E-Commerce Pays

An Internet-based payment system in Maine saves time and money while satisfying vendors' needs for disbursement information.

by / April 16, 2002 0
Along with payment, vendors that sell to the public sector often need additional information. Sometimes a simple invoice number will do the trick; sometimes a firm needs much more detail to account for a transaction.

State agencies in Maine have found giving vendors disbursement information difficult and expensive. "We hear stories of people within agencies who are dedicated to answering phone calls from vendors," said Terry Brann, Maine's deputy controller. The phone operators read from lists of payments, asking what each payment is for.

The problem is especially tough when dealing with the 5 percent of payments Maine has traditionally made electronically. Paper checks are easier to use because they can carry supplementary information on their stubs, whereas electronic payment methods typically don't offer that option. But cutting and mailing a check is costly. "Many people touch it, and the whole process is very time consuming," said State Controller Carol Whitney.

Wanting to give vendors better disbursement information with less effort and expense, Maine piloted an Internet-based payment system from Clareon Corp. last year. The state government is now working to get its 500 largest vendors to join the payment network.

Clareon's PayMode system allows a payer to transfer money and supplementary data to vendors using public key infrastructure (PKI) technology to ensure security. Unlike payments via electronic data interchange (EDI), PayMode doesn't require banks to join the trading network or install special software. PayMode is less expensive to use than wire transfers or corporate credit cards, and unlike those systems, it allows the disburser to transmit as much detail about the payment as each vendor requires, said Paul Walsh, chairman and chief executive officer at Clareon in Portland, Maine.

PayMode grew out of a system that a consortium developed for the U.S. Treasury in the late 1990s. BankBoston led the consortium and continued work on the system after the federal government conducted a small pilot. When the bank merged with Fleet Financial in 1999, it decided to spin off the organization building the application into a new firm, Clareon Corp.

Quick Start

When Maine decided to test PayMode last spring, the state was sending paper checks to 95 percent of its vendors. The state was encouraged to try a pilot because it could easily get the system up and running with a small group of vendors, Whitney said. PayMode integrated easily with Maine's enterprise resource planning (ERP) system.

Clareon installed an application on the workstations of employees in the state's Bureau of Accounts and Control (BAC), who approve agencies' payments. The state also had to tell Clareon how much money each state employee using the system was authorized to spend.

State employees who generate payments enter data for vendors enrolled in the PayMode network exactly as they do for those that aren't enrolled. Vendors receiving payments through PayMode have to be set up for electronic funds transfers, but once that is done, the method for authorizing payments to the vendor is unchanged, according to Joe Klapatch, accounting team leader for the ERP system.

Clareon and the state worked out a method for exporting a list of payments from the accounting module of the ERP. "Our central system creates a file that is submitted each day automatically to a server, picked up by a local user here and then imported to the Clareon system," Brann said. Along with the amount to be paid, the file includes the vendor's invoice number and a line of text to identify the transaction. Users in the BAC office log onto Clareon's Web site to authorize the payments.

Clareon transmits the disbursement information to the vendor. At the same time, it issues debit instructions to the state's bank and credit instructions to the vendor's bank through the Federal Reserve's Automated Clearinghouse system.

Creative Office Pavilion (COP), which sells office furniture and equipment, receives an e-mail each time the state pays the company through PayMode, said Al Glazier, regional operations manager in COP's Portland office. Glazier logs into the Clareon site to see a list of the payments made each day, broken out by invoice number.

Wanted: More Detail

With the pilot completed, Maine is now recruiting more vendors to use the network. Of the state's thousands of vendors, BAC is first pursuing the top 500 -- those responsible for the most transactions or the greatest total payments. Vendors include government entities that receive state funding, such as municipalities and public colleges, as well as companies that provide goods and services.

"It's not anything you have to force anybody to do. Once they understand the business case, it seems to sell itself pretty quickly," said Jim Doyle, director of operations and technology of the Governor's Office.

Vendors who haven't joined PayMode say it's largely because they need more information than an invoice number and a line of text. PayMode can handle all the disbursement detail its users need, but Maine is searching for an efficient way to direct more information into the system.

When the state's Department of Human Services makes a Medicare payment to a physician, for example, the accompanying information is detailed and complex. DHS and other agencies generate payments in their own management systems and transmit that data to the central accounting system. The agencies' systems also produce large amounts of payment remittance information, which, today, they send to vendors directly, rather than through BAC, Klapatch said. "Traditionally, that data has not come into our accounting system, because there really hasn't been any need for it."

The challenge Maine faces now, as it signs more vendors onto PayMode, is "how to channel that data in an electronic format through the accounting system and out with these Clareon payments," he said.

Despite that problem, government officials in Maine look forward to a quick return on their investment. Although BAC has not yet calculated what PayMode is saving the state, the benefits of the system are obvious, Doyle said. "If we're doing several thousand transactions with a municipality per year, and [using PayMode] means phone calls and data entry don't have to happen at both ends of those transactions," the savings could be enormous, he said.

As a bonus, because it provides secure transmissions with digital signatures, PayMode could also help Maine comply with security provisions in the federal Health Insurance Portability and Accountability Act, Doyle said.

On the vendor side, COP has seen improvements as well. When Maine paid COP by check and some information fell through the cracks, it sometimes took days to discover the problem and many phone calls to solve it, Glazier said. Now, "it's helpful that I'm seeing the invoices coming in each day, and the dollar amounts," he added.

Also, cash flow improves when a vendor receives electronic payments, rather than watching for a check to arrive by mail, taking it to the bank and then waiting for it to clear. "We're saving probably 10 days just in that process," Glazier said.

Maine has won praise for its accomplishments in digital government. Along with high-profile projects such as the state's Web portal, Doyle pointed out, back office e-commerce initiatives offer a great deal of value. "This is one of the areas where we think there are real cash efficiencies in technology."

Merrill Douglas is a freelance writer based in upstate New York. She specializes in applications of information technology.
Merrill Douglas Contributing Writer