Page 47 - Accounting Best Practices

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Accounts Payable Best Practices
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If EDI makes a company so efficient, why are only the largest companies
using it? The answer is simple: It is expensive to implement and only the
largest transaction volumes will offset the cost of the initial setup. For example,
if a company wants to receive all of its accounts payable billings by EDI, it
must first contact each supplier and persuade it to send EDI transmissions, set up
procedures between the two companies for doing so, and then test the system
before ‘‘going live.” In addition, the true labor savings will only be realized if
the incoming EDI messages are automatically entered into the recipient’s computer
system, which calls for the customized programming of an automated interface
between the EDI system and the recipient’s computer system—this can be an
expensive undertaking. Most suppliers will not want to participate in this system
unless there are significant transaction volumes between them and the company—
why go to the trouble for a small customer? In short, EDI is not catching on in
smaller companies because of the expense and effort of installing the system, plus
the difficulty of forcing suppliers to participate. Though larger companies may
convince their direct trading partners to use EDI, this best practice will only
spread through the ranks of smaller companies with the greatest difficulty.
Cost: Installation time:

3–11 REQUEST THAT SUPPLIERS ENTER INVOICES
THROUGH A WEB SITE

A company may be experiencing some difficulty in persuading its suppliers to
switch over to the transmission of invoices by EDI, which would allow it to
automatically process all incoming invoices without any data rekeying. A
typical complaint when this request is made is that special EDI software must
be purchased and stored in a separate computer, while someone must be
trained, not only in how to use the software, but also in how to reformat the
invoicing data into the format used by the EDI transaction. This problem can
be partially avoided by having suppliers access a Web site where they can con-
duct the data entry.
By having suppliers enter data into a Web site instead of through an EDI
transaction, they can avoid the need for any special software that is stored on an
in-house computer. A Web site merely requires Internet access, which is com-
monly available through most computers. Once the data has been entered at the
Web site, a company can shift the data to an automated EDI transaction processing
program that will convert the data into an EDI format and transmit it to the com-
pany’s accounting system. Thus, suppliers can use either EDI or Web-based data
entry to send invoices to a company, which will process them both in EDI format.
There are some costs associated with this best practice. One is that the com-
pany may have to use special discounts or early payments to convince suppliers
to use the Web site, rather than simply mailing in their invoices. Also, the Web