February 2013

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Transformation of payables to electronic payment solutions

By Jeff Travis

You should give serious thought to these components of the process around payables: security, control, and cost. Within many businesses, checks are still the primary form of disbursement, but they are the least secure payment type. Check disbursements are the primary target for fraudsters, because each check has your routing number and account number on it. Checks cross the path of many people and vital information is exposed numerous times before it is presented to a bank. At a minimum, typically four different people handle each check between the time it is issued and deposited. Eighty-five percent of the organizations responding to a recent study reported that their checks had been the target of fraud. (2012 Association for Financial Professionals Payments Fraud and Control Survey, March 2012.)

From a cash positioning standpoint, checks also offer less control over the timing of a payment. That is, payments are either made earlier than necessary or after a deadline, which can cause a business to miss a vendor discount. Remember that the greatest benefit of efficiency is control: it provides opportunities for discount capture and allows you to make choices when it comes time for payment. (E-Payables 2011, Aberdeen Group, September 2012.)

Considering all factors, checks are the most expensive payment option. There are hard cost considerations: Stamps, check stock, envelopes, ink, and equipment maintenance. Conversely, there are soft considerations, such as labor costs for stuffing envelopes and mailing payments, managing escheatment issues, stop payments, reissuance of payments, and reconciliation challenges. The total cost for an organization to issue a check internally ranges from $3.05 to $4.75 per item. (Cashflow Reengineering by James Sanger; IOMA AP Benchmark & Analysis 2007, The Blue Book of Bank Prices by Phoenix-Hecht.)

By contrast, commercial cards are among the payment type least targeted by fraudsters because a physical document is not being disbursed with critical account information. Card payments also offer total control over payment timing and take out the guess work, which means discounts can be captured reliably. Another benefit to organizations is the ability to extend their day's payable. On average, businesses receive 23 days of deferment when using cards for payment. According to a recent study, if U.S. companies simply improved the way they managed their accounts payable, they could free up a potential of $182 billion in cash flow. (Good to the Last Drop, by David Katz, CFO, March 2010.)

Lastly, commercial card payments are electronic and cost less to initiate than checks, because many of the hard costs are reduced or eliminated. Many soft costs are reduced as well. Depending on the commercial card program that your bank offers, you may also receive the benefit of a streamline reconciliation process as well. I encourage you to research what a commercial card payment strategy would mean for you business.

Jeff Travis is vice president, sales consultant, with Wells Fargo Treasury Management, Des Moines.

Tech that mattered most to small biz in 2012

By Rieva Lesonsky

Even though 2012 was a tough year overall for small businesses – the stubbornly slow economy didn't help – technology improvements continued to offer hope of lowering costs, boosting efficiency, increasing sales, and opening new markets. To the extent that they could find the cash, investing in technology remained a top priority for savvy smaller companies. These half-dozen technologies are the ones small businesses were most involved with in 2012. Read more at ReadWrite.


PCAOB member sees hurdles for mandatory rotation

By Anne Rosivach

Speaking to reporters at a question and answer session at the AICPA Conference on Current SEC and PCAOB Developments, PCAOB board member Jay Hanson said implementation of mandatory audit firm rotation was unlikely. Given a number of "hurdles," he said, "I'm skeptical as to whether we'd ever get there." Read the Accounting Web article.

CPAs: Fixing deficit should be top economic priority

By Ken Tysiac

CPAs have serious concerns about the U.S. federal budget deficit. Fifty-four percent of the more than 1,700 AICPA members surveyed December 4 through December 24 said deficit reduction should be the top economic priority for the U.S. government. Lagging far behind fixing the deficit were other priorities: Creating jobs (23%), tax reform (18%), and ensuring the long-term stability of Social Security and Medicare (5%). Read the Journal of Accountancy article.

IFA offers mortgage program–'Take Credit!'

By Beth Mahaffey

As of January 1, 2013, the Iowa Finance Authority (IFA) began issuing mortgage credit certificates through a program entitled Take Credit! These certificates are for a non-refundable, federal tax credit that the home buyer claims on IRS Form 8329.

To be eligible, the taxpayer must be one of the following:

  • A first-time home buyer, or
  • An honorably discharged veteran who purchases a home and has not previously used a mortgage revenue bond program, or
  • A home buyer purchasing a qualified home in a "targeted area."

The home buyer must also meet certain income limits established by the county and the purchase price cannot exceed $250,000 for a non-targeted area or $305,000 for a targeted area home. The credit amount is 50% of the annual mortgage interest paid for the life of the loan, and is capped at $2,000 per year.

The credit has a carry forward feature of three years, can be re-issued when refinancing the mortgage, and has the potential to be transferred upon the sale of the home. Because this credit is funded with mortgage revenue bonds, it may be subject to recapture tax laws. More information is available at www.iowafinanceauthority.gov (under For Lenders & Realtors) or by calling 800-432-7230.

Beth Mahaffey is business development director with Iowa Finance Authority, Des Moines.


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