The 80/20 rule seems to apply in a host of situations. Twenty percent of the people you know cause 80 percent of your problems. Eighty percent of your time is spent doing 20 percent of your work. You can probably think of more that apply to your experience. So it should come as no surprise that about 80 percent of the invoices that pass through your department comprise about 20 percent of total dollar payments. In other words, your total payment volume is largely made up of small-dollar amounts.
Does getting a handle on that volume sound appealing? Following are leading practices for check reduction and handling.
Procurement card (P-card) program
Companies not already employing p-cards should consider them, because they can have a serious impact on payables as well as purchasing. Proper use of p-cards erases many small-dollar invoices from the cycle, and consequently, many checks (see Guide to Purchasing Card Implementation). A multitude of small transactions can be converted into one monthly invoice and payment. Determining what constitutes proper use depends on your company. (For information on controls, see Avoiding the Purchasing Card Pitfalls.)
Convert as many vendors as possible to electronic payments via automated clearinghouse (ACH) payment. The number of electronic payments now exceeds the number of payments by check, and the payment clearing process has been greatly accelerated. See your bank about setting up ACH payments, which eliminate paper checks altogether. You send a formatted disbursement file to the bank, which then electronically transfers payments to vendors. (see EFT Definitions and Cost Analysis and visit www.nacha.org).
There are several ways to go about reducing the number of T&E checks in your department. Moving T&E reimbursement to the payroll system is an ideal solution that would eliminate a substantial amount of work for AP. But barring this shift of responsibility, emulate payroll departments and automate through direct deposit. If neither of those options are possible, mail the checks directly to the employee's homes. This eliminates the office distribution step, and is considered more secure.
Some companies also opt to issue travel cards to specific employees, and then electronically pay the card company directly. However, remember this does not mean expense reports should be blindly paid without careful review for compliane with T&E policy restrictions.
If you must pay with a paper check, try these tips:
Eliminate the multipart check
Most accounting software systems now record complete information for issued checks, so that the old practice of attaching a carbon copy to each invoice or check-request form is unnecessary. Multi-part checks are also more expensive.
When filing backup documentation alphabetically by vendor, it is easy to verify whether an invoice has been paid, assuming of course that each vendor has only one file. However, the time it takes to do this filing is costly.
Imaging is an ideal solution for many, but not all companies. An alternative solution to filing checks by vendor is to use your computer system to index your checks, allowing you to file checks separately by batch, which provides a great time savings over filing by vendor. Within each batch, the checks can be filed by vendor or check number.
Your optimal check run frequency will be related to your company size. It is important to determine what that frequency should be. While check runs are time-consuming, if they are not frequent enough, the interruption of requests for rush checks will increase. Since rush checks are disruptive and often bypass normal controls, it's important to choose your frequency carefully to optimize efficiency while maintaining proper security.
The use of blank laser checks in AP provides several high-impact benefits. They are more secure than pre-printed checks because there is no bank or company information on the blank check stock. All the check information is generated by the MICR software, which brings two advantages:
- If any information, such as bank name or company address changes, there are no pre-printed checks that have to be destroyed.
- Reconciliation becomes more accurate. The check numbers will match those produced by the software.
Using laser checks also reduces cost. Only one kind of check stock is needed, rather than a separate pre-printed stock for each corporate entity, which reduces both the cost of the check form and the labor required to load it.
Outsourcing the check processing function is a good option for many companies. It can reduce costs, allow your department to focus on other business processes, and streamline your disbursements.
If you do outsource, make sure that the vendor you select uses a positive pay service and has a business continuity plan.