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.

Merrill Douglas  |  Contributing Writer