iofm - managing accounts payable

December 2014ISSUE 14-12

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CONTENTS

Accounts PayableTHE

NETWORK

Form 1099 UpdateIRS Voices Concerns About 1099 Processing �� 2A recurring issue identified by the IRS in employment return tax audits is the failure of payers to backup withhold on 1099 reportable payments without TINs. Expect to see a sharper audit focus on this issue.

AP OrganizationWhat Tasks Does Your AP Department ‘Own’? �� 3Often who does what is based on historical factors or on stated preferences of managers. Ownership of such tasks as vendor file management has advantages as well as responsibilities.

AP Manager and AP Department of the YearInstitute of Finance & Management Announces Winners �� 5At the recent Accounts Payable Conference & Expo, the Institute of Finance and Management (IOFM) announced the winners of the 2014 AP Manager of the Year and AP Department of the Year.

AP Automation ImplementationsHow To Manage the Reduced Headcount That You Promised �� 6 One of the major selling points touted by AP automation vendors is that automation will reduce the head count. But should lowering AP headcount really be such an important goal of AP automation?

Internal ControlsEstablish P-Card Suspension and Cancellation Procedures �� 7Clear policies and procedures put everyone on notice that their p-card can be suspended or revoked at any time. Spell out the reasons in your p-card policies and procedures manual.

Question of the MonthEvaluated Receipt Settlement: Can It Save AP Time and Money? �� 8The major benefits of ERS include invoice variance prevention, the elimination of non-value-added work (like tasks associated with reconciliation), and the opportunity cost of capital savings.

AP ProcessesCreate Clear Procedures to Yield Top AP Results �� 10Documented procedures are essential to the AP operation. They are critical to workflow and they keep everyone on the same page. Here’s how to develop your procedures manual if AP doesn’t have one.

Vendor Master FileBig Y Grocer Creates Special AP Vendor File Maintenance Position �� 11Vendor file set-up and maintenance are crucial tasks–not only for the effective operation of AP but also from the standpoint of compliance. Here are some helpful “tricks of the trade” for AP professionals.

AP LeadershipFive Ways AP Sets the Standard for Relationship-Based Leadership �� 13Make every interaction positive and informative, anticipating the needs of internal customers and suppliers. This leads to a team atmosphere and a healthy culture.

News Briefs �� 14

Calendar �� 15

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MANAGING ACCOUNTS PAYABLE


DECEMBER 2014

Editor-in-Chief, IOFM’s AP Publications; Education Director, IOFM’s Accounts Payable

Certification Program Pam Miller, APM with Distinction

Editor Elaine Stattler, APM

Contributing WriterAnna Maria Trusky

Group Vice PresidentR.D. Whitney

Group Publisher David Beck

Editorial DirectorRob Rogers

Marketing Manager Lucy Sullivan

Research ManagerJohn Pitsios

Copy EditorChris Horner

Production Associate Sokvonny Chhouk

Sales Director Brian Cuthbert

Member Services Liz Fallon

EDITORIAL ADVISORY BOARD

Karen Anderson, Senior Compliance Advisor Abandoned Property Services

Diane Yetter, President Yetter™

Marianne Couch, ESQ., PrincipalCokala

MANAGING ACCOUNTS PAYABLE PO Box 781, Williamsport, PA 17703

207-842-5557fax: 203-516-2396

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Published by Diversified Business Communications

Copyright © 2014 Diversified Business Communications

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MANAGING ACCOUNTS PAYABLE (ISSN 1080-5753) is published monthly for $695 (includes access to full resources of the Accounts Payable Network) per year by the Institute of Finance & Management, 121 Free Street, Portland, ME 04101. Copyright 2014. Institute of Finance & Management, Diversified Business Communications. All rights reserved. A one-year membership includes 12 monthly issues plus regular fax and e-mail transmissions of news and updates. Copyright and licensing information: It is a violation of federal copyright law to reproduce all or part of this publication or its contents by any means. The Copyright Act imposes liability of up to $150,000 per issue for such infringement. Information concerning illicit duplication will be gratefully received. To ensure compliance with all copyright regulations or to acquire a license for multi-subscriber distribution within a company or for permission to republish, please contact IOFM’s corporate licensing department at 203-930-2705, or e-mail [email protected]. Periodicals postage paid at Portland, ME and additional mailing offices. POSTMASTER: Send address changes to MANAGING ACCOUNTS PAYABLE, PO Box 781, Williamsport, PA 17703-0781; 207-842-5557; fax: 203-516-2396; e-mail: [email protected]. To renew, e-mail: [email protected].

FORM 1099 UPDATE

IRS Voices Concerns About 1099 ProcessingThe IRS reports that a recurring issue showing up in employment return tax audits is a failure of payers to backup withhold on 1099 reportable payments without TINs, reports 1099 expert Marianne Couch, JD, Principal, COKALA Tax Information Reporting Solutions, LLC.

"This is one of the top concerns turned up by the IRS National Research Program (NRP), an audit program that selected 6,000 employment tax returns for a thorough audit. The audits were intended to help the IRS gain a better understanding of employment tax issues," she reveals.

As a result of this finding in the NRP, organizations can expect to see a sharper audit focus on this issue over the next few years.

Backup Withholding TriggersBackup withholding rules apply to payments reported on the Forms 1099-B, -DIV, -INT, -K, -OID, -PATR, and –MISC.

Couch reports that some IRS triggers are:

1� You do not have the payee’s TIN at the time you make the payment (not by the time you report it; you do not have until January 31st to solicit TINs)� Annual TIN solicitations to payees for whom you do not have TINs and who are receiving reportable payments are required for penalty waiver purposes; these solicitations do not provide a safe harbor from the backup withholding requirements.

2� TIN is not certified when required� Bank-deposit interest; gross broker proceeds; dividends; original issue discount payments; patronage dividends.

3� Payee does not timely and appropriately respond to your B Notice letters�

4� Bank sends payers of interest and dividends “C Notices�”

5� Payee crosses out line in perjury section of W-9� This section tells the payer to backup withhold on interest and dividend payments.

Reporting Guidelines"Federal taxes withheld from payments must be deposited with the U.S. Treasury according to your organization's deposit schedule," says Couch. "The payments must be deposited through the EFTPS (electronic federal tax payment system)." In addition:

• For 2015, you will be a monthly schedule depositor if the total tax on your TY 2013 Form 945 (filed in 2014) (line 3) was $50,000 or less� Deposits are due by the 15th of the month following the month in which the liability arose. If you are a monthly schedule depositor and accumulate a $100,000 liability on any day during a calendar month, your deposit schedule changes on the next day to semi-weekly for the remainder of the year and for the following year.

• If the total tax reported on the Form 945 for TY 2013 exceeded $50,000, you will be a semi-weekly depositor� Liabilities arising on Wed.,


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Thurs. and/or Fri. must be deposited by the following Wed. Liabilities arising on Sat., Sun., Mon. and/or Tues. must be deposited by the following Friday.

IRS on Lookout for Worker Misclassification "The IRS recently completed several thousand worker-classification examinations. In addition, the Department of Labor and certain states also have their own audit programs," says Couch.

The IRS looks for organizations filing a large number of Forms 1099-MISC, reporting amounts as non-employee compensation (Box 7) and a smaller number of W-2s.

Of particular importance, Independent Contractors must qualify as independent by reference to IRS factors, not by the decision of the payee or payer. For guidance on this topic, go to:

• IRS Pub. 15-A and Form SS-8 for guidance

• http://www.irs.gov/pub/irs-pdf/p15a.pdf

• http://www.irs.gov/pub/irs-pdf/fss8.pdf

Issues with Box 7 on Form 1099-MISC "A policy that defaults to reporting all reportable payments in Box 7 of the Form 1099-MISC will cause a lot of problems for payees and will require you to correct many 1099s," says Couch.

In addition, be aware that:

• Amounts reported in Box 7, as nonemployee compensation, are subject both to income and self-employment taxes.

• The IRS will look for self-employment tax payments on the payee’s tax return. If they don’t find these

payments, they will contact the payees with notices of taxes due; the payees will call you requesting corrections and you will have to correct the original 1099.

• Forms 1099-MISC reporting amounts in Box 7 and that have ITINs on them is a flag for possible work-authorization violations. ITINs (9xx-6/7/8x-xxxx) are issued by IRS to individuals who do not qualify for SSNs but who need a U.S. TIN for tax purposes. Individuals who do not qualify for SSNs are those without work authorization.

• Non-employee compensation is income from self-employment activities; self-employment is employment, which means work authorization is likely necessary. "This is an issue probably not best addressed in an accounts payable department, but it should be reviewed somewhere in your organization," Couch points out.

"These are just a few of the new developments in 2014 year-end Form 1099 reporting, IRS compliance targets, and 1099 filing mandates," says Couch. "Changes are on the way in other areas, as well. For example, Tax Year 2014 reporting on IRS Forms 1042-S and 1042 is new from top to bottom and demands data not previously required."

Editor's Note: IOFM will present the webinar, “2014 Changes in IRS Form 1042-S & Form 1042: Reporting Foreign Vendors,” on Dec. 11, featuring a list of clarifications and corrections to the Instructions for Form 1042-S (2014). Since these changes were issued by the IRS in October they do not appear in the 1042-S Instructions currently on the IRS website. To learn more and register, go to http://www.iofm.com/2014-changes-in-irs-form-1042-s-and-form-1042-reporting-foreign-vendors-121114 q

AP ORGANIZATION

What Tasks Does Your AP Department ‘Own’? By Pam Miller, APMD

While all accounts payable departments “pay the bills,” the manner in which they do so varies from organization to organization. In addition to the processing differences, there is a variation in the ancillary tasks that AP is responsible for.

For example, in your organization, who owns the vendor master file? Who owns p-card administration? And who is responsible for escheatment?

Vendor Master File: There's No Place Like HomeWho should be responsible for managing the vendor file? The respondents to the most recent IOFM survey

of AP professionals indicated overwhelmingly (83 percent) that AP should have this responsibility—with the purchasing department being next in line for ownership of the file.

One might think a better home for the vendor master file would be purchasing, since purchasing manages vendor relationships. But the truth of the matter is that AP pays far more vendors than purchasing manages. In fact, in many organizations, the number of vendors that have no relationship with purchasing far outnumbers those who do.

It is no surprise that AP is more often the owner of this file because AP needs more, and, in some cases,


http://www.irs.gov/pub/irs-pdf/p15a.pdf

http://www.irs.gov/pub/irs-pdf/fss8.pdf

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different information than what purchasing requires.

With ownership comes responsibility� Managing the vendor master file is a big job. AP must ensure that the information contained within the file is complete and correct, and the amount of information that is required can be overwhelming. It’s not just a matter of obtaining the vendor name and remittance address. That can be difficult enough. Vendors change even the most basic information (such as their name) from time to time.

Compliance with federal reporting rules requires that correct tax identification numbers be obtained, verified, and maintained so as to avoid risks for heavy penalties. Also, AP must determine whether the payee is a U.S. or non-U.S. person. Many states now require notification when vendors subject to state reporting are entered into the file and they of course require that the proper reports be made in a timely manner.

Even what seems like the simplest of tasks—entering vendor data into the file—can be fraught with difficulties. Consistency is of the utmost importance, because inconsistent or inattentive data entry is sure to result in duplicate vendors. For example, consider a vendor such as a state treasurer. Should the vendor be entered under the title of “Treasurer?” Under the state name? Or should it be entered under the actual name of the treasurer? And what about vendors whose names are (or contain) abbreviations? What about those vendors whose names start with “The”? Many decisions regarding data standardization and normalization must be made and consistently followed. And this is no small task!

Purchasing Card Administration: Who Better Than AP to Manage It?Where does administration of the p-card program most often reside? An IOFM polling of AP professionals indicated that in nearly half (43 percent) of organizations that have implemented card programs, AP administers them. The Purchasing Department is next most likely to have this responsibility (30 percent).

One of the primary reasons for implementing a purchasing card program is to save money by ridding AP of small dollar invoices—invoices whose value is often less than the cost to process them. P-cards are quite successful at meeting this goal. However, implementing a p-card program does not magically do away with all of the tasks related to these transactions. Someone has to manage the program.

Managing the p-card program, like managing the

vendor master file, requires specific training. The card issuer’s online program must be configured, cardholders trained, files manipulated, declines and other suspicious activity investigated, and reports run. And routine issues such as account creation, card termination, changes in MCC status, and credit limits must be handled pretty much on a daily basis.

Successful card programs do save AP time, cut costs for the organization, and often bring home cash in the form of revenue share, but they do require the implementation and monitoring of strong policies, procedures, and controls.

These administrative tasks could certainly reside in any number of departments, but AP, being a department that is accustomed to working within strict controls—and one that is justifiably obsessed with tiny details—is likely to be assigned this task. Additionally, the feeling is that, with fewer invoices to process, AP certainly should have the time and resources to meet the task.

Escheatment: AP Is the Logical OverseerUncashed checks make up the lion’s share of most organizations' escheatable funds. And since AP is the department responsible for generating those checks, AP is most often owner of this task. According to IOFM’s most recent survey, 68 percent of the respondents reported that AP is responsible for reporting unclaimed property to the state. The next most common owner of this task is the Tax Department (29 percent).

Determining what is reportable is an ongoing task and is the responsibility of AP regardless of who actually completes the forms that must be submitted. And doing the required research under deadline pressure is a recipe for incorrect and/or incomplete reporting.

Escheatment tasks� As a matter of policy, AP should research all returned and uncashed checks on a regular basis. Staffers initiating voids and stops should be required to research offsetting transactions and make note of their findings in the system. Procedures should be reviewed on a regular basis in an effort to determine why checks are returned or go uncashed, and fixes to these issues should be implemented.

Adherence to strict policies and procedures—particularly in terms of noting research outcomes in the file—is more likely to be maintained if AP is responsible for unclaimed property reporting.

Size Often Determines Who Gets the JobThe decision about where certain tasks will reside is often made based on size. For instance, tax departments


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are not all that common in small organizations. Size of the AP department is of course a factor. For example, a one-person AP shop would not be the proper home for the vendor file, since segregating duties would be nearly impossible.

Often who does what is based on historical factors

(how it’s always been done) or on stated preferences of strong managers in AP or elsewhere. Regardless, ownership of these and other tasks that do not comprise part of the process of “paying the bills” has advantages as well as responsibilities. AP departments considering the optimum structure for their organization should bear this in mind! q

AP MANAGER AND AP DEPARTMENT OF THE YEAR

Institute of Finance & Management Announces Winners

On the opening day of the Accounts Payable Confer- ence & Expo, held Oct. 26-29 at The Mirage Hotel & Casino in Las Vegas, Nevada, the Institute of Finance & Management (IOFM) announced the winners of the 2014 AP Manager of the Year and AP Department of the Year.

Rick Menoscal, AP Manager at the Florida-based headquarters of Memorial Healthcare Systems, was recognized as AP Manager of the Year, and JM Family Enterprises, also based in Florida, was declared the AP Department of the Year. More than 700 people were in attendance at the awards luncheon.

Rick Menoscal is the AP Manager of Memorial Healthcare Systems, where he has worked for more than 14 years. Under Rick’s leadership, his team has achieved productivity gains of 67 percent (processing more than 350,000 invoices last year). He and his team are noted for their technical skill, high performance, and dedication to continuous improvement.

JM Family Enterprises operates a diversif ied portfolio of businesses in the automotive industry, according to AP Manager Joan Stramaglia, APS. The AP department undertook an ambitious invoice processing transformation, ultimately converting over 65 percent of their checks to electronic payments.

The department also demonstrated a dedication to compliance, getting ahead of the FATCA updates and requiring forms W-8 and W-9 from all vendors. “AP is a department that is all too frequently under-recognized,” says RD Whitney, IOFM’s Group Vice President. “It’s a critical function for any company, but the dedication of the staff is sometimes taken for granted. We are proud to take an opportunity each year to recognize the important achievements going on in AP, not only by honoring the award winners, but by creating an exciting event dedicated to the world of AP—both where it is and where it’s going.”

The next AP Conference will be held in Florida at Disney’s Yacht Club Resort, May 18-20, 2015. For more information, go to http://www.iofm.com/conference. q

Rick Menoscal, AP Manager of Memorial Healthcare Systems, accepts the AP Manager of the Year Award.

Joan Stramaglia, AP Manager, of JM Family Enterprises, accepts the AP Department of the Year Award.


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AP AUTOMATION IMPLEMENTATIONS

How To Manage the Reduced Headcount That You Promised By Pam Miller, APMD

One of the major selling points touted by AP automation vendors is that automation will reduce the head count, minimizing the cost of an implementation for an organization.

Anyone who has attempted to get an AP automation project approved has probably made these ROI calculations and offered similar assurances as to how costs can be managed.

But should lowering AP headcount really be such an important goal of AP automation? Is it even the correct goal? And what happens to the people who are supposedly no longer needed? Will they be let go? Should they be?

Consider Redeployment In many AP departments there are a significant number of tasks that are routinely left undone. There is simply no time to complete them. Some of these tasks may be low priority. Other tasks, like filing, may disappear once the automation project has been implemented.

However, some of those undone tasks could add value that is significant enough to the organization to justify redeploying staffers. Such a redeployment could possibly offer a better overall result than simply lowering the headcount.

For example, assigning statement reviews and open credit research to a specific staffer is likely to recover more in funds than that staffer’s salary. Or, perhaps the vendor file needs more attention and the organization finds itself facing stiff fines and penalties every year for incomplete 1099 filing. Moving resources to this area rather than simply cutting headcount could result in reduced fines and penalties that would justify continuing those payroll dollars.

Encourage Staffers to Seek Openings in Other AreasKnowing that your staffing needs will change may influence how you react to staffers’ interest in job openings in other departments. While the timing may be inconvenient (these openings always seem to occur in the early stages of implementation, not near the end), this may be the time to encourage qualified staffers

to seek out these openings. It can be a great solution for everyone involved, assuming of course that you recommend only highly qualified staffers!

Reassign PositionsDepending on what type of automation is to be implemented, new positions may be required. For example, when implementing an imaging system, there is a need for someone to prep and scan the documents. Reassignment may be the answer here. For example, filing clerks may be able to become scanning specialists.

Allow for AttritionIn some cases, there really is nothing to be done but decrease the number of people in AP. While attrition is a fact of life, it unfortunately often occurs when you don’t want it to rather than when you need it to.

However, sometimes you get lucky and a staffer’s need to move on coincides with your project’s completion. Or on other occasions, the stress involved in implementation or an employee's concerns about how the job will change will cause some staffers to jump ship.

When All Else Fails, Bite the BulletThere will be times where you simply can't redeploy, reassign, or reduce headcount through attrition. You will need to let some staffers go. If this is the case, it is important to carefully assess the skill sets of all the staffers, keeping in mind how the automation project will change what is required.

Work with HR to be sure all the proper guidelines are followed in releasing staffers. In addition to ensuring that all the proper steps are being taken, HR can help in developing severance packages and re-training opportunities.

It's Important to Consider Staffing Issues From the OutsetWhen considering an automation project, there is really no one-size-fits-all solution for how to manage the changing staffing needs. AP managers looking to automate should take staffing into consideration from the outset.


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INTERNAL CONTROLS

Establish P-Card Suspension and Cancellation Procedures

Dampening down the rosy colored expectations that vendors present to executives is nearly always a good idea—whether those expectations are for reduced headcount, rapid ROI, or some other benefit of the application.

Discussions with executives as to what the newly automated AP should look like are critical. Outline several scenarios, including those that require redeployment of staff to newly created positions. Point

out the value that AP can add to the organization by completing tasks that currently are not being done on a regular basis. This is simply good management.

Executives are rarely aware of what AP actually does. Provide them with factual information and some modest revenue projections. This will not only serve AP well, it will help convince them what a valuable asset AP is to the organization. q

One of the most frequent objections to p-card use is the concern that the cards will not be used properly and thus will put the organization at risk. But these objections can be easily overcome by ensuring that the proper controls are in place.

Establish Suspension and Cancellation ProceduresClear policies and procedures put everyone on notice that their p-card can be suspended or revoked at any time the organization sees fit. Many organizations suspend cards if statements are not submitted in a timely manner or if a cardholder violates p-card policies.

The reasons for suspension and the reasons for ultimate cancellation should be spelled out in a p-card policies and procedures manual. Most issuers will be able to handle immediate cancellation requirements easily.

Communicate With HR If an employee is no longer employed by your organization—regardless of the reason for termination—that individual's p-card must be cancelled immediately. This should be done even if the parting is amicable or the employee has left of his or her own volition. Not cancelling a card under these circumstances is begging for trouble.

However, it is often the case that AP and/or the p-card administrator are the last to know when a cardholder has been terminated. Make certain that HR is informed that you need immediate notification of all terminations on an ongoing basis.

"Fortunately, AP is in good communication with human resources at Lehigh Valley Health Network (LVHN)," says Tricia S Wieder, Accounts Payable

Supervisor, Supply Chain Management Division. "We receive a termination/separation report from HR every two weeks. We check that against all active p-cards to ensure that nothing is missed."

"As announcements are received regarding abrupt termination, we immediately suspend the card and the manager destroys the credit card—the card is no longer usable as soon as it is suspended," she says.

Verify That All P-Cards Are in the Hands of Existing Employees"Per policy, any cardholder at LVHN is responsible for the charges placed on the card regardless of who actually places the charge," says Wieder. "We discourage employees from giving their card to another employee for use. If another employee uses the card, it is up to the cardholder to make sure the policy is being followed and that the charges are valid."

"We have strict internal controls and perform random audits throughout the year to ensure that our cardholders are following policy and that they are using their charge card for accurate business expenses," she says. q

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Evaluated Receipt Settlement (ERS) is a procedure for the automatic settlement of goods receipts. It was pioneered by General Motors (GM) to save the company time and money.

The major benefits of ERS include invoice variance prevention, the elimination of non-value-added work (like tasks associated with reconciliation), and the opportunity cost of capital savings.

How Does it Work?A supplier and the purchaser enter into an agreement to use evaluated receipts settlement. The supplier keeps the purchaser current with price/sales catalogue data from which the purchaser extracts accurate product and pricing information during the purchasing cycle.

In many cases, the supplier delivers an advance shipping notice (ASN) to the purchaser, permitting loading/receiving docks to be properly scheduled and accurate material receipts to be generated. The purchaser authorizes supplier payment upon confirmation of arrival of goods, making the invoice redundant.

Who Is Using It?This month, the editors of Managing Accounts Payable asked members of the AP Advisory Panel the following question:

Do you use evaluated receipt settlement (ERS) at your organization? If so, what are the advantages and disadvantages?

Here is what the panelists had to say.

'Most of Briggs & Stratton's Invoice Processing Cost Has Been Virtually Eliminated By the ERS Program'Al Barrett, Shared Services Manager, reports that the Briggs & Stratton Corporation uses ERS extensively—and successfully. "In FY14, we processed close to 193,000 automated invoice postings—66 percent of our business volume–through one of our many automated payment processes. 140,000 of those postings were generated from our ERS program," he says.

"We have had a few challenges with providing acceptable information, but we work closely with our buyers, the suppliers, and our own receiving staff to be sure we provide the best possible payment information to assist in cash application," he says. "If the supplier is not capable of accurately applying payments, we hold off on moving to ERS for some time while we work through alternatives

with the supplier."

"We educate our buyers on the ERS program, explaining that it's a cost savings opportunity and stressing the importance of accurate PO pricing and proactive price updates," says Barrett. "We educate our receiving staff as well, clarifying the value of the program, their part in the cost savings, and the importance of accurate and compliant receiving. They also have specific instructions related to the information they enter for each goods receipt," he says. "If the delivery document reports 'Invoice Number,' that exact information is reported on the receipt posting. If invoice is not reported, the advance shipping notice (ASN) number, 'packing slip' number, and lastly, 'delivery' number is entered."

"Many of our suppliers issue ASNs, which are later used in the receiving process, reducing data entry at goods receipt point," explains Barrett. "We instruct our suppliers where on their ASN transaction to record their own invoice number or other information they can use to apply payments, and we use that same information when generating the ERS postings."

"We even backdate the ERS document date by two days (average delivery time) in an effort to match the supplier's payment term expectations. We also include the PO on the payment advice," he says.

"I have one proviso however: An ERS program will greatly reduce the effort to process payables but it is not a perfect solution," says Barrett. "Anytime a payment process is automated, it must be closely monitored for policy compliance, suspect postings, and questionable entries. At Briggs & Stratton Corporation, review of all ERS postings is part of an AP Associate's daily responsibilities. ERS education is also part of AP's new buyer orientation."

"I estimate that the failure rate is between two percent and five percent, but that means that 95 percent to 98 percent of the related invoice processing cost has been eliminated by the program. That equates to a savings of close to $525,000 per year!"

'ERS Implementation Is Well-Worth the Pain'"We utilize ERS here at Durr Ecoclean," says Diana Petrovski, Credit & Collections Specialist. "I was here during the implementation of this new process and it was quite an overhaul, and we had many suppliers who were not very enthusiastic about the change. However, it was completely worth the pain it took to get where we are today."

QUESTION OF THE MONTH Evaluated Receipt Settlement: Can It Save AP Time and Money?


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"ERS changes two important things when it comes to accounting: the use of the supplier’s invoice number, and the invoice date," says Petrovski. "Our receiving department is responsible for assigning the 'reference number' to each goods receipt they enter into our SAP system."

"This takes the place of the vendor's invoice number, so it is important that they use a number that our suppliers can easily match to their invoices," she adds. "In most cases, we use the packing slip number. But some vendors need to be handled differently, and we work with them to provide what they need."

"The invoice date we use is actually the date of the goods receipt," says Petrovski. "This still comes up from time to time, when a supplier invoices at the time they ship and we have the invoice date as the date we received the goods. The difference is usually only a few days, so not usually a big deal."

'ERS Can Be a Mixed Bag: Some Bad, Some Good'"I had experience with ERS at two former employers, one a food company and the other an automotive company," says AP Consultant Tammy Doumanian. "At the food company, ERS was not widely used, and it caused problems because the PO prices were incorrect. They were too high, causing outstanding credits that were collected by a third party, which was costly."

"It also caused issues with vendors applying cash, because the company used SAP. The SAP PO is set up with Goods-Receipt-Based Invoice Verification (GR- based IV), and every GR has its own document number that is used as the 'invoice' number on the remittance, she says. "This is a huge pain, and makes for very ugly remittance advices. The AP manager at the company is trying to phase out the use of ERS."

"At the automotive company, however, ERS was widely used—and used successfully. They were an SAP shop as well (so the remittance was the same as above), but there were very specific parameters for using ERS and the vendors worked very closely with purchasing to make sure everything ran smoothly."

The Pack Slip Number Is Most Widely Used As an Identifier"Previous companies that I have worked for used the pack slip number as the invoice number," says Debbie Johnson, AP Lead at SUMCO in Albuquerque, NM. "With a lot of companies, the pack slip number and invoice number are the same. If not, they can usually pull the pack slip number in as a reference to match the payment."

Kelly Coxon, Director, Procure to Pay, reports that while the University of Pittsburg Medical Center (UPMC) does not use ERS, she did use ERS in a former job at Alcoa. "We used the PO number and release number as the invoice number," she said. "It worked well, and I do not recall any issues with the vendors' ability to apply payment."

Large Companies Are Biggest Users of ERSAccording to a recent IOFM survey, large companies are the highest-rate adopters of ERS. Nearly half of organizations with more than 50,000 employees (44 percent) report having had ERS in place for one year or more, as compared with only about 6 percent of those with fewer than 1,000 employees (see Exhibit).

Overall, organizations of all sizes plan to implement ERS at about the same rate in one to three years , ranging from 10 percent of the smallest firms to 17 percent of mid-sized companies.

The requirements of a successful ERS program include:

1. Integration between the purchasing, receiving, and accounts payable systems;

2. Vendor-supplier trust and cooperation;

3. Establishment and agreement on critical information such as prices, payment terms, and shipping terms;

4. Handling of dynamic charges outside of the ERS program—many experts recommend handling the shipping charges separately;

5. Rigorous discipline in ordering and receiving;

6. Participating vendors must ship high-quality goods with minimal material rejects, and must keep the purchaser current on products and pricing. q

USE OF ERS BY COMPANY SIZEIn Use

Over 3 YearsIn Use

1-3 YearsIn Use

Under 1 Year

Less than 1,000 4.4% 1.1% 1.1%

1,000 - 5,000 4.8% 6.5% 0.0%

5,000 - 10,000 20.8% 8.3% 0.0%

10,000 - 50,000 15.4% 0.0% 0.0%

More than 50,000 33.3% 11.1% 0.0%

Source: IOFM


10



DECEMBER 2014

AP PROCESSES

Create Clear Procedures to Yield Top AP ResultsWhen Beth Hinten, APS, Accounts Payable Processor, joined CBC Companies, Inc.—a public records research and retrieval company based in Columbus, OH—she asked for a copy of the AP procedures manual, only to learn that it didn't exist.

“I was told there wasn’t any official manual, just handwritten notes here and there that others had devised over the years,” she says. “I am a believer in documented procedures, and I think they are the lifeblood of the AP department. They are essential to workflow and they keep everyone on the same page.”

Just Do It! Hinten snapped into action and took it upon herself to organize the AP processes and procedures into a cohesive and accessible document. Here are the steps she took.

Analyze the tasks carried out in AP� Hinton documented the steps needed to complete the following functions and tasks:

• AP processing/data entry

• Monthly commissions

• Weekly uploads for shipping/phones/copiers

• Running reports for other offices

• Deposit scanning

• Stop payments

• Manual checks

“I also wrote up the tasks for very specific items required by our accounting software, such as how to change or reverse an account, how to add or correct sales tax, how to place an invoice on hold, and how to void payments,” says Hinten.

Create electronic and hard-copy procedures documents� To make the procedures available to all AP staff and ensure consistency, Hinten created a physical binder containing all the procedures. She also posted them on the AP system. “All AP procedures are saved on a shared drive that everyone in AP can access,” she says.

Tips for SuccessHinten advises using the following strategies to document AP procedures:

1� Sit with the expert on the procedure that needs to be documented� “Watch the whole process a few times in order to decide on the best approach. Record the procedure step by step as if assuming the person reading the document knows nothing at all about it. The goal is to enable the user to complete the task with little to no assistance simply by using the instructions,” she explains.

2� Take notes� “When observing a procedure, take detailed notes� Leave nothing out, even if it seems insignificant. Document it, because it can always be edited out later,” she says.

3� Type up your notes and review them� “I type up my notes and then take the instructions and go through each step to make sure I didn’t miss anything,” says Hinten. "In the process, I tweak or adjust the instructions as needed."

4� Share the instructions with another set of eyes� Hinten’s last step is to have someone else in AP work through the procedure step by step as written to make sure the instructions are accurate and nothing has been left out. “Two sets of eyes are better than one, especially when you’ve been looking at your notes so much,” she acknowledges.

5� Emphasize the accounting advantages� Having well written procedures can help AP establish a better relationship with staff accountants. “Information will become more easily accessible, reports arrive sooner than anticipated, and there will be fewer mistakes. All this results in fewer journal entries at month-end,” says Hinten.

Challenges to Overcome“When you have a department made up of people who have been at the company as long as my co-workers have (most have been in the department for more than 15 years), change can be scary," says Hinten. "So you may hear people say, when they are presented with new written procedure instructions, 'But we’ve always done it this way.'"

Also, some employees fear that if job procedures are documented, their jobs will be at risk. “In a former job, there was a staff member who refused to document anything because she didn't want to be easily 'replaceable,'" says Hinton. "But I strongly disagree with this mind-set. AP is a team, and the goal is to keep our


11



DECEMBER 2014

VENDOR MASTER FILE

Big Y Grocer Creates Special AP Vendor File Maintenance PositionSarah Jasiewicz, APS, Accounts Payable Senior External Support, works in the eight-person AP department at Big Y Foods, Inc., a grocery store chain headquartered in Springfield, Massachusetts. Her main responsibility is vendor file set-up and maintenance, a crucial job not only for the effective operation of AP but also from the standpoint of compliance. She has learned many important “tricks of the trade” that can be helpful to other AP professionals when it comes to effective vendor file maintenance.

“I was promoted into this position in August of 2012. Since then, I have been responsible for making sure that all new vendors are set up correctly and have all required paperwork filled out,” says Jasiewicz. “I am also responsible for updating the vendor file with any changes that need to be made, such as address changes, name changes, and changes to terms. Plus, it is my job to deactivate old vendors that are no longer being used. I am the only person in AP responsible for these tasks.”

Risks of Improper File Maintenance“Keeping our vendor master file up to date and accurate is important for 1099 reporting as well as making sure we are paying the correct companies,” says Jasiewicz. “If the vendor file is not set up and maintained properly, AP can be exposed to many risks.”

➢ Case in Point: “If the vendor file is not maintained and purged, AP could end up with multiple active vendor numbers for the same company. This can cause errors like reporting a wrong Tax ID number or mailing payment to an incorrect remittance address,” says Jasiewicz. “Also, when vendors that have not been used for several years are left on the file as ‘active,’ this allows for them to be used again without getting new information from the company. This, in turn, can cause us to issue payments to incorrect companies or to companies that are listed

with incorrect tax IDs.”

Jasiewicz takes the following steps to ensure proper vendor master file setup and maintenance.

Setting Up the Master Vendor File

Get all critical information and documentation up front� “Whenever I receive a request to set up new vendors, I make sure that I have their W-9s. All the information on the W-9s should match the information the vendors filled out on the vendor packets we sent them,” she says. “I review the paperwork that was sent to me by the buyer to make sure that we have everything we need and that we have all the signatures needed. Once all of this has been verified, I enter the vendor into the system."

Check for duplication� Before actually entering a vendor into the system, Jasiewicz also double-checks to make sure that the vendor is not already in the system.

Maintaining the File

Get new W-9s when vendors change their names� “I make sure to request a new W-9 whenever I receive a name change from any company. This greatly reduces the risk that incorrect information will be reported to the IRS, which cuts down (if not eliminates) the chance that we will receive B notices,” says Jasiewicz.

“It is important to review all requests that you receive for changes to vendors to make sure that no further paperwork is needed before making those changes.

➢ Case in Point: If a vendor sends us a request for an address change, but the company name is not listed exactly as we have it in our system, I may request a new W-9 to make sure that the vendor still has the same Tax Identification Number. Unfortunately, not all companies inform us when this has changed due to mergers or acquisitions,” says Jasiewicz.

well-oiled AP machine running. We want procedures in place so that anyone can do any job.”

“Be patient when instituting the new procedures,” she advises. “Give people time to get used to doing the procedures as documented. They will soon appreciate the fact that they can accomplish the same results while taking a shorter route. Let them come to this understanding on their own terms—it will happen.”

The bottom line: “Missing or inadequate procedures

can cause mistakes—mistakes that can cost a company time, money, and even in some cases, a vendor or client. In today’s market, most companies can’t afford to lose a vendor or client, so why risk it with inadequate procedures?”

Editor's Note: See the News Brief story on page 15 for additional tips. Beth Hinten, APS, is a recent graduate of IOFM/TAPN's AP Certification Program. She has worked in the six-person AP department at CBC Companies, Inc. for two-and-a-half years. q


12



DECEMBER 2014

Deactivate unused vendors� “An important part of good vendor file cleanup is to deactivate all vendors that have not been used for more than two years,” she says. “You must also deactivate any vendors that have been replaced by new ones due to tax ID number changes. This lessens the chance that the wrong vendors will be paid—and fewer incorrect payments means less work for everyone.”

Take the opportunity to look for problems when making changes� “Spending a few extra minutes looking at everything when making one change to a vendor can save you a lot of time and headaches down the road,” says Jasiewicz

Review the vendor file on a regularly scheduled basis� Jasiewicz reviews the vendor file periodically to see whether there are any vendors that should be deactivated and to make sure there are no other issues that need to be addressed. “I try to be proactive in maintaining the vendor master file to avoid issues—and it seems to work,” she says.

Just How Long Must a Vendor Be Inactive Before It Is Deactivated? According to IOFM's AP Department Benchmarks and Analysis survey, the most common period of inactivity at respondents’ organizations was two years (46.9 percent). Another 29.7 percent wait 18 months (see Exhibit).

The size of an organization, no matter whether it is measured by annual company revenue, employee headcount, or size of the AP department, doesn’t have any correlation to the length of the inactivity period.

For example, in the largest organizations, those reporting over $5 billion in annual revenue, the same number of respondents wait one year as wait two years. An overwhelming number (70 percent) of departments with just one staffer wait two years. But an equal percentage of respondents whose AP department consists of just two staffers wait one year, 18 months, or two years. q

MASTER FILE TIPS FOR OTHER AP PROFESSIONALS:

Sarah Jasiewicz, APS, Accounts Payable Senior External Support at Big Y, advises AP professionals to use these tips for more successful vendor file management:

Never pay until all I’s are dotted and T’s crossed� “We also do not issue any payments to a company until all the required setup paperwork has been received. This ensures that everything is correct and helps us avoid payment errors,” she says.

Double-check all setups and changes� “All the vendor setups and changes that I do are reviewed on a weekly basis as part of AP’s ‘checks & balances’ system,” says Jasiewicz.

Handle change requests promptly to keep purchases and payments flowing� “I handle all requests for setups and changes right as they come in to keep from holding up deliveries to one of our buyers and/or payments to one of our vendors,” she says.

Be persistent� Jasiewicz says that the most challenging aspect of vendor file setup and maintenance is making sure AP gets all the required paperwork up front. “Some new vendors do not want to fill out or sign certain portions of our vendor packet and we can end up going back and forth with them to get everything we need,” she says.

Stay on top of buyers� One common problem that arises is when the company’s buyers use vendors that are no longer active and have been removed from the system. “When this happens, we usually don’t know until after we’ve received the product,” says Jasiewicz. “I make sure to contact the buyer as soon as this happens and request that the buyer send the vendor company a new vendor packet to fill out and return as soon as possible."

“To avoid too much of a delay in payment, I will reactivate the vendor in our system and place them on hold until we've received the new packet from them,” she says. “This way, the invoice can be processed and awaiting payment in our system right away instead of waiting until all of the steps have been performed after the packet has been received.”

The bottom line: “Always be proactive in maintaining your vendor file. It can be very easy to do just what’s needed when requested, but this opens the door for a lot of work and headaches down the road,” says Jasiewicz. “By being diligent when making changes and setting up new vendors, you can cut down on B Notices, eliminate the need for checks to be voided and re-issued because of wrong vendors being paid, and avoid checks getting lost in the mail because of being sent to a wrong address. All of this helps not only you but everyone at your company who is involved in the process of ordering, receiving, and paying for products or services.”

Length of period of inactivity prior to deactivation

0

10

20

30

40

50

6.3%

6 months 1 year 18 months 2 years

17.2%

29.7%

46.9%

Source: IOFM


13



DECEMBER 2014

According to Jean Leslie, a researcher at the Center for Creative Leadership (CCL), “Building relationships is one of the strongest skills sets related to AP leadership effectiveness.”

In a comprehensive research study undertaken by CCL, more than two-thirds of the 400,000 respondents agreed that building and maintaining relationships is a critical competency for managers—AP managers included.

To find out how AP managers can become proficient relationship builders, Managing Accounts Payable interviewed AP Manager Annette Winrick, who works for Conatster Construction TX, LP, a construction company in the Dallas-Fort Worth area that provides infrastructure for urban and private development. Winrick's AP department has 2.5 full-time employees handling 30,000-plus invoices annually.

"We have a very fast-paced, high-stress environment," says Winrick. "One thing that helps our AP department succeed is that we build very strong relationships with all of our stakeholders.”

Basic Tenets of a Leadership CultureWinrick stresses that you can't have solid relationships without a strong foundation. Building that foundation requires these steps:

1� Never underestimate senior management's hunger for up-to-date information� "Firmly establish a predictable schedule for reporting so that manage-ment can focus their attention on other issues, knowing that your AP reports are timely and accurate," says Winrick.

At Conatster Construction, for example, AP updates the managing partner at least once weekly on cash management issues. "We work together closely to come up with a final payee schedule for our weekly run," she explains.

2� Focus on the overall goals of the business� "All your communications with upper management should reflect the goals and objectives of the business," says Winrick. Focus on what the higher-ups really care about—namely, how to protect the business, save money, and save time—and communicate the impact of various factors on the business.

3� Serve your internal customers with accuracy, efficiency, courtesy, and timeliness� "Our field staff at Conaster are dependent on AP to meet their goals and deadlines," says Winrick. "AP needs to ensure that all paperwork is in order so they don't have to spend time on paperwork and administrative tasks. Such activities take time away from their ability to actively manage their jobs."

"Good internal service ultimately results in excellent external customer service," she adds. Benjamin Schneider, Ph.D., a professor at the University of Maryland College of Management, reveals that there's a remarkably close and consistent link between how internal customers are treated and how external customers perceive the quality of an organization's services. "I agree with that premise, because a commitment to serve internal customers invariably shows itself to external customers. It's almost impossible to provide good external service if your organization is not providing good internal service," says Winrick.

4� Build impeccable relationships with vendors� Be approachable, realistic, and transparent when working with vendors/suppliers. "A breakdown in vendor relations could affect your company's reputation and credit. Simple as it sounds, AP can have the most influence on building good relationships through the timely return of calls and e-mails related to payments, missing invoices, and tax certificates," says Winrick.

5� Add value to every interaction� "Make every interaction as positive and informative as possible," says Winrick. "Try to anticipate the needs of customers, suppliers, and other partners and proactively provide necessary information to these parties. Bring solutions to the table whenever possible.”

Keep Your Eyes on the Prize"Cooperation between AP, senior management, and other departments leads to a team atmosphere. Everyone kicks in when needed because respect and trust is present. Similarly, good relationships with vendors/suppliers will allow you to get top-notch service because vendors and suppliers come to regard you as a company they know and trust," she says.

Editor's Note: Winrick is a recent graduate of IOFM/TAPN's AP Certification Program. q

AP LEADERSHIP

Five Ways AP Sets the Standard for Relationship-Based Leadership


14



DECEMBER 2014

NEWS BRIEFS

P-CARD STATS AT A GLANCEA recent CAPS Research study, SnapShots 2014: Corporate/Commercial Payment Card, offers AP professionals some insights regarding the number of companies using p-cards and their current spending trends. Here are some key findings:

• A significant 81.45 percent of corporations surveyed had a commercial payment card program.

• More than half (50.5 percent) of these companies reported increased spending on their card program, while slightly over one-quarter (27.72 percent) reported no change.

• The range (minimum to maximum) of increases to p-card programs was 1 to 42 percent, with an average (mean) of 13.13 percent.

• Per-transaction limits range from $750 to $50,000, with the mean being $4,188. (For companies using e-payables, virtual cards, or payment gateways, these limits would not apply.)

• Monthly limits have a range of $1,000 to $200,000, with the mean being $19,041.

• The p-card spend that was reported as “maverick spend” was a mean of 6.23 percent. Only 6.52 percent of the companies reported that this out-of-compliance spend was on the rise.

The SnapShots 2014: Corporate/Commercial Payment Card study is based on a May 2014 survey of more than 125 companies across 20 industries in both manufacturing and non-manufacturing.

The complete study results are available to CAPS members only. For membership information, go to http://www.capsresearch.org/membership/.

GRAPHICS HELP TELL—AND SELL—YOUR STORYIf you are presenting your business case for additional resources to senior management, numbers and hard data alone won't necessarily sell your proposal. Graphics and charts may also be needed to help make your case, says IOFM Director of Education Pam Miller.

Clean and compelling visuals can draw your audience into the content, encouraging them to explore the data. "For example, if you are quoting a statistic, showing the

data in graphic form will increase comprehension and retention and make a more lasting impression," she says.

The white paper, How to Use Data Visualization to Win Over Your Audience, recommends steps you can take to come up with the most effective graphic to get your point across. Here are the key takeaways of the report:

1� Start with your question� Begin with considering the most important point that you want to get across. Look for the data and the accompanying graphic that can help answer the question and/or give management more insight into your issue.

➢ Example: If the most important point you want to get across is the cost and time savings that automation can achieve, you might begin by quoting benchmarking statistics illustrating "best in class" organizations. Presenting these statistics in graphic form reinforces the point that organizations that automate see great savings in time and costs.

2� Work with a solid data set� Make sure that you are drawing relevant data from a reputable source. Gather information from benchmarking organizations that conduct independent research.

3� Craft a cohesive narrative around your key data points� Coordinate your message with the content on your graphic.

➢ Example: Use the industry best-practice benchmarking data and compare it against your org-anization's performance. Again, this is where a graphic can be extremely effective. Take your data and plug it into the industry data to present a true picture of where your organization stands in terms of the cost and time benchmarks.

"There is a certain level of subjectivity involved in the selection of how much and which content to include, but your data analysis will inform the story you want to tell," reveals the report.

"Your main goal is to shape a concise and coherent narrative around the data to compel your audience to take some sort of desired action."

Editor's Note: How to Use Data Visualization to Win Over Your Audience, offered at no cost by HubSpot and Visage, is available at http://offers.hubspot.com/data-visualization-guide.


http://www.capsresearch.org/membership

http://offers.hubspot.com/data

15



DECEMBER 2014

NEWS BRIEFS

WRITING AN AP PROCEDURES MANUAL: WHERE DO YOU START?Beth Hinten, APS, Accounts Payable Processor at CBC Companies Inc., advises other AP professionals to take the following steps when preparing to write an AP Procedures Manual:

1� Get organized� “If procedures are well organized, you will be able to retrieve information quickly, which will avoid tension with internal and external customers and promote speedy and efficient payments,” says Hinten.

"Organization is a must because so much is asked of the AP department. On a daily basis, we are asked to provide information at a moment’s notice—anything from a vendor number to invoice status to copies of reports," she says.

2� Involve everyone on the team in writing procedures for the department� “It’s a great learning experience for all parties involved. Going through the process together creates a team atmosphere,” she says.

3� Take small steps� “You can’t do a procedures manual overnight. Frankly, attempting to do so will scare off many would-be supporters of the cause. As the saying goes, ‘slow and steady wins the race,’” says Hinten.

4� Talk to colleagues in your field� “Get advice from others on best practices for AP procedures. How do other organizations handle month-end? What software do they use? Give them some of your AP scenarios and ask them what steps they would take in that situation,” Hinten suggests.

5� Inform yourself� “Knowledge is power. The more you know about your field, the better you can refine work procedures as you go along. Never turn down a webinar or class when it is offered to you. You never know what you’ll discover about yourself or your company,” she says.

"Well-thought-out procedural guidelines help AP staffers answer questions and provide better customer service in a concise, intelligent manner,” says Hinten.

WHY SHOULD AP DEVELOP CASH FLOW FORECASTING MODELS?Business leaders aim to manage cash flow to the point where every available dollar is at work, either covering payments of checks or producing income.

Cash flow forecasts examine and project cash receipts and cash payments and anticipate future cash requirements in order to protect liquidity and avoid a cash shortage crisis. These forecasts create "what if" scenarios to help in planning, to offset uncertainties in cash flows, and to match incoming receipts with disbursements.

Models can range from simple to complex (simpler models are used for shorter-term forecasting). On the disbursement side, forecasting models account for all disbursements including payroll and AP, interest on debt, and dividends.

Cash flow forecasts are based on seasonal, monthly, daily, and cyclical patterns as well as trends. They can be short term (one day to two weeks), medium term (a few months up to one or two years), or long term (multiple years).

By integrating information into the forecast as soon as it is available—using a "rolling" format so that updates are continuous—an organization can better time its disbursements to meet incoming receipts. These rolling forecasts can improve forecasting accuracy and can see the company through cash-critical periods. q

2014 Changes in IRS Form 1042-S & Form 1042: Reporting Foreign Vendors, (webinar), Dec. 11, 2:00pm-3:30pm (ET) For more information, go to www.iofm.com/2014-changes-in-irs-form-1042-s-and-form-1042-reporting-foreign-vendors-121114

Accounts Payable Certification Training Class, Dec. 15 & 16, live online training class and examination with Judy Bicking. For more information, go to http://www.iofm.com/AP-Certification-121514, call Megan Hall at 207-842-5651, or e-mail [email protected].

2015 Order to Cash Summit, June 17-19, Chicago. Presented by IOFM and The Accounts Receivable Network (TARN). For more information, contact Liz Fallon at 207-842-5557, or e-mail [email protected].

IOFM’s Payments Summit, June 17-19, Fairmont Chicago Millennium Park, Chicago. For more information, call 207-842-5557 or e-mail [email protected].

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