While waiting for my flight back to Lagos on a trip to Abuja, I read an article on leveraging your knowledge around a common pain point for clients to build solutions that can be used for clients and prospective customers with similar challenges. Pondering this, I realised that more often than not, when pitching ProcessMaker as a solution for automating business processes, an area that commonly comes up for automation is Payments for Finance departments.
Since I had a few hours to spare (flight had been delayed for 4 hours), I thought about the different components a Finance Payment process should address. The list below is not exhaustive and my goal in writing this post is to get fedback from finance business users. This will be useful input for the next series of posts on how such a process can be built using ProcessMaker.
Before any payment can be made, the first step is a request for payment by an employee. This is often done by filling out a payment requisition form with details such as the amount, the purpose of the payment, the party to be paid and how the payment should be made.
A request however is incomplete until it is approved. The requesting employee typically takes the filled requisition forms to the authorised approver in the organisation. This can be a direct supervisor seating across the desk or a Regional Manager across the country. In the latter case, the employee scans and emails the requisition or sends it by courier and waits for the approved document to be returned by email or courier.
In most cases, a requisition will require more than one person to approve it. Also, the amount that can be approved will vary depending on the grade and role of the authorised approver. The employee requesting for the payment would usually have to consult the intranet (or other sources of information) to know which combination of authorised approvers are required for the requested amount.
Documentation and Archival
A common requirement when making payments is the need to attach supporting document for the requested payment. If I am requesting payment for a vendor for services rendered, a sample document to be attached will be the vendor’s invoice and probably a job completion document signed by the beneficiary of the service. These documents are usually stapled to the requisition form and filed after being processed by finance.
In the event that there’s a need in the future to retrieve the documents supporting a payment, such as during an audit, the finance officers typically spend valuable time sorting through folders and archives. The older the transaction, the more unpleasant the search.
A key part of the finance department’s responsibility is ensuring that the business does not run out of cash and one way of doing that is having a budget and making sure every one sticks to the budget. This is often managed using Excel sheets that are updated when a request is made. The challenge here is ensuring every transaction is captured and everyone handling payments have the “right” (i.e. updated) copy of the budget.
Some organisations also have a strict vendor vetting process which ensures that all requirements for regulatory reporting on transactions done with vendors such as Tax Identification Numbers (TIN) are in place before payments are made to the vendor. This way, required reports can be easily generated on demand without having to chase the vendor or supplier for the required information after they have already been paid.
The primary objective of the process is to make payments and an ideal system will include the processing of the payment once the approval is secured. This would involve posting of the accounting entries for the payment into the organisation’s accounting system and issuing the payment instrument. This can be a cheque, bank draft or payment schedule for organisations with online payments in place. It is also essential that a copy of the payment instrument be filed along with other documents supporting the transaction for future reference.
Audit and Controls
A critical component of the payments process is ensuring compliance with the defined policies and controls in the organisation. The audit and control function is often done post-payment to ensure that there are no irregularities in the course of processing the payment. The success of this function depends largely on being able to retrieve information on what exactly transpired in the course of the transaction such as the documents used, the people who gave approvals and the timeline of events.
Tax Deductions (VAT and WHT)
Most transactions processed on a payment system have a tax requirements determined by the country in which the business operates. For example, in Nigeria, most transactions have a Value Added Tax (VAT) that is charged by the supplier and a Witholding Tax (WHT) that the business is obligated to deduct from certain transactions. Failure to properly deduct and record these taxes can have financial consequences in fines, penalties or lost revenue for the business.
As mentioned earlier, the finance department often works to ensure that the expenses incurred by the business are within budget, but as we all know, there will be unplanned transcations not included in the budget. The payment process therefore has to have a clearly defined procedure for extra-budgetary approvals to cover this category of payments.
Contract Management for Part-Payments
Contracts are often broken down into milestones for the delivery of the service or project contracted. The payments are then made on each delivered milestone. It is therefore important that when making payments, the finance department is able to track how much has been paid so far on the project and which payments are outstanding. We definitely want to avoid paying for the same milestone more than once or paying for a milestone not yet delivered.
Finally, an important component is the ability to generate reports on all payments made. There are different reports that might be required depending on the nature of the business. Some reports that come to mind include
- Summary reports of all payments made
- Budget utilization reports
- Tax reports
- Vendor payments report
As stated at the beginning of this post, I would like your opinions on the critical components of a finance payment process solution. Do you think I have left something out or have ideas on how to improve the components I have listed above, I would like to know in the comments.