Charleston performs some background research on electronics. She finds that the use of electronics payments has increased substantially as the number of checks used in business-to-business transactions rose. . The use of paper checks decreased by 5% from 2006 to 2009. The estimated savings from use of electronics payments instead of paper checks ranged from 20% to 90%.

Since the accounts payable function issues all of its payments as checks, Charleston believes that there may be significant savings if the company made greater use of electronic payments. Charleston contacts the companys corporate banking representative to inquire about electronic payment alternatives. She finds that the bank charges an average of $0.124 per electronic payment. the bank also provides Charleston with a contact at a company that recently adopted electronic payments(identified as XYZ)

As a means to estimate the potential impacts, she contacts Company XYZs treasurer to discuss hot it impacted their staffing needs and costs is informed that company xyz averaged 2 minute In labor per manual check and only 1.5 minute for each electronic payment. For recurring payments, company XYZ experienced 80% timesavings annually. To support her analysis, Charleston requests and receives a report showing the number of the companys checks that are recurring to vendors as well as those to employees and business partners, which are good candidates for electronics payments.(see table 4)

Based on her preliminary analysis, Charleston estimates that the company can process up to 50% of its current payments electronically. Using the Results for Company XYZ as a proxy, she estimates that electronic payments would reduce processing time by 25% for each electronic payment. Payment. Since recurring payments require minimal work after initial set-up, the potential estimated time savings is 80%. Since 16% of payments are recurring, labor savings would be possible.

Charleston estimates that electronic payment processing would reduce staff, with associated reductions in salaries and benefits, and other associated costs. To estimate the impact on staff, she uses ten employees processing 600,000 checks annually and assumes that 50% of the payments could become electronic. To calculate the potential savings in salaries and benefits, she assumes that the staff reductions would involve less experienced staff and represent 15% of total salaries and benefits for accounts payable. She estimates also that there would be savings in personal computer (PC) costs, IT support, and other costs of $1,775 per employee. Additionally, there would be a reduction in postage costs in direct proportion to the reduction of the number of checks. These savings would be partially offset by an additional cost of $0.125 for each electronic payment that replaces a check. Further, she uses the information from Table 6, and estimates that severance costs would represent 15% of the maximum eligible severance for accounts payable.

Question:

Using the information that Charleston gathered on electronic payment processing, determine the potential staff reduction and calculate the potential annual cost savings from electronic processing of 50% of the accounts payable checks.

Charleston performs some background research on electronics. She finds that the use of electronics payments has increased substantially as the number of checks used in business-to-business transactions rose. . The use of paper checks decreased by 5% from 2006 to 2009. The estimated savings from use of electronics payments instead of paper checks ranged from 20% to 90%.

Since the accounts payable function issues all of its payments as checks, Charleston believes that there may be significant savings if the company made greater use of electronic payments. Charleston contacts the companys corporate banking representative to inquire about electronic payment alternatives. She finds that the bank charges an average of $0.124 per electronic payment. the bank also provides Charleston with a contact at a company that recently adopted electronic payments(identified as XYZ)

As a means to estimate the potential impacts, she contacts Company XYZs treasurer to discuss hot it impacted their staffing needs and costs is informed that company xyz averaged 2 minute In labor per manual check and only 1.5 minute for each electronic payment. For recurring payments, company XYZ experienced 80% timesavings annually. To support her analysis, Charleston requests and receives a report showing the number of the companys checks that are recurring to vendors as well as those to employees and business partners, which are good candidates for electronics payments.(see table 4)

Based on her preliminary analysis, Charleston estimates that the company can process up to 50% of its current payments electronically. Using the Results for Company XYZ as a proxy, she estimates that electronic payments would reduce processing time by 25% for each electronic payment. Payment. Since recurring payments require minimal work after initial set-up, the potential estimated time savings is 80%. Since 16% of payments are recurring, labor savings would be possible.

Charleston estimates that electronic payment processing would reduce staff, with associated reductions in salaries and benefits, and other associated costs. To estimate the impact on staff, she uses ten employees processing 600,000 checks annually and assumes that 50% of the payments could become electronic. To calculate the potential savings in salaries and benefits, she assumes that the staff reductions would involve less experienced staff and represent 15% of total salaries and benefits for accounts payable. She estimates also that there would be savings in personal computer (PC) costs, IT support, and other costs of $1,775 per employee. Additionally, there would be a reduction in postage costs in direct proportion to the reduction of the number of checks. These savings would be partially offset by an additional cost of $0.125 for each electronic payment that replaces a check. Further, she uses the information from Table 6, and estimates that severance costs would represent 15% of the maximum eligible severance for accounts payable.

Electronic Processing:

Using the information that Charleston gathered on electronic payment processing, determine the potential staff reduction and calculate the potential annual cost savings from electronic processing of 50% of the accounts payable checks.