Effectively Managing Payments for Contingent Workers | DCR Workforce Blog

Effectively Managing Payments for Contingent Workers

benefitsWhen all is said and done, Accounts Payable (AP) is just about paying bills; right? But then, if profit is the ultimate goal of any commercial enterprise, paying bills is equal to money out the door. So, we need a strategy to see that the outflow happens in a regulated, strategic manner.  Payments for services, including payments to staffing agencies for the use of contract workers, adds additional layers of complexity, as payments must be coordinated with validation of the successful completion of work.  When done well, companies achieve some important benefits, like:

  • Retaining a certain level of cash to manage cash flows effectively
  • Reducing the cost of interest charges on funds
  • Avoiding late payment fees and penalties (using a lot of focus and skill)
  • Earning prompt payment discounts
  • Maintaining good relations with one’s suppliers, which in turn would ensure great customer service from them
  • Running operations smoothly without the need to employ a large staff
  • Reducing the average cost of processing an invoice, which could vary significantly – based upon the way the process is established and managed

For any accounts payable process, the invoice forms a key document which represents and defines most accounts payable processes. An invoice has no standard format and can be customized to the requirements of each internal organization.  However, that flexibility can also make it prone to human error in the form of clerical mistakes in preparing it, and even when receiving, validating and confirming payment against it.

Some best practices which help to avoid negative consequences would include:

  • Make sure that invoice numbers and dollar amounts are tracked when making a payment, logging the invoice when received in order to easily verify that the invoice is an original and not a duplicate.
  • Check that the vendor has a 1099 or W-9 to make sure that there is no violation of taxpayer duties.
  • Establish a fool-proof way of numbering the invoices.  This is critical when implementing a cross-verification process in which more than one person must authorize payment.
  • Define clear procedures for handling invoices charged against closed charge numbers or split across more than one cost center.
  • Establish formal processes for error correction.
  • Wherever possible, audit the process.  When contractor time is approved, can your system automatically generate an invoice, eliminating redundant data entry?
  • It is equally important to ensure that the process followed is well documented, and creates an audit trail – allowing for verification.
  • If necessary, provide the required training to suppliers on your invoice processing system.

If the process is bungled by either side or both sides; we could see consequences in the form of

  • Missed discounts for early payment Duplicate payments of freight charges, sales taxes and use taxes.
  • Inflated transaction costs as extra handling is required to investigate claims and resolve errors.
  • Incorrect financial statements and budget exercises leading to severe consequences for financial misdemeanor and malpractices, when the company happens to be a public entity.

Mishandling of invoicing and supplier payments always ranks near the top when identifying sources of dissatisfaction between companies and their staffing agencies.  It is important to keep in mind that most staffing agencies pay their workers weekly while being paid monthly (at best) by their customers.  Many depend upon a line of credit, incurring interest charges for the use of that money.  It is critically important to suppliers that a highly accurate, timely and seamless process for invoicing and payment be established.  The effective management of your back-office may be the determining factor regarding whether the relationship is beneficial to both parties, and to your suppliers’ commitment to delivering the best available talent.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.