Page 62 - Accounting Best Practices

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3–25 Automate Payments for Repetitive Invoicing
correct. The trouble for the issuing company is that many potential recipients do
not want to report income to the government, and so will refuse to fill out a W-9
form or to supply a taxpayer identification number to the company. Thus, com-
pleting 1099 forms by the IRS-mandated due date can be a substantial problem.
A simple way to avoid this issue is to withhold payment of a company’s first
payment to a supplier until it completes and submits a W-9 form to the company.
By doing so, the accounts payable staff avoids the year-end hassle of determining
who receives a 1099 form. This step does add work to the check-processing func-
tion, but eliminates so much more work when the 1099 forms are issued that the
extra labor is worth it. This best practice can put the accounts payable staff under
some pressure from the materials management department if that group is trying
to obtain rapid delivery of crucial parts from a new supplier who wants payment
in advance. In most other instances, there will be little in-house opposition to this
system.
Cost: Installation time:

3–25 AUTOMATE PAYMENTS FOR REPETITIVE INVOICING

The typical company has a small proportion of invoices that arrive at regular
intervals and are for the same amount, month after month. Examples of such pay-
ments are rent invoices or lease payments. These payments usually go through
the typical accounts payable matching process, including searches for approval
documents, before they are paid. However, it is possible to utilize their repetitive
nature to create a more efficient subprocess within the accounts payable area.
The simple best practice that streamlines repetitive supplier invoices is to create
a payment schedule to bypass the approval process and automatically issue a check
in a prespecified amount and on a prespecified date. This can be done by creating a
table of repetitive payments in the accounting computer system; but there is no reason
why the programming expense cannot be avoided by just listing the payments on a
piece of paper and posting it in the accounts payable area. In either case, there is no
need to look for approvals, so there is less labor required of the accounts payable
staff. However, there are two problems. First, the repetitive payment schedule must
note the termination date of each payment, so that checks are not inadvertently
issued after the final payment date. These payments can be time-consuming when
the supplier returns them, if the company even notices the overpayment at all. Sec-
ond, the repetitive payments may change from time to time, so the schedule must
note both the dates when payment amounts change and the amounts of the changes.
For example, rental payments frequently contain preset escalation clauses, which
must be recognized by the repetitive payment schedule.
An especially fine use for repetitive invoicing is the remittance of garnish-
ments to various courts on behalf of employees. In the case of child support pay-
ments, these garnishments may go on for years, and usually in the same amount
through the entire period (unless the court orders that a different amount be with-