Hold the paper! Strategies for automating vendor payments.

• Author: Cox, John

As a distinctly American musical form, jazz epitomizes the expression of infinite variations from a unified theme. The ability to extrapolate from a common theme is equally relevant to American government, where, despite shared challenges, no two government entities are alike, and no one solution fits all nuanced circumstances. Within the overarching theme of e-government--or transformation to a paperless environment-vendor payments have remained a challenge for government at all levels. This article presents strategies and best practices for automating vendor payments for increased benefit.

SHARED CHALLENGES

Despite the intention to increase electronic payments, both public and private sectors still pay suppliers primarily by check. The obstacles to automating vendor payments--gaining vendor acceptance, managing and safeguarding vendor data, dealing with limited allowance for remittance information, to name a few--are well known.

Ironically, as your government migrates from paper to electronic payments, you risk further fragmenting operational processes and offsetting potential benefits, because additional solutions require you to support multiple payment infrastructures. Your government may have implemented direct deposit and purchasing cards (p-cards). Each requires a different platform with the requisite security, controls, and fraud deterrents. But no one program achieves the critical mass to fully eliminate paper.

The challenge of migrating from paper to electronic is not unique to government. But resource constraints and issues of accountability and public perception compound the issues. Despite the benefits of going electronic, elected officials, constituents, and staff may not support e-government initiatives. As a result, some government entities may take a short-term cost focus, but full automation is a long-term path.

WORKING WITH YOUR BANK

How can governments increase electronic payments without additional cost or resource allocation? Given resource constraints, it is critical to find a strong financial-services provider that will work with you collaboratively rather than as simply another vendor processing transactions. The right banking services provider should help enable your e-government strategy for vendor payments by bringing the following attributes to the relationship:

* Understand how your organization works and how the challenges apply to your unique context

* Help you assess the full range of alternatives and their implications

* Bring dedicated resources and expertise to fully implement the solution

* Maintain an ongoing focus on program optimization to improve results

In our experience, many governments determine payment method based on a transaction's dollar value. Wire is preferred for high-value, time-sensitive payments requiring same-day issuance and receipt. Small-dollar, higher-volume items are ideal for a p-card application. Governments generally target the payments in between for migration to Automated Clearing House (ACH). Entities differ in how they evaluate the dollar threshold for each payment method. But despite differences in approach, the shared objective is to achieve the optimal mix of electronic payment alternatives to take full advantage of the benefits of automation.

WEB-BASED VENDOR PAYMENT SOLUTIONS

Vendor management remains a hurdle to increasing ACH payments. Limited resources exacerbate the challenge of soliciting vendor acceptance and collecting, safeguarding, and maintaining vendor bank-account information. Beyond privacy

and security concerns, managing vendor data is time-consuming and difficult, given that vendors may not notify government of changes. Unlike checks, which will still reach a vendor by forwarded mail, incorrect banking details will result in a returned ACH payment, which in turn can escalate into a procurement issue. Many vendors are either unable to accept remittance data electronically or require customization of payment formats to align with their system's requirements.

A few banks are addressing these vendor-payment challenges by combining ACH payments with Web-based access to...