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Disbursing the Hard Way

December 5, 2009

One of my favorite activities when asked to assess the efficiency of the accounts payable process is to count, over the course of two or three months, the number of paper checks AP issues for tiny amounts—usually $100 or less.  Anything over 15% tells me the department is wasting precious resources.  To produce paper checks, someone must get out the check stock, set up the printer, do a check run, get it signed, stuffed, and then mailed.  If there is somehow an error, you then have to void and re-issue the check (that means getting out the check stock, do the check run, get it signed…you get the drill).

All checks are time-consuming to issue.  But it’s the small payments that are most wasteful.  Going through these motions to make $10,000 payments might make sense.  But if you’re trying to pay a vendor $62.25 for some supplies, skip the ritual.  Instead, call up the vendor and convince him to settle with you via:

  • The p-card or company credit card if you got one.  Sure, the clearinghouse takes a small draw, but Mr. Vendor will get the money in his pocket faster.  That’s a huge incentive.
  • Electronic transfer/ACH if it’s already in place.  It’s cheap, fast, and will work as long as Mr. Vendor has a checking account, and who doesn’t?

Why focus on just the tiny payment and not all payments?  Because you’ll get the biggest bang with your buck there.  Making small disbursements through paper checks is a lot of work without a lot of value.   So earn back some of that busy-work time for you and your staff.

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The Back Office Mechanics Blog by Nancy Wu is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.

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