalized Approach 116

14 Audits and the Outside Accountant’s Management Letter 119

14.1 Introduction 119

14.2 Most Notable Payables Issues 119

14.3 Using This Information 122


14.4 Sarbanes-Oxley Effect 123

Part Four Travel and Entertainment 125

15 Handling Travel and Entertainment Reports 127

15.1 Introduction 127

15.2 The Problem 127

15.3 Solutions 128

15.4 How Much Checking Is Enough? 131

15.5 T&E Manual 134

15.6 Policy and Procedures Changes 135

15.7 What About Electronic Receipts? 136

15.8 Faster Employee Reimbursements 137

15.9 E-Tickets 138

16 Handling Electronic T&E Reports 139

16.1 Introduction 139

16.2 Advantages 139

16.3 Homegrown Systems 140

16.4 Third-Party Electronic Software 142

16.5 E-Tickets 142

17 Automating the T&E Report Process 146

17.1 Introduction 146

17.2 Making the Most of Direct Deposit 146

17.3 Spreadsheet Approach 147

17.4 One-Card Intranet-Based Solution 148

17.5 In-House versus Third Party 148

18 Value-Added Tax Refunds 150

18.1 Introduction 150

18.2 What is Vat? 150

18.3 Assistance Available 151

18.4 Vat Reclaim Companies 151

18.5 Time Limitations: Deadlines 151

18.6 Focus on Vat-Friendly Countries 152

18.7 Focus on Vat-Valuable Expenses 152

Part Five Technology 155

19 Electronic Data Interchange 157

19.1 Introduction 157

19.2 What Is EDI? 157

19.3 TECHNICAL Basics: introduction 157

19.4 Why EDI? 158

19.5 Getting Started 160

19.6 Business Infrastructure Requirements 161

19.7 Managing Accounts Payable EDI 162

19.8 Accounts Payable EDI Opportunities 162

19.9 Accounts Payable EDI Success Factors 163

19.10 Systems Requirements 163

19.11 Trading Partner Directory 166

19.12 EDI Standards 166

19.13 Effect on Supplier Partnerships 167

19.14 Convincing Management 167

19.15 FEDI Applications 168

19.16 Cost-Justifying FEDI 168

19.17 Getting Up the EDI Learning Curve 168

19.18 Internet EDI 170

19.19 Web EDI: An Idea Whose Time Has Come 171

19.20 Security and Standards Issues 171

19.21 Why the Internet? 171

19.22 Special Application: ACH Debits for Tax Payments 172

20 Imaging 175

20.1 Introduction 175

20.2 Poor Man’s Imaging 175

20.3 Planning for Full-Scale Imaging 176

20.4 Using Full-Scale Imaging with E-Mail 176

20.5 Imaging on a Smaller Scale 176

20.6 Overview 177

20.7 Imaging in Practice: Growing Pains 179

20.8 Legal Acceptance 180

20.9 Disaster Recovery 180

20.10 Frequently Asked Questions about Imaging 181

20.11 Preparing Documents for Imaging 182

21 The Internet, E-Mail, and E-Invoicing 184

21.1 Introduction 184

21.2 E-Mail 184

21.3 The Internet 185

21.4 Case Study: An Accounts Payable Department Web Site 187

21.5 What to Include on an Accounts Payable Web Page 191

21.6 Electronic Invoicing 191

21.7 Everyday AP uses for the Internet 194

21.8 Case Study: Putting the Web to Work for Accounts Payable 196

22 Encryption and Digital Signatures 200

22.1 Introduction 200

22.2 Basics 200

22.3 Case Study 203

23 E-Marketplaces and XML 206

23.1 Introduction 206

23.2 E-Marketplaces 206

23.3 XML 208

23.4 How Accounts Payable Professionals Can Prepare Themselves 208

23.5 How to Participate in the E-Commerce Revolution 209

Part Six Specialty Topics 211

24 Purchasing Cards 213

24.1 Introduction 213

24.2 What Is a Purchasing Card? 214

24.3 How a Purchasing Card Differs from a Consumer or Corporate Card 214

24.4 Why Use a Purchasing Card? 215

24.5 How Does the Purchasing Card Work within the Company? 215

24.6 Plan Administrator 215

24.7 User Feedback 215

24.8 Vendor Feedback 216

24.9 Control Features 217

24.10 Maximizing Cost Savings 219

24.11 Considering a Program 221

25 Post Audit Firms 223

25.1 Introduction 223

25.2 Why Are Accounts Payable Audit Firms Necessary? 224

25.3 How Post Audit Firms Work 224

25.4 Accounts Payable Benefits 225

25.5 Costs 225

25.6 Getting Money Back 226

25.7 Selecting the Best Profit Recovery Firm 226

25.8 Other Considerations 228

25.9 Reaction to Profit Recovery Firms 228

25.10 Self-Auditing 228

25.11 Self-Auditing for Duplicate Payments 229

25.12 Current State of Duplicate Payment Audit Industry 229

26 Benchmarking 230

26.1 Introduction 230

26.2 What is Benchmarking? 230

26.3 Sources of Benchmarking Data 232

26.4 Benchmarking Applications 232

26.5 Case Study: How to Start or Improve a Benchmarking Program 234

Part Seven Regulatory Issues 239

27 Form 1099 and Form 1042-S 241

27.1 Introduction 241

27.2 Background 241

27.3 Best 1099 Practice 242

27.4 What if the 1099 Is Not Filed? 242

27.5 Who Should Receive a 1099? 243

27.6 Letters Instead of W-9s 244

27.7 B-Notices 244

27.8 Types of Payments Reflected on 1099S 246

27.9 More Help from the IRS 246

27.10 It’s 1099 Time: Changes Implemented in 2002 246

27.11 1042-S 249

28 Sales and Use Tax 250

28.1 Introduction 250

28.2 Defining Sales and Use Tax 250

28.3 Education 251

28.4 Policies and Procedures 252

28.5 Sales and Use Tax Audits 252

28.6 Sales and Use Tax Terminology 254

28.7 Types of Sales and Use Tax 254

28.8 Keeping Up To Date 254

28.9 Use Tax and Nexus 255

28.10 Specialized Software 255

28.11 Additional Learning Opportunities 256

28.12 Help Others Help Accounts Payable 256

28.13 Industry-Specific Sales and Use Tax Advice 259

28.14 Avoiding a Sales and Use Tax Disaster 262

28.15 Conclusion 263

29 Escheatment 264

29.1 Introduction 264

29.2 What Is Escheatment? 264

29.3 What If You Do Not Escheat? 265

29.4 Dilemma 265

29.5 What Can Be Done? 266

29.6 Necessary Documentation 266

29.7 Software Solutions 266

29.8 What Can Accounts Payable Professionals Do? 267

29.9 What If You Have Not Been Escheating? 268

29.10 Professional Organizations for Unclaimed Property Owners 268

29.11 Typical Unclaimed Property Experience 268

29.12 An Unclaimed Property Game Plan 270

Part Eight Management Issues 273

30 Ethics 275

30.1 Introduction 275

30.2 Sections of Sarbanes-Oxley Act Pertinent to Accounts Payable 275

30.3 Cascading Certifications 276

30.4 Sarbanes-Oxley Act: A Case Study 276

30.5 Foreign Payments 278

30.6 Office of Foreign Assets Control 279

30.7 What This Means to Accounts Payable 279

31 Disaster Recovery 281

31.1 Introduction 281

31.2 Personnel Travel Policies 281

31.3 Telephone Trees 282

31.4 Computer Backups 283

31.5 Protecting Paper 283

32 Outsourcing 284

32.1 Introduction 284

32.2 Why Companies Do Not Outsource Accounts Payable 284

32.3 When Outsourcing Makes Sense 284

32.4 Hiring an Outsourcer 285

32.5 Outsourcing: A Case Study 286

33 Management Techniques 289

33.1 Introduction 289

33.2 Six Sigma 289

33.3 Balanced Scorecard 290

Part Nine Department Management 291

34 Making Your Accounts Payable Department First-Rate 293

34.1 Introduction 293

34.2 Typical Accounts Payable Department 293

34.3 Who Runs the Department? 294

34.4 Hiring Practices 294

34.5 How to Assemble an Accounts Payable Dream Team 296

34.6 Procedures Manual 299

34.7 The Impact of Technology on Accounts Payable Departments 301

34.8 Outsourcing 303

35 Managing the Staff 307

35.1 Introduction 307

35.2 Training 307

35.3 Finding Challenging Work for the Staff 310

35.4 Listening Skills 310

35.5 Hiring Staff 312

35.6 Overtime: A Serious Issue 313

35.7 Managing a Unionized Staff 314

36 Staff Motivation and Morale 319

36.1 Introduction 319

36.2 Motivation Techniques 319

36.3 Evaluating Your Motivation Skills 321

36.4 Motivating the Seemingly Unmotivatable 324

36.5 Using the Staff Knowledge as Company Resource 325

36.6 Dealing with Poor-Attitude Problems 325

36.7 Getting the Accounts Payable Staff to Take on More Work 327

36.8 A Realistic Approach to Motivating Accounts Payable Staff 327

36.9 Improving the Image of Accounts Payable 330

37 Working with and for Purchasing and Other Departments 332

37.1 Introduction 332

37.2 Why Interdepartmental Cooperation Is Important 333

37.3 Basic Approaches 333

37.4 Handling the Big Issues 336

37.5 Getting a Customer Service Mentality in Accounts Payable 338

37.6 Quick Answers to Common Problems 341

Part Ten Fraud 345

38 Check Fraud 347

38.1 Introduction 347

38.2 Check Fraud as Growth Industry 347

38.3 Legal Issue of Reasonable Care 348

38.4 Corporate Responsibility 348

38.5 Controls 348

38.6 If Preprinted Check Stock Is Used 349

38.7 Check Security Features 349

38.8 Short-Circuiting the Forger 350

38.9 Taking Reasonable Care 351

38.10 Positive Pay 353

38.11 Reverse Positive Pay 353

38.12 Ongoing Fraud Problems 353

38.13 A Total Fraud Protection Program 354

38.14 Identifying Fraudulent Checks Quickly 354

38.15 Segregation of Duties 355

38.16 Account Reconciliation 355

38.17 Accounts Payable Controls 356

38.18 Payment Pitfalls: What Your Banks May Not Tell You 356

38.19 Laws Covering Check Fraud 358

38.20 Positive Pay: The Next Generation 359

39 Employee Fraud 360

39.1 Introduction 360

39.2 Be Aware of Typical Candidates 360

39.3 What Can Go Wrong 360

39.4 Steps to Prevent Cash Fraud 361

39.5 Exercise Patience 362

39.6 Call in the Professionals 362

39.7 When Fraud has been Identified 363

39.8 Dealing with the Aftermath 364

39.9 Preventing Fraud in the Future 364

40 Vendor Fraud 366

40.1 Introduction 366

40.2 Master Vendor File 366

40.3 Con Artist Vendors 369

40.4 Scam Solutions 371

40.5 Vendor Profile Forms 372

Part Eleven Accounts Payable Today and in the Future 375

41 Professionalism in the Field 377

41.1 Introduction 377

41.2 Evaluating the Big Picture 377

41.3 Leadership and Preparation 378

41.4 Technology 378

41.5 Communication 379

41.6 Relevant Trends 380

41.7 Gaining the Attention of Management 380

41.8 How to Win Approvals on Accounts Payable Proposals 381

41.9 Taking Control of Your Own Destiny 383

41.10 Certification 383

41.11 Conferences 383

41.12 Accounts Payable in the Twenty-First Century 384

42 Salaries and Titles in Accounts Payable Today 386

42.1 Introduction 386

42.2 Basic Data 386

42.3 Bonuses 388

42.4 Education 390

42.5 Effects of Industry and Company Size 390

42.6 Trends 392

42.7 Reevaluating AP Positions for Grade-Level Changes 392

42.8 Titles 393

Appendix Accounts Payable Resources 397

Index 399