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Accounts Payable Best Practices
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are put in the hands of anyone with a procurement card, it is much less likely
that the same level of discipline will occur. Instead, purchases will be made
from a much larger group of suppliers. Though not an easy issue to control,
the holders of procurement cards can at least be issued a “preferred supplier
yellow pages,” which lists those suppliers from whom they should be buy-
ing. Their adherence to this list can be tracked by comparing actual pur-
chases to the yellow pages list and giving them feedback about the issue.
• Paying sales and use taxes. Occasionally, a state sales tax auditor will arrive
on a company’s doorstep, demanding to see documentation that proves it has
paid a sales tax on all items purchased. This is not easy to do when procure-
ment cards are used, not only because there may be a multitude of poorly
organized supplier receipts, but also because the sales tax noted on a credit
card payment slip only shows the grand total sales tax paid, rather than the
sales tax for each item purchased; this is an important issue, for some items
are exempt from taxation, which will result in a total sales tax that appears to
be too low in comparison to the total dollar amount of items purchased. One
way to alleviate this problem is to obtain sales tax exemption certificates
from all states with which a company does business; employees then present
the sales tax exemption number whenever they make purchases, so that there
is no doubt at all—no sales taxes have been paid. Then the accounting staff
can calculate the grand total for the use tax (which is the same thing as the
sales tax, except that the purchaser pays it to the state, rather than to the
seller) to pay, and forward this to the appropriate taxing authority. An alter-
native is to “double bag” tax payments, which means that the company pays
the full use tax on all procurement card purchases, without bothering to
spend the time figuring out which sales taxes have already been paid. This is
a safe approach from a tax audit perspective, and may not involve much
additional cost if the total of all procurement card purchases is small. Yet
another alternative is the reverse—to ignore the entire sales tax issue, and
only confront it when audited; this decision is usually based on the level of
risk tolerance of the controller or chief financial officer.

Though the problems noted here must be addressed, one must understand the
significance of the advantages of using procurement cards in order to see why the
problems are minor in relation to the possible benefits. Here are the main attrac-
tions of this best practice:

• Fewer accounting transactions. Some of the accounts payable staff may be re-
directed to other tasks, because the number of transactions will drop considerably.
• Fewer invoice reviews and signatures. Managers no longer have to review a
considerable number of invoices for payment approval, nor do they have to
sign so many checks addressed to suppliers.