MANAGING ACCOUNTS PAYABLE

BENCHMARKS & METRICS CASE STUDY

P-Cards and Electronic Payments Become Company's Preferred Means of Payment

"According to benchmark figures commonly used for purchase cards, an average of 70 percent of spending transactions are less than $2,000, but account for only 10 percent of the entire spend amount," says Mike Ruhm, manager of treasury compliance and controller of the e-commerce division at Mohawk Fine Papers Inc., headquartered in Cohoes, N.Y. "At Mohawk, we learned that 76 percent of our spending was under $1,000 and accounted for 5 percent of our total spend. By applying the benchmark for average savings obtained by p-card use, we knew that it made sense for us to consider their use," says Ruhm, a 10-year veteran at Mohawk. Benchmarking Identifies Opportunity Mohawk conducted benchmarking as part of a process review initiative to streamline operations and reduce costs. First, the company conducted high-level studiescomparing Mohawk's results with published standardsin orderto determine if the process changes it had in mind were worthwhile. Next, for the processes it chose to pursue, it mapped the process steps and assigned costs to each, so that the costs could be compared (for example, cost of check versus cost of ACH payment). The company also calculated frequencies for each process to help determine potential areas of cost savings and provide direction for rerengineering. "During the benchmarking process, we discovered that for most of our processes, we were pretty efficient when compared to otherorganizations," says Ruhm. "However, we did identify an area in which we could make improvements that would provide us substantial benefitsand that area was p-cards." Ruhm explained further, "For example, we learned that, for us, a p-card payment is 52 percent less costly than an AP payment using a purchase order and check payment. As a result, p-cards and electronic payments became our preferred means of payment."
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EDITORIAL ADVISORY BOARD

JON CASHER Senior Consultant, AP Advisory Services and Instructor AP Certification program; President, Casher & Associates Desktop Editor: MONIQUE NIJHOUT Director of Marketing: JIM SESTITO Editor: ELAINE STAHLER Contributing Editor: ANDY DZAMBA . Research Manager: BIKRAM GAUTAM Managing Editor: JANICE PRESCOTT President & Publisher: PERRY PAHERSON MARIANNE COUCH, ESQ. Principal, Cokala PAM MILLER AP Director, BMC Select and Instructor AP Certification Program

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SEPTEMBER 2010

MANAGING ACCOUNTS PAYABLE

P-Cards
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Company Seeks to Increase P-Card Use "We changed our purchasing policy and defined rules to make p-cards required for certain purchases," says Ruhm. "In addition, we identified opportunities to increase pcard use and increase the enrollment of vendors in the electronic payment program." In addition, "we also moved our travel card to the same bank we used for our p-card and negotiated a more attractive rebate contract. Credit cards must now be used for all but a few exceptions. This allowed us to reduce the reporting frequency from weekly to monthly. It also enabled us to change our receipt policy, to make reporting easier for traveland more efficient for the AP department," he says. "With the use of cards, AP ACH payments, wire transfers, and ACH debits, our electronic payment rate is over 90 percent," says Ruhm. "This is not only very cost effective but it also helps support Mohawk's environmental initiatives, which are very important to us," he says. "It mayseem counterintuitive fora paper manufacturer to move toward a paperless process, but conservation is part of our philosophyand our manufacturing process: All of the electricity used in our production process is offset by renewable wind power. Mohawk also has joined the U.S. EPA Climate Leaders program by agreeing to voluntary emissions reductions. Many of Coming in future issues of A/lonag/ng Accounts Payable: Successful businesses unlock capital trapped in inefficient functions. While the adoption of electronic payment vehicles requires businesses to alter their payment behavior and restructure their financial processes, the companies that make the shift will gain a competitive advantage.
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its products are designated carbon neutral. So going paperless fits very well into our social responsibility ethic," Ruhm says. Results Meet Expectations The increased use of p-cards, travel cards, and electronic payments has greatly reduced processing atMohawk. As a result, despite three acquisitions, the company has not had to increase the size of its accounts payable staff. "The p-card program produces a significant amount of revenue in rebates," says Ruhm. "P-cards and travel cards are well received by ourAP employees because they make their job easier." In addition, "the cards and electronic payments have helped with cash flow and cash forecasting," says Ruhm. "We are very satisfied with our resultsthey totally meet our expectations. I just wish we had done this sooner." Ruhm says the benchmarking process at Mohawk was so effective that "we continue to use benchmarking to monitor our program. There are already plans to initiate another companywide procure-to-pay process review." Editor's Note: Mohawk Fine Papers Inc. (www.mohawkpaper.com) has six locations and 750 employees. The AP Department has two full-time clerks and a manager who splits his time between AP, AR, credit and collections, and payroll. Mike Ruhm, CTP, CMA, CAPP, APM, CPCP, CPP, CBM, can be reached atMike.Ruhm@mohawkpaper .com.

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