The Right Way to Pay: Restoring Method to the Payment Madness

I’m here to share some advice on a problem that charter schools of all types face: choosing the right payment method for the supplies and services they purchase.

In my work at EdTec, supporting all types of charter schools, I often see the same problems around how to pay for supplies and services. School leaders want to be nimble and responsive to their team, but they also worry about managing the budget and following policies and procedures for the audit. Not an easy task!

Charter schools typically have several payment options:

• Requesting a vendor invoice — perhaps matched with an internal purchase order (PO) — and paying the vendor by check.
• Reimbursing employees or volunteers for purchases they make with their own money.
• Drawing from a petty cash reserve held at the school or central office.
• Using a debit card associated with a school bank account, or
• Paying by school credit card.

While there are reasons and occasions to use each of these, I strongly recommend using the invoice (and PO, if you have a PO process) and paying by check as often as possible!  Why? Consider the benefits:

1. Visibility into what you’re buying.
2. Documentation and authorization that clearly follow your financial policies.
3. Savings driven by consolidating orders and purchasing through contracted vendors.
4. Cash management — you can readily control when checks are written.

Because a well-run invoice and check process is centralized through your business staff, the ostensible drawback is that you are strictly controlling and slowing down the purchasing of materials and services. While this may feel limiting to people, you can address that concern by keeping a regular weekly schedule of ordering and negotiating fast shipment times with your vendors.

Another option is to use eCommerce platform like StaplesAdvantage.com or procurement software like Procurify that allow individuals to order through a single site and follow the approval process.

As for other payment methods, I suggest limiting their use to the needs they address best. Here are a few examples:

• Employee reimbursements: mileage and meals when traveling, fingerprinting fees and limited emergency supply purchases.
• Petty cash: making change in the front office for school purposes (such as to break a $20 or give change for the purchase of a school t-shirt), or to cover the cost of a product or service in a pinch, such as to pay an emergency plumber who only accepts cash.
• Debit card: if you already have a school credit card, there isn’t much need for a debit card, since it draws money directly out of the account, potentially bypassing internal authorization and increasing the risk of missing documentation. If you don’t have a school credit card, then see the “credit card” section below for some reasons you might need your debit card.
• Credit card: ah, a necessary evil that’s worth discussing in a bit more detail. So let’s talk plastic for a moment…

With so many digital purchases now executed online via credit card, it is nearly impossible to avoid getting a school credit card. Your job is to make sure credit card access is accompanied by a robust credit card policy! Think about both the card uses and the mechanics for your policy:

1. Who will have a school credit card? Keep access limited, perhaps only to the office manager, executive director and/or principals. Note that it’s likely that either the cardholder or someone else at the school will need to personally guarantee the card. It’s difficult for charter schools to obtain small business cards that do not require a guarantee.
2. What can be purchased on the credit card? Keep this limited as well, to things like travel expenses, team appreciation dinners, conference fees and specialty supplies. This can be a slippery slope, so be careful!
3. What cannot be purchased on the credit card? Make this list robust to show you’re serious, making things like curriculum, books, school supplies, computer equipment or technology, field trip entry fees, yearbook vendor fees and refills on the postage meter off limits to payment by plastic.
4. How will credit card owners document purchases? Among the best practices I suggest considering: requiring all receipts to be submitted within one week of the close of the credit card statement; outlining consequences if documentation isn’t provided (e.g., card usage suspended until receipts submitted); ensuring that purchases of a certain level are pre-authorized; and, ensuring card statements are reviewed by a supervisor. (For the sake of checks and balances, make sure your most senior school leader has a member of the board reviewing and signing off on his or her credit card statements monthly).

One final take-away regarding your financial operations: It’s okay to make purchasing and payment a little inconvenient! The slight inconvenience will help ensure that you are conscious of your spending, you are staying in line with your budget, and you have everything you need when it comes time for the annual audit.

About the Author

Dena Koren is a senior client manager for EdTec Inc., an Emeryville, CA, firm that provides financial, operations and data support to charter schools across the U.S. Prior to EdTec, Dena worked as a strategy consultant with The Boston Consulting Group. As a senior client manager, she works with a range of California charter schools, from new developers to 20-year-old charter schools. She helps her clients identify key indicators of their financial health, develop strategic budgets and manage them throughout the year, and course-correct when a schools’ financials are going off-track.