Issue 10-09

Our 15th Year Serving the AP Profession n www.AccountsPayable360.com

September 2010

Also in This Issue

Form 1099

Benchmarks & Metrics

Case Study

Nearly Every Payee Will Be Subject

to Documentation Solicitation
Requirements and Reporting

P-Cards and Electronic

Payments Become
Companys Preferred
Means of Payment...... 2
With the use of cards,
AP ACH payments, wire
transfers, and ACH debits,
Mohawk Fine Papers
electronic payment rate is
over 90 percent

By Marianne Couch, J.D.

With the elimination of the corporate payee and goods purchases exemptions to Form 1099-MISC reporting, as well as the requirement to report the
gross proceeds of payments, payers can expect nearly every payee to be
subject to documentation solicitation requirements and most payees to be
subject to reporting.

T&E
Prevent T&E Abuse..... 5
In many companies,
the volume of T&E
reimbursement claims
is too great to allow for
thorough review.

Some commentators have expressed concern that the legislation, as written, appears to eliminate the corporate exemption to many other types of
Continued on page 

Invoice Processing

News Briefs................. 8
Expense-a-Steak Ploy
May Be Hard for AP to
Swallow....Who Has Your
Phones?....They Wanted
Me to Do QuickBooks, and
I Didnt Have a Clue!

Technology & Automation

AP Department
Invoice Visibility Is
Under the Microscope Key to Efficiency
With direct control over cash flow, AP
professionals are under increasing
pressure to strengthen controls, drive
down costs, and increase process efficiency.
A survey report from Basware, Lost
in Transaction 2010, indicates that
59 percent of respondents think the
AP department as a finance function
is becoming more strategic, 59 percent believe the AP department has
a positive effect on profitability, and
48 percent say AP performance is
Continued on page 10

The biggest reported problem for

AP Calendar............. 10
accounts payable is the lack of visAP conferences, seminars,
and specialized training.
ibility into invoices and other AP
documents, says Nasreen Quibria,
senior analyst for the
P-Card Benchmarks From IOMA
Aberdeen Group.
..............................................see page 2
More than half the
organizations that we
surveyed57 percent
say that lack of visibility
is a pain point for them.
Forty-eight percent of
the respondents report
Continued on page 13

Increase
card access

39.7%

Target new
spend categories

62.8%

Convert more vendors

to p-card payments

45.8%
0% 10% 20% 30% 40% 50% 60% 70%

(Source: IOMA)

MANAGING ACCOUNTS PAYABLE

Benchmarks & Metrics Case Study

P-Cards and Electronic Payments

Become Companys Preferred Means of Payment
According to benchmark figures commonly
used for purchase cards, an average of 70
percent of spending transactions are less
than $2,000, but account for only 10 percent of the entire spend amount, says Mike
Ruhm, manager of treasury compliance and
controller of the e-commerce division at
Mohawk Fine Papers Inc., headquartered
in Cohoes, N.Y.

Next, for the processes it chose to pursue,

it mapped the process steps and assigned
costs to each, so that the costs could be
compared (for example, cost of check versus
cost of ACH payment). The company also
calculated frequencies for each process
to help determine potential areas of cost
savings and provide direction for re-engineering.

At Mohawk, we learned that 76 percent

of our spending was under $1,000 and accounted for 5 percent of our total spend.
By applying the benchmark for average
savings obtained by p-card use, we knew
that it made sense for us to consider their
use, says Ruhm, a 10-year veteran at Mohawk.

During the benchmarking process, we

discovered that for most of our processes,
we were pretty efficient when compared to
other organizations, says Ruhm. However,
we did identify an area in which we could
make improvements that would provide us
substantial benefitsand that area was
p-cards.

Benchmarking Identifies Opportunity

Ruhm explained further, For example,

we learned that, for us, a p-card payment
is 52 percent less costly than an AP payment using a purchase order and check
payment. As a result, p-cards and electronic
payments became our preferred means of
payment.

Mohawk conducted benchmarking

as part of a process review initiative to
streamline operations and reduce costs.
First, the company conducted high-level
studiescomparing Mohawks results with
published standardsin order to determine
if the process changes it had in mind were
worthwhile.

Continued on Page 4

Editorial Advisory Board

Jon Casher
Senior Consultant, AP Advisory Services
and Instructor AP Certification program;
President, Casher & Associates
Desktop Editor: Monique Nijhout
Director of Marketing: Jim Sestito

Marianne Couch, Esq.

Principal, Cokala

Editor: Elaine Stattler

Contributing Editor: Andy Dzamba
Research Manager: BIKRAM GAUTAM

Pam Miller
AP Director, BMC Select
and Instructor AP Certification Program

Managing Editor: Janice Prescott

President & Publisher: Perry Patterson

MANAGING ACCOUNTS PAYABLE (ISSN 1080-5753) is published monthly for $437 per year by the Institute of Finance & Management, 1 Sound Shore
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www.AccountsPayable360.com

September 2010

MANAGING ACCOUNTS PAYABLE

P-Card Benchmarks From IOMA

Percentage of Active P-Cards
P-card programs are being actively used at the majority of
companies surveyed in a recent IOMA benchmarking survey.
By program size, 80 percent of companies with more than
1,000 employees in the p-card program are over 90 percent
utilization, while only about half of companies with 501 to
1,000 employees are at that usage level, as are half of those
with up to 10 employees.
Cost of Purchase-to-Pay Transaction
For more than half (53 percent) of the companies surveyed
across all industries, the overall cost of a purchase-to-pay
(P2P) transaction is less than $10. Only one-fifth (20 percent)
of companies using a traditional P2P process are paying less
than $10 per transaction. However, approximately 20 percent
of companies using both traditional and p-card P2P processes
are paying $10 to $25 per transaction.
In companies with large programs, over 1,000, there is a
striking difference between costs of traditional and p-card P2P
processes. A significant 70 percent of these companies are
paying less than $10 per transaction using p-cards, compared
with only about one-third (35.7 percent ) using the traditional
approach.
Overall, P2P transactions cost less than $25 for three-fourths
(75 percent) of companies using p-cards, compared with
less than half (43 percent) for companies using a traditional
P2P process. Using a p-card reduces transaction costs across
program sizes.
Number of Days in P2P Cycle
P-cards significantly shorten the purchase-to-pay cycle.
Overall, only 5 percent of companies have a P2P cycle thats
a week, at most, in duration, whereas a full one-quarter (25
percent) of companies using p-cards are in that time frame.
P-cards also shorten cycle time for companies whose traditional
P2P process takes between 22 and 28 days (10 percent versus
5 percent).

Using a p-card gets a lot more companies into the one-week

transaction cycle. For example, only 6 percent of companies
with 101 to 500 employees that use traditional P2P processes
have a cycle of within a week, whereas almost one-third (29
percent ) of companies with that size program using p-cards
are completing the P2P cycle within a week.
Overall, on average, the P2P cycle takes a little over a month
(32 days) for companies using a traditional process, versus 20
days for companies using p-cards (Exhibit 1). Across program
sizes, p-cards reduce the average number of days in the P2P
cycle (Exhibit 2).
Growth Factors for P-Card Program
Overall, more than half of respondents (56 percent) said
that mandating p-card usage for certain transactions was the
most important growth factor for their p-card program.
Increasing card access, targeting new spend categories, and
converting more vendors to p-card payments are viewed as
important growth factors across most program size categories
(see front page box).
(Source: AP Department Benchmarks and Analysis 2010. For more
information, go to www.ioma.com.)

Average Number of Days in Purchase-to-Pay Cycle

Traditional

P-card

Number Percentage Number Percentage
1 - 7
10
5.2%
44
24.7%
8 - 14
10
5.2
14
7.9
15 - 21
21
10.8
17
9.6
22 - 28
11
5.7
18
10.1
29 - 42
95
49.0 67
37.6
43 - 60
41
21.1
17
9.6
Greater than 60 6
3.1
1
0.6
Total
194
100.0
178
100.0

Overall Average


31.6 days
20.4 days
(Source: IOMA)

Average Number of Days in Purchase-to-Pay Cycle by Program Size

1 to 10
11 to 25
Number of Days T
P
T
P
1 - 7
3.0% 15.6% 3.4% 27.6%
8 - 14
3.0
3.1 10.3
3.4
15 - 21
15.2 6.3
3.4 10.3
22 - 28
9.1 6.3 6.9 13.8
29 - 42
51.5 53.1 55.2 41.4
43 - 60
15.2 15.6 17.2
3.4
Greater than 60 3.0
0.0
3.4
0.0

Program Size
26 to 50
51 to 100
T
P
T
P
0.0% 22.7% 9.1% 25.0%
9.1 13.6
0.0 10.0
0.0 13.6 27.3
5.0
13.6 13.6
4.5 15.0
45.5 22.7 31.8 30.0
22.7 13.6 22.7 10.0
9.1
0.0
4.5
5.0

101 to 500
T
P
5.8% 29.4%
3.8
9.8
5.8
7.8
1.9
9.8
55.8 37.3
25.0
5.9
1.9
0.0

501 to 1000 Over 1000

T
P
T
P
0.0% 16.7% 11.1% 29.4%
0.0 16.7
5.6
5.9
0.0 33.3 27.8 11.8
14.3 33.3 38.9
5.9
71.4
0.0 16.7 29.4
14.3
0.0
0.0 17.6
0.0
0.0
0.0
0.0

(Source: IOMA)
September 2010

www.AccountsPayable360.com 

MANAGING ACCOUNTS PAYABLE

P-Cards
Continued from Page 2

Company Seeks to
Increase P-Card Use

The increased use of p-cards, travel

cards, and electronic payments has greatly
reduced processing at Mohawk. As a result,
despite three acquisitions, the company has
not had to increase the size of its accounts
payable staff.

In addition, we also moved our travel

card to the same bank we used for our
p-card and negotiated a more attractive
rebate contract. Credit cards must now be
used for all but a few exceptions. This allowed us to reduce the reporting frequency
from weekly to monthly. It also enabled
us to change our receipt policy to make
reporting easier for traveland more efficient for the AP department, he says.

The p-card program produces a significant amount of revenue in rebates, says

Ruhm. P-cards and travel cards are well
received by our AP employees because they
make their job easier.

It may seem counterintuitive for a paper

manufacturer to move toward a paperless
process, but conservation is part of our
philosophy and our manufacturing process.
All of the electricity used in our production process is offset by renewable wind
power. Mohawk also has joined the U.S.
EPA Climate Leaders program by agreeing
to voluntary emissions reductions. Many of

Coming in future issues of Managing Accounts Payable:

Results Meet Expectations

We changed our purchasing policy and

defined rules to make p-cards required for
certain purchases, says Ruhm. In addition,
we identified opportunities to increase pcard use and increase the enrollment of vendors in the electronic payment program.

With the use of cards, AP ACH payments, wire transfers, and ACH debits, our
electronic payment rate is over 90 percent,
says Ruhm. This is not only very cost effective but it also helps support Mohawks
environmental initiatives, which are very
important to us, he says.

its products are designated carbon neutral.

So going paperless fits very well into our
social responsibility ethic, Ruhm says.

Successful businesses unlock capital trapped

in inefficient functions. While the adoption of
electronic payment vehicles requires businesses to
alter their payment behavior and restructure their
financial processes, the companies that make the
shift will gain a competitive advantage.
www.AccountsPayable360.com

In addition, the cards and electronic

payments have helped with cash flow and
cash forecasting, says Ruhm. We are very
satisfied with our resultsthey totally meet
our expectations. I just wish we had done
this sooner.
Ruhm says the benchmarking process
at Mohawk was so effective that we continue to use benchmarking to monitor our
program. There are already plans to initiate another companywide procure-to-pay
process review.
Editors Note: Mohawk Fine Papers Inc.
(www.mohawkpaper.com) has six locations
and 750 employees. The AP Department
has two full-time clerks and a manager who
splits his time between AP, AR, credit and
collections, and payroll. Mike Ruhm, CTP,
CMA, CAPP, APM, CPCP, CPP, CBM, can
be reached at Mike.Ruhm@mohawkpaper
.com.
q

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September 2010

MANAGING ACCOUNTS PAYABLE

T&E

Prevent T&E Abuse

In many companies the volume of T&E
reimbursement claims is simply too great
to allow for thorough review, allowing
dishonest employees to take advantage of
the system, says Peter Goldmann, editor of
White-Collar Crime Fighter.
The following examples do not represent
an all-inclusive list of T&E abuses, but it does
cover some possible areas to look out for.
Unethical behavior by employees might
include:
l Creating fictitious hotel bills or other
bills and expensing them;

According to Scott Sunbury, CPA, CFE, a

T&E fraud prevention specialist with Connecticut-based CJS Group LLC, companies must
be especially alert to such T&E schemes as
overstated or over-purchased expenses.
To reduce the companys exposure to
T&E abuse, Sunbury recommends starting
with an enforcement of a rigorous T&E
expense documentation policy. Sunbury
recommends that companies formulate and
communicate via the companys intranet a
detailed T&E policy, including a T&E code
of conduct with rules such as:
l Personal expenditures are strictly prohibited.

Copying, and re-claiming, receipts in

a future expense report;

l Expensing false below the line expenses when receipts are not required;

Overstating charges by expensing more

than the actual costs;

l An employee using a p-card for travel

and entertainment expenses must also
follow the policies outlined in the p-card
program and sign a p-card agreement.
l Only authorized personnel may approve expense reports. Delegating this duty
to another employee is strictly prohibited.

Taking friends and family for meals,

to entertainment venues, or on trips and
expensing the charges erroneously;

Paying for products or services that are

wholly or partially for personal use;

l Collecting hotel or vendor commissions

that are due to the company;

Collecting and personally using meeting planner points (which are different from
individual hotel rewards points);

Using corporate cards for personal use

in order to collect rewards points;

Using meeting and event suppliers that

may provide something personal in return,
such as free trips, room nights, spa service,
car service, floral service, entertainment,
extra rewards points, or other amenities;

Booking company-expensed airline

tickets, canceling the trip, and using the
unused credit for personal travel.

September 2010

All T&E-related purchases must be

properly documented in accordance with
company policy. Altered or forged documentation is strictly prohibited.
l

Only authorized and allowable expenses may be submitted for reimbursement.

Check with your department manager if
you have any questions about the eligibility
or the validity of a purchase.

l All dollar-value purchase limits must be

adhered to. Splitting of transactions to avoid
authorized limits is strictly prohibited.

Sunbury says that employees should be

required to click I Accept after reading the
policy. He also suggests the following:
l Follow up with all new hires who have
not clicked the I Accept function within

www.AccountsPayable360.com 

MANAGING ACCOUNTS PAYABLE

the first few months of their employment.

Form 1099

l Prohibit upfront management authorizations of T&E expenditures.

Continued from Page 1

Apply policies consistently to all employees.

Eliminate cash advances.

l Use company T&E credit or p-cards. But

enforce a policy that reserves the companys
legal right to seek repayment by employees
for fraudulent or prohibited expenses.

Establish and enforce a minimum

dollar level for requiring receipts in your
organization.

Require that expense reports include

full descriptions of the business purpose of
each expense, as well as the original receipt
or other support documentation, time and
date, location, and exact amount.

l Be suspicious of rounded dollar numbers without supporting documentation

or potentially counterfeit documentation,
as well as a series of claims for the same
amount.

Have receipts cross-referenced to the

expense report and sent directly to the
processing group.

Disburse reimbursement payments via

direct deposit, or include them with normal
paychecks.

Use an electronic T&E reporting system. These typically allow for built-in policy
controls.

Consider implementing a T&E report review policy that holds authorized

managers or supervisors accountable for
fraudulent or prohibited T&E expenses
that slip through the review process due to
incomplete reviewing. Penalize second or
third occurrences of such oversights with
monetary penalties.
q

Sources: T&E Plus, debischolar.typepad.com;

and White-Collar Crime Fighter.


www.AccountsPayable360.com

1099 reporting beyond the MISC, even

though this does not appear to have been
the intent of Congress.
These increased reporting requirements,
effective for payments made on or after Jan.
1, 2012, will create significantly increased
opportunities for payee name-TIN mismatches, B-Notices, penalty notices, and
potential liability for backup withholding.
Elimination of the
Corporate Exemption
Currently, payments to corporations,
except to those providing medical or legal
services, are exempt from Form 1099MISC reporting. (In addition, no corporate
exemption exists for payments in lieu of
dividends or fish purchases for cash reported on the Form 1099-MISC.)
As a result, many payers routinely exempt
corporate payees from Form W-9 solicitation using the eyeball test.
Under the terms of this test, payers who
can identify clear indications of corporate
status in a payees name, such as Inc.,
Corp., P.C., etc., are permitted to exempt
these payees from reporting without first
obtaining a Form W-9 from the payee.
(Note: Government and tax-exempt
payees are not affected by the elimination of the corporate exemption. Payers
will be permitted to continue to exempt
from reporting payments to payees that
are obviously government agencies, and
tax-exempt entities such as well known
colleges and universities, and charities.)
Remember, however, that the eyeball
test does not apply to corporations providing medical or legal services, or others
as noted earlier.
Despite the fact that use of the eyeball
test is permitted to exempt corporate
September 2010

MANAGING ACCOUNTS PAYABLE

payees from the name-TIN solicitation

requirements (Taxpayer identification number, such as SSN, EIN, ITIN, and others), tax
advisors have long recommended against
its use for several reasons:
First, in addition to identifying the
payees status as a corporation, the payer
must also be able to determine that it is
not a provider of medical or legal services.
Such a determination is not always possible
to make from a payees name, alone.

l Second, obtaining a Form W-9, or

applicable substitute, from all payees,
including those the payer believes to be
corporations, will assist in identifying foreign payees subject to the Form 1042-S
reporting and 30 percent federal income
tax withholding rules. (No foreign corporate
exemption exists for Form 1042-S.)

Finally, many payers mistakenly provide the corporate exemption to their LLC
payees. As limited liability companies, not
corporations, LLCs are not exempt from reporting. (Note: LLCs default to a tax status
of individual, partnership, or disregarded
entity, depending on the number of owners and relationship to a parent company,
if any. LLCs may occasionally elect to be
treated as corporations for tax purposes.
If this is the case, the IRS would have provided the LLC with a determination letter
of corporate status. Tax advisors strongly
advise that payers not give LLC payees the
corporate exemption to reporting without
first obtaining from the payee of copy of
this letter.)

Nonetheless, with the elimination of the

corporate exemption, payers will no longer
be permitted to use the eyeball test to
exempt corporate payees from reporting
as of Jan. 1, 2012.
Consequently, tax experts advise that
payers begin implementing policies,
procedures, and systems changes to accommodate these increased reporting
September 2010

requirements, and to move away from using the eyeball test to exempt purported
corporations from reporting.
Elimination of Goods
Purchases Exemption
At this time, payments to purchase
goods are exempt from reporting. (Note:
Combination payments for goods and services are subject to reporting. In general,
payers should report the entire amount of
the paymentfor both the goods and the
serviceson the Form 1099-MISC.)
However, the exemption from reporting payments to purchase goods was also
eliminated with the passage of the Patient
Protection and Affordable Care Act of 2010,
Pub. L. 111-148.
Beginning with payments made on or
after Jan. 1, 2012, goods purchases will
be reportable. Accordingly, payers will be
required to solicit name-TIN information,
using the Form W-9 or applicable substitute, from all domestic vendors supplying
goods.
Payers retain the goods purchases
exemption to Form 1042-S reporting.
However, in order to apply the exemption,
payers will be required to obtain from their
foreign vendors a Form W-8BEN establishing foreign status.
The Form W-8BEN will confirm that
the vendor is subject to the Form 1042-S,
and not the Form 1099, reporting rules.
Without the W-8BEN, payers will generally
be required to presume that vendors are
domestic suppliers subject to the requirement to report goods purchases on the
Form 1099-MISC.
Requirement to Report the
Gross Proceeds of Payments
The legislative language requires the reporting of the gross amount of payments.
Continued on Page 10

www.AccountsPayable360.com 

MANAGING ACCOUNTS PAYABLE

News briefs
Expense-a-Steak Ploy May Be
Hard for AP to Swallow
How do employees get around limitations
on T&E expenses? Advertising Age and
The Wall Street Journal report on how a
New York ad agency, Walrus, created a
Web and mobile application for its client,
Fourth Wall Restaurants.
The Fourth Wall company is comprised
of upscale restaurants in New York City.
One of the restaurants in the group is
Maloney & Porcelli, located in New Yorks
financial district.
Restaurant Creates Receipts. The
restaurant touts its Expense-a-Steak
program with the line, Now you can
eat at Maloney & Porcelli as often as you
like and never worry about your expense
report raising any eyebrows. Simply type
in your bill total and the expense report
generator will do the rest.
Diners simply have to follow the directions at the Expense-A-Steak site, enter
the amount of their Maloney & Porcellis
restaurant bill, and click a box that says
Expense It!

every financial, advertising, food and

consumer facing outletand Walrus
claims that 150,000 sets of receipts were
downloaded in the first two weeks of the
campaign. M&P reservations were up 15
percent in the wake of its launch.
Webster says that the receipts, while
remarkably authentic, are not intended
to be passed off as the real thing. He
claims: If Accounts Payable is letting a
receipt for $3,000 worth of cyan toner
through their department, then were the
last people wholl get in trouble.
How Far Can Advertising Go? The
campaign isnt just online, says Kelly
Evans of The Wall Street Journal. Walrus
has also replaced the restaurants emblazoned takeout bags with fake ones from
cheaper chain restaurants (though well
known Italian- and Mexican-food chains
have issued cease-and-desist orders),
so diners can disguise their leftovers as
cheaper fare.
The ad agency reports, People have
gotten a kick out of it and the restaurant
has been busy.

The program automatically generates

a print-ready page of fake receipts for
work-related expenses like office supplies
and cab fare. The fake receipts total the
same amount as the restaurant bill.

What Can AP Do? Many organizations use internal audits as their primary
investigative method to prevent T&E misreporting, yet many internal audit teams
do not know how to find, monitor, or value
these incidents, reports T&E Plus.

Is It Legal? Is it advertising? Is it PR?

Is it aiding and abetting in fraud? asks
Bob Garfield, a writer for Ad Age. Garfield, while admitting the program may be
questionable to some, calls it brilliant.

Without a managed travel, meetings,

and entertainment program in place
that aids in pre-empting these practices,
companies are vulnerable.

Legal or not, the program is being

widely used. The Web site is just a week
old but already has some 88,000 receipt downloads, according to Deacon
Webster, chief creative officer at Walrus,
the New York-based agency behind the
campaign. Advertising Age reports that
the site earned coverage in just about

Who Has Your Phones?

www.AccountsPayable360.com

How much is your organization losing

because of T&E misreporting? And, how
can you reduce it? See article on page 2.

Forrester reports that cutting telecom costs

remains a top priority among organizations. But the sheer number of mobile
September 2010

MANAGING ACCOUNTS PAYABLE

News briefs
devices makes it difficult to maintain accurate, validated, and current inventories
of company mobile devices.
The bigger the company, the greater
the challenge with accuracy. Many
companies have numerous devices that
they cannot even locate. In some cases,
former employees are still using corporate devicesand thereve even been
situations where new phones are issued
to expatriated or deceased employees,
reports Onica King of Forrester.
A large Fortune 500 retailer, after implementing a telecom expense management
(TEM) solution, found 3,500 monthly cell
phone bills of former employees still being paid, costing the company in excess
of a million dollars per year, reports
King.
King offers a rather simple means of
getting a spot inventory of your organizations mobile devices.
Using a series of three mass text messages sent over a three-week period,
organizations can instruct users to respond with information that would identify
themselves as an employee:

The first text message is sent requesting users respond with their employee
number.

Those not responding to the first
message are sent a second message requesting that the user respond with their
e-mail address.

If the user does not respond to the
first or second message, send a third and
final message including a warning that
the device would be shut off if the user
does not respond to the text message
with their corporate e-mail address.
Of course, corporate mobile device
environments are not static, and portfolio
changes are common, says King. But
September 2010

any moves, additions, changes and disconnections (MACD) of service or devices

should immediately be recorded online
to keep the inventory up-to-date.

They Wanted Me To Do
QuickBooks, and I Didnt
Have a Clue!
An investigation is under way regarding
the alleged mismanagement of accounts
payable at two liquor stores in the state
of Virginia. It seems that the liquor stores
had been operating at a loss and bills
were not getting paid.
The underlying cause of the difficulty
didnt come to light until after a 20-year
veteran accounts payable manager retired, and a new manager took over. The
new manager was shocked to discover
that the stores had $109,000 of accounts
payable.
When questioned, the retired manager
said the problems arose when she failed to
learn a computerized accounting system.
As a result, she hadnt done the books
since June 2009.
They wanted me to do QuickBooks,
she said. I told them I didnt have a clue,
and they didnt listen. I practically ran the
business by myself. The board never came
in. I never did anything wrong; I just did
the best I could. I guess the bills just kept
accumulating.
Moral of the Story? Never assume
your employees will understand new
technology without training.
While this story presents an extreme
and unlikely example, it drives home the
importance of training. Helping people
understand technology will quiet their
fears and insecurities and thus help your
company adopt new technologies more
rapidly.

www.AccountsPayable360.com 

MANAGING ACCOUNTS PAYABLE

Form 1099
Continued from Page 7

Currently, tax advisors do not know how the

IRS will interpret these terms. Will taxpayers
be required to report reimbursed contractor
expenses on the Form 1099-MISC? Will
certain insurance claims payments currently
exempt from reporting become subject to
reporting?
Increase in B-Notices, Penalty
Notices, and Potential Backup
Withholding Liability
Once the IRS issues a proposed regulation regarding these upcoming changes to
reporting obligations, tax advisors expect
to be able to determine with more specificity exactly how they will affect payers and
what, in particular, will be required to fulfill
these new requirements.
With these significantly increased reporting obligations, expect a proliferation of
B-Notices and penalty notices. (Note: A
bill to increase proposed penalty amounts
for information reporting (1099) errors has
passed the House of Representatives and
currently resides in the Senate Finance
Committee awaiting action.)

Accounts Payable Calendar

IOMA/TAPN Accounts Payable Training
& Certification Program

The best way to avoid these notices is to

use the IRSs TIN Matching system. Use of
the system will allow payers to scrub their
payee data prior to sending the file to the
IRS. The TIN Matching system is free, but
does require registration. Information about
the program can be found at www.irs.gov/
govt/tribes/article/0,,id=131207,00.html.
Finally, note that potential payer liability
for backup withholding attaches to every
reportable payment. Failure to report when
required, to report correctly, or to withhold
taxes when necessary exposes the payer
to liability for the tax amountcurrently,
28 percent of the paymentplus interest, plus penalties. Absent Congressional
extension of certain tax laws, the backup
withholding rate is scheduled to increase
to its pre-2001 rate of 31 percent.
Exposure to this potential liability will
also increase substantially when the reporting requirements increase. Therefore,
in addition to modifying payee name-TIN
solicitation processes, payers should also
ensure that their systems provide a mechanism by which to withhold tax from Form
1099-reportable payments.
As is evident, the implications of these
new reporting requirements extend
far beyond the obligation simply to report payments to corporations and for
goods.
q

Register now for The IOMA/TAPN Essentials of Accounts Payable Training & Certification Program, a one-day intensive AP
seminar in preparation for the AP Certification Exams taking
place in: Washington DC, September 24, 2010; Scottsdale, AZ,
October 11, 2010; and Orlando, FL, November 14, 2010

Marianne Couch, J.D., is a principal

with COKALA Tax Information Reporting
Solutions, LLC.

For information, or to register, contact John Watkins at 203889-4973, or via email at: John.Watkins@iofmonline.org

AP Microscope

9th Annual Accounts Payable Conference & Expo, Oct.

10-13, Scottsdale, Ariz. Contact: IOMA Customer Service,
800-401-5937; www.ioma.com/conferences/1321.html.

being monitored more closely than a year

ago.

2010 Regulatory Tax Compliance, Withholding & Accounts Payable Conference, Nov. 14-18, Royal Pacific
Resort, Orlando. Contact: 770-984-1184 or www.tapn
.com/2010TaxCompliance.
10 www.AccountsPayable360.com

Continued from Page 1

Costly Errors Wont Be Tolerated

The research depicts finance departments about to reach a tipping point, where
September 2010

MANAGING ACCOUNTS PAYABLE

costly errors and inefficiencies can no longer be tolerated, as companies search out
additional cost savings and hunt for profit,
the survey says.
The Lost in Transaction survey reveals
statistics around the incidence of error and
the actual amount of time and money lost
in processing accounts. Among the problems Basware found that AP departments
experienced on a regular or occasional
basis are the following:

themselves and must become bastions of

control, visibility, and growth, observes
Basware. The payables landscape is
changing and industry has embarked
upon a road of e-invoices and dynamic
discounting where the need to seamlessly
exchange transaction-related information

Exhibit 1. Most Likely Causes of AP Errors

58%

Human error by AP department

53%

Difficulties reconciling invoices with

purchase orders: 32 percent

Human error by procurement department

Missing early payment discounts: 30

percent

Lack of communication between AP and

procurement departments
Problems with using accounting system

21%

Incorrect posting resulting in accounting errors: 28 percent

Lack of integration between finance systems

21%

Incurring late payment fees: 27 per-

cent

Payment to wrong supplier: 26 per-

cent

Duplicate invoice being paid: 23 per-

cent
Insufficient payables information to
support compliance/regulations: 19 percent

Poor cash management visibility leading to overdraft fees: 10 percent

Scanning and data capture

31%
24%

Gaps/inefficiencies in the AP process

18%

(Source: Basware)

Exhibit 2. Elements of inbound invoice processing that take

up the most time and are most prone to errors/discrepancies
Invoice scanning or
data entry

38%
41%

Reviewing and approving

invoices

38%
26%
28%

Filing and archiving

18%

Approving requisitions or
purchase orders

27%
21%
27%

Approving payments

l Paying for goods not received: 10

percent

Issuing purchase orders

Paying for unsolicited invoices: 9 per-

Tax accounting

20%

cent
Exhibit 1 demonstrates the most likely
causes of processing errors. Exhibit 2 shows
the elements of inbound invoice processing
that take up the most time and are most
prone to errors, and Exhibit 3 illustrates
the main discrepancies between POs and
invoices.
Financial Leakage Must Be Controlled
Finance departments can no longer
afford to be a source of financial leakage
September 2010

22%
20%
20%
21%

Creating, submitting and

managing contracts with vendors

20%
18%

Submitting requisitions

20%
17%
19%
16%
18%
22%

Interacting with suppliers

Cost accounting
Other
None of the above

3%
5%
3%
4%

Take up most time

Most prone to errors/discrepencies

(Source: Basware)

www.AccountsPayable360.com

11

MANAGING ACCOUNTS PAYABLE

Exhibit 3. Main discrepancies between POs and invoices

Incorrect pricing
information
Incorrect quantity
of goods
Missing PO reference
on invoice
Incorrect invoice recipient

49%
38%
31%
30%
28%

PO not created
Missing goods receipt

26%

Late or partial delivery

26%

Incorrect payment terms

26%

Additional cost on invoice

not reflected on PO

23%
18%

No price specified on PO
Supplier/contract not
found in system
Consolidated/summary
invoice
Other

17%
16%
8%

(Source: Basware)

and funds is becoming increasingly urgent,

the report says.
Automation is recognized as an area
offering not only significant potential for
generating bottom-line improvements,
but also a greater ability to monitor and
manage cash flow and strengthen supplier
relationships.
Automation is not a big bang initiative, says the Basware report, but rather
a migration where people, processes, and
technology combine to enable finance departments to set a best-practice example
to the rest of the organization.
q
Source: Basware, Lost in Transaction report.
For more information, go to www.basware
.com.

Five Ways to Increase Efficiency, Improve Data Quality, and Decrease Processing Costs
MAP offers the following five-step program designed to help
companies incrementally improve their AP processes:
Step 1: Control the flow of paper. Most companies still
need to handle both paper and electronic invoices as they come
in. Rather than dealing with a backlog of paper invoices to
process, scan the paper invoices as soon as they come in. Then
transport the invoice data electronically to a central location for
processing.
Step 2: Optimize the way data is extracted from incoming
invoices and then transfer the data for further approval
or verification. If this process is manual at your company,
there are tremendous cost savings that you can realize by
automating. For example, you can automate this process with
a solution that extracts the data from invoice fields with little
or no manual intervention.
Step 3: Have suppliers send you invoices electronically
(EDI), even if they are paper invoices. Automation can
integrate suppliers into your system and plug data into your
workflow. For example, you can enable your suppliers to send
invoices electronically through an application that hooks into
their computers print system. Then it extracts the relevant
information, converts it to XML (extensible markup language),
and sends it to you so that you can run it through your business
process.
Step 4: Increase process transparency. Between 26 and
41 percent of an employees time is spent responding to queries
regarding existing invoices. Automation can help improve
communication between parties. Ideally, you want a system in
which documents are searchable instantly by entering one or
12 www.AccountsPayable360.com

more key words. Being able to answer customer inquiries in

seconds improves the professionalism of customer service and
increases productivity and cost savings.
Step 5: Improve data quality. With manual processes,
theres always the risk of keystroke errors. And even if the
invoice information is captured perfectly, theres still the risk
that the invoice cannot be matched within a purchase order
system. MAP surveys indicate that more than half (55 percent)
of all incoming invoices could not be directly matched when
straight-through processing is used. To remedy this, implement
either a manual or automated process. With a manual process,
you need to have someone in AP pick up the telephone to have
these errors fixed. With an automated system, there is a feedback
mechanism that alerts suppliers to fix the invoice data before
the invoices are fed into your ERP system.
Based on MAPs research, it is estimated that a company still
using manual invoicing processes can save more than $17 an
invoice by using this five-step automation process to upgrade
its AP operation (see exhibit).

Approximate Savings Per Invoice Using

the 5-Step Approach
Step 1: Control paper flow
Step 2: Reduce manual labor
Step 3: Enhance process transparency
Step 4: Add e-transactions
Step 5: Improve data quality
Total Savings

$10.00
$1.00
$1.50
$1.50
$3.00
$17.00
September 2010

MANAGING ACCOUNTS PAYABLE

Invoice Visibility
Continued from Page 1

Supplier portals, 30 percent vs. 14

percent

l Digital signatures, 24 percent vs. 20

percent

having limited visibility, and 5 percent

report having no visibility. (See Exhibit
1.)
Visibility is important because it allows
accurate financial forecasting; yet only 15
percent of those we surveyed had real-time
visibility, says Quibria.
Automation Allows for
Increased Visibility
There are significant strategic advantages to being able to instantly access
data in real time. An automated system
can provide charts and graphs about aggregate data in the workflow, says Scott
Pezza, research analyst with the Aberdeen
Group. For example, you can generate a
pie chart of how many invoices are at each
step of the process.
Automation has become the top action
to enhance the AP process, says Doug
Bertram, regional manager at Metafile
Information Systems Inc. It streamlines
and improves functionality and can drive
spend visibility.
In a recent Aberdeen survey, 62 percent
of the respondents reported that they
plan to automate invoicing processes, and
31 percent plan to integrate e-payables
with other systems. Fifty-two percent of
best-in-class (BIC) companies already
have enterprise-level image repository
and management systems (see Exhibit
2). Even without full automation, BICs
have more automated aspects than the
others:
Spend analysis, 42 percent BIC vs. 23
percent all other respondents

Processing Speed
Translates to Savings
Best-in-class companies have reduced
their cycle time to 3.7 days, compared with

Exhibit 1. The Visibility Factor

No visibility
5%
Limited visibility
48%

Real-time
15%

Good visibility
32%

(Source: AberdeenGroup)

Exhibit 2. Best-in-Class Technology Utilization

Enterprise image repository &
management system

52%

29%

Spend analysis

42%

23%

EIPP

32%

7%

Supplier portals

30%

14%

Digital signatures

24%
20%

Supplier networks

24%

Electronic invoice presentment and

payment (EIPP), 32 percent vs. 7 percent

Supplier networks, 24 percent vs. 15

percent

15%

Best-in-Class
All Others

September 2010

(Source: AberdeenGroup)

www.AccountsPayable360.com

13

MANAGING ACCOUNTS PAYABLE

a 14.2-day average. One of the reasons for

the faster invoice processing in BICs is the
adoption of direct transmission of data via
XML or EDI. BIC adoption is twice that of
others: 42 percent versus 21 percent. Yet
even for BICs, 60 percent of all incoming
invoices are paper-based, Aberdeen reports.
Paper invoices arent going away any
time soon, Bertram observed, and sometimes its not worth forcing your vendors
hand. Incremental improvements can still
be important in cutting cycle time.

How to Avoid AP Roadblocks

The Aberdeen Group recommends four key strategies to plug
performance gaps and generate cost savings:
1.Review current receipt and approval policies and
identify major program gaps. Are there any unclear policies
that require more management handling?
2.Engage senior management in strategic and
technological AP initiatives. If you have reviewed your processes,
you can show management you have done the research and can
quantify the benefits of further investment.
3. Increase the use of dynamic discounting. This requires
efficient communication with suppliers. Begin with and
assess a pilot program before rolling out a larger plan. Dynamic
discounting allows more flexibility in taking discounts.
You might miss the 2/10 discount, but still make 1 in 15,
Bertram said. To complete this process in truly dynamic fashion,
you need visibility into process and payment status to learn which
accounts are even available for early payment discount. For a less
technology-based process, look to your colleagues in procurement
to carve out a tiered or alternative discount structure.
4. Close the loop with data integration. When you automate,
you are working with data that can be shared far more easily
than data on physical documents. You can provide procurement,
sourcing, financing, and treasury colleagues with real-time data
on the status of invoices. It helps supplier relationships by keeping
them informed as to when theyll be receiving their money. It
helps in forecasting cash flow, and it also reduces or eliminates
error due to human entry.
The process can be slowly ramped up as each portion is improved
to remove bottlenecks. In terms of staffing, a more efficient
process results in a better deployment. You could trim headcount,
says Bertram, but you could also redeploy your employees. For
example, your data entry staff could be redirected to higher-level
tasks.
14 www.AccountsPayable360.com

BICs process 14,080 invoices per month,

versus 9,409 for all others surveyed. The
monthly value of the invoices was $67.8
million for BICs versus $45.9 million for the
others. The percentage of those invoices
that were PO-based was about the same
in both (63 percent versus 62 percent).
But the single-invoice processing cost was
$4.84 for BICs versus $20.13 for all others,
which comes to an annual invoice cost of
$817,644 versus $2,273,076.
Centralization Gives AP
Control Over Spend
Even if you cant upgrade to an automated system, much can be done to gain more
flexibility and control of AP, says Quibria.
Centralization of processes can really help
chief procurement officers (CPOs) to gain
more control over their spend, Quibria
said. Invoice approval and receipt are
key elementsdecentralization in these
functions can severely inflate cycle times,
and CPOs can lose out on early payment
discounts.
BICs are better than their lower-performing peers at capturing early payment
discounts. The value of a 1 percent gain in
early payment discount capture (at 2/10 net
30) for the average low performer could
save $110,051 per year, says Bertram.
The survey indicated that 29 percent
of respondents plan to centralize their AP
processes. Responses indicated that centralization is not an all-or-nothing process,
with more companies already centralized
in some areas than others:

Payment79 percent

Reconciliation49 percent

PO issuance45 percent

Scanning36 percent

Indexing35 percent

Approval34 percent

Receipt30 percent
September 2010

MANAGING ACCOUNTS PAYABLE

It seems clear that if you have invoices

coming in at different places, or approval
scattered throughout the department, it will
take longer to process the invoicesplus
there is increased risk of duplication and
mistakes, says Bertram.
Overcome Challenges
Upgrading takes time and effort,
and there are usually some challenges
along the way. Common impediments
the surveyed companies have run into
include:
Lack of internal support for change:
39 percent

l Difficulty integrating AP with other

systems: 37 percent

Non-standard nature of (or multiple

formats of) invoices: 33 percent

Lack of automation of exception/discrepancy handling: 23 percent

l Securing executive support for AP

transformation: 21 percent

Support for change is a major issue

at several levels, says Bertram. Treat
each level individually. For example, your
employees might be concerned that youre
making their job more difficult on a daily
basis. Also, they may be concerned about
job security. Management and executives may be concerned about ROIthe
costs upfront and ongoingand they
will want to know if the project will be
worth the investment. How you address
these issues can ease the transition, he
says.
q
Source: The 2010 ePayables Webinar
Series, Webinar 2: Overcome RoadblocksTurn Your Accounts Payable into a
Revenue Generator, Aberdeen Groupan
invoice and workflow study of 150 companies worldwide. For more information, go
to www.aberdeen.com.
September 2010

Accounts payable managers forum

Too Many Touches
Problem: The AP manager at a food distribution company
was challenged by the sheer volume of paper that changed
hands in the department. An analysis revealed that each
document was touched between 34 and 42 times as it
was processed. Paper was filed, re-filed, faxed, e-mailed,
transcribed and otherwise acted upon. There was difficulty
in tracking the progression of any particular invoice as it was
processed. It was also difficult to establish accountability for
the invoices among staff involved in the invoice-processing
chain.
In addition, the company was not only missing out on early
payment discounts, it was paying costly late charges. The
challenge was to find a solution to design a workflow process
that would eliminate the overhandling of invoices.
Solution: The company researched nearly a dozen accounts
payable document management solution providers, using
a cross-functional team composed of treasury, purchasing,
inventory control, transportation, and accounts payable
representatives.
The team wanted more than a scanning solution. Team
members wanted a program that would eliminate the need
for paper altogether and adapt their workflow.
The company selected Metafiles MetaViewer solution,
which captured, extracted, and routed digital invoices
electronically at each phase of the companys invoiceprocessing chain. The software also automated indexing
and text extraction from every invoice, enabled links to or
attachments of supporting documents, created workflow
steps, and included customized action-oriented e-mails and
customer notification tools.
The accounts payable manager can now create a realtime dashboard view of the flow of each invoice within
the AP department. Alerts and gauges identify and rectify
missed deadlines, stalled invoices, and other process breakdowns.
Results: The company realized an ROI less than one year
after implementing the solution. Its annual processing costs
went from $135,000 per year down to $80,000 per year following implementation. The processing time required for the
average invoice was reduced from one week to one day.

www.AccountsPayable360.com

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MANAGING ACCOUNTS PAYABLE

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