Usually a small subset of payments is in exactly the same amount each month, and the payables department typically handles these payments by set­ting them up in the accounting software as recurring payments that require no three-way matching. Examples of such payments are rent, copier leases, and garnishments.

There are two problems with the automation of recurring payments. First, the computer system may continue issuing payments even after the underlying obligation has disappeared. Second, some payments may have es­calation clauses that call for changes in the recurring payment, which the ac­counting staff may miss if it is relying on the computer system to make payments. A few simple controls can alleviate these problems.

• Set up payment termination dates in the accounting software. Most ac­counts payable systems allow users to set a termination date on a set of recurring payments. If this is not the case, then create a list of payment termination dates and include it in the month-end closing procedure, so the accounting staff is forced to review it once a month.
• Create a payment escalation schedule. If a recurring payment has a scheduled payment change at some point in the future, include this in­formation in a central list of payment escalations and in the month-end closing procedure. This forces the accounting staff to review the esca­lation schedule every month.
• Terminate payments in the accounting software on escalation dates. Another way to remind the accounting staff to update recurring pay­ments is to initially set up recurring payments in the accounting soft­ware to terminate as of their escalation dates. This forces the accounting staff to review the underlying documentation and reset the recurring payment schedule in the accounting software. However, this control can backfire if the accounting system does not issue a warning that a pay­ment has been automatically terminated; if this goes unnoticed, the com­pany will probably miss the next payment entirely.

[tags]automate repetitive payments[/tags]