On Wednesday 16th December 2009, the UK Payments Council came to a decision regarding cheque payments, as explained in this press release. It’s important to note that the situation isn’t quite as simple as some places have reported; it’s not just a case of “cheque payments to end by 2018, full stop” – there’s slightly more to it than that; the goal is to phase out cheque payments while encouraging the use of other methods, but there’s a possibility that it might not be feasible to do so, hence the “go/no go” decision scheduled for 2016.
However, that isn’t the topic of this item – just the inspiration; when reading about the decision to try to phase out cheques it set me to thinking about some of the problems I see when companies make payments to suppliers (some of which apply to cheque payments as much as to any other form of payments). The general problem is that of a lack of identification and clarity – while I see many payments clearly identified in terms of who they are from (or for) and what they are paying, I do see some which lack that information and this leads to time wasted establishing that information. The most common problems I see tend to be one of three:
Firstly, you must identify your payment to your supplier.
This is particularly important when making payments electronically. If your payment appears on your suppliers’ bank statements (as a receipt, obviously – but I will refer to them as payments throughout this) without your (company) name, how is your supplier supposed to know that this payment is from you? I frequently see BACS payments with nothing to make clear who made them – from payments containing nothing but references that seem to be purely internal to the company making the payment, to those with the payee’s name – and in one case, their initials – and nothing else.
If you don’t make it clear to your suppliers that the money they are receiving is from you, then you are making extra work for them – they will try to identify that payment by one means or another. If that fails, as will often be the case, then you are making extra work for yourself because, ultimately, it will appear to them that your debt is unpaid and they will contact you to chase for payment – so you have to identify how and when that payment was made and relay that information back to them.
Secondly, let your supplier know precisely what you are paying.
Things are nice and simple when you are paying one invoice, and it’s the correct invoice in terms of the order they were raised (and when they’re due for payment). A payment of £488.75 from Joe Bloggs and Son must be against that invoice for £488.75, the oldest one still outstanding on the Joe Bloggs and Son sales ledger account. However, real life isn’t always that simple, and it’s common to see sales ledger accounts with a multitude of invoices – and when a payment comes in which clears some of those invoices, but not all of them, things become difficult. Sometimes it might be possible to work out that a payment of £488.75 is against three invoices for £230, £172.50 and £86.25 – but what if you regularly make purchases from your supplier which results in invoices for those amounts? Just which invoice for £86.25 should that payment be against out of the dozen on the account? Could the payment be against the invoice for £230.00, and three of those for £86.25? Which three might it be? And so on.
That might not seem important – but it can do if you’ve deliberately paid one invoice but not another invoice for a reason – an unresolved issue, which the accounts staff might not be aware of, for example. You don’t want them clearing the wrong invoice. Worse is when a payment covers several invoices, but doesn’t pay all of those invoices in full. The person dealing with the payment at the other end has to know precisely what is being paid. If not, and if they can’t work it out, you are likely to be contacted for details of what you are paying, and you then have to go through your own records to work it out – which may or may not be difficult and time consuming, depending on your own systems.
This can be avoided by generating a piece of paper – a remittance advice – at the time you make the payment which details precisely what you are paying; which invoices, and how much. It will be considerably easier to do so at the point you make the payment rather than even a short while after, depending on when it comes to the attention of your supplier. When you initiate a payment, send your supplier this remittance advice so that they are fully aware of what you are paying – and what you are not. If necessary, depending on your own systems, keep a copy for your own records. (Sending a remittance advice can also help with the problem of identifying who made any given payment – but don’t rely on the remittance advice alone; still make sure the payment itself is easily identified as being from you.)
Thirdly, mark your internal paperwork to show what you’ve paid, how you’ve paid it, etc.
This is particularly true if you handle the actual finances and someone else handles the recording of those finances. That person needs to have all the details clearly available to them if you want them to do a good job. Don’t just write “Paid” on an invoice – write “Paid 17/12/2009, cq 2854” or “Paid 17/12/2009, BACS” or whatever. They probably won’t be recording the actual payments in an accounting package based on what you write on the invoice – for cheque payments they’ll go through the cheque stubs, etc. – but at the very least, the chances are that your staff will file things differently according to how they’re paid, and they’ll take longer to do this if they have to manually tie up any given piece of paper with the method you used to pay it. It will have taken considerably less time for you to write this information on the document in the first place – less still if you use some kind of a datestamp for some of the information. While your time is probably more valuable to you than that of your staff, the couple of seconds of your time it might take per payment you make is probably going to cost you less than the amount of time they spend making up for it.
A quick afterthought to this is the cheque stub: do remember to write the important details on the stub. Even if you’re taking a cheque but don’t yet know all the details, put something on the stub to help your staff know that’s the case – especially if there is more than one person who may have taken the cheque!
To sum up, providing vital information to your staff and payees can save them – and ultimately you – time and money.