Forte Financial Blog

Managing Cash in Tough Times / Receivables Strategies

The June CFO Magazine advises corporate treasurers on how to manage cash during difficult times. One specific suggestion is to keep a close eye on receivables:

Encourage quicker payment of accounts receivables by (1) not compensating salespeople until an order is paid for, (2) calling overdue customers when a bill is one day overdue rather than seven days overdue, and (3) using stop shipments with customers who haven't paid.

Yet most A/R departments are struggling to identify what their customers are paying for (because most payments and remittance information remain stubbornly paper based, e.g. checks and printed lists of invoices, deductions, etc.) and have arduous, manual processes to apply payments to their customers accounts. Thus the availability of A/R data is often delayed, making the data difficult to act upon in a timely manner. Many of the companies I know would gladly take the steps recommended in the article, if they could be certain that they had applied their customers payments in a timely manner and weren't calling  to seek payment or cutting off shipments while payment was stacked on an A/R clerk's desk. (Tying sales compensation to paid orders is one surefire way to get funding to revamp AR technology!)

The economic downturn will make these shortcomings painfully clear as corporate finance grapples with the painfully slow receivables process (and the data trapped within it). Perhaps the liquidity crisis is just what is needed to motivate more companies to consider electronic payment.

From Check to Electronic Payments: The B2B Outlook [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

From Check to Electronic Payments: The B2B Outlook [NACHA Payments]

Arlene S. Chapman CTP
Senior Consultant, Technical Services, Association for Financial Professionals
Daniel W. Ellecamp CCM
Financial Consultant, California State Automobile Association
Rue Jenkins
Assistant Treasurer, Costco Wholesale Corporation
Claudia Swendseid
Senior Vice President, Federal Reserve Bank of Minneapolis

Synopsis from Conference Program

The U.S. payments system is evolving rapidly from paper to electronic payments. How is this change affecting business-to-business (B2B) payments usage, which has long favored paper checks? Industry experts from the Association For Financial Professionals (AFP) and the Federal Reserve (FR) highlight results from recent research on the current state of B2B payments and implications for the future. How much progress has been made since the FR estimated B2B checks in 2001 and the AFP surveyed B2B payments practices of its members in 2004? Adding a "real world" perspective, two corporate practitioners discuss their B2B payment practices and rationales, and offer their "color commentary" on the AFP and Fed research. Panelists cover a range of issues including: (1) key barriers to greater use of electronic B2B payments; (2) integrating the payment with other financial processes; and (3) the outlook for B2B electronic payments adoption. Panelists also offer suggestions for action to accelerate the migration of B2B checks to electronic alternatives.

My Observations & Comments

This was another very good session - with seasoned corporates sharing their views alongside industry experts from AFP and the Fed. I won't attempt to capture all of the statistics as they are readily available from the Federal Reserve, previous presentations,  and AFP. Over all, B2B transactions make up 12% of non-cash transactions (10.9 billion) and 84% of the value ($156 Trillion). From 2000 to 2006 the number of check B2B payments declined somewhat, but not as quickly as consumer checks have declined. Cards are the fastest growing B2B electronic payments method, increasing at over 25% /year. ACH is also growing steadily, although not all B2B ACH transactions include addenda (remittance data):

Wires remain relatively flat in volume, although with the addition of remittance data in 2010 there may be a surge in usage.

Costco

Costco is gradually shifting its payments from check to ACH. Their challenge is that not all vendors have the ability to receive remittance data electronically and post it to their systems automatically. Costco makes electronic payments either by ACH or by Purchase Card. Pcards are very easy for Costco but challenging for the supplier as they have to pay interchange.

Jenkins from Costco likened corporate payment processing to a production environment in factory, just like building  a car on an assembly line. There are many opportunities to decrease waste and drive up efficiency. Electronic payments are very efficient, have less fraud, do not get lost (checks get lost), and the remittance does not get lost (like in a paper environment). In comparison, dealing with paper is cumbersome.

Costco runs checks daily today, but has considered moving to a model where ACH payments are run daily and check runs are limited to 2-3 days per week. Jenkins suggests that payment method be incorporated into the procurement purchasing and contracting discussion as each vendor contract is negotiated (or renegotiated).

At Costco Treasury advocates for electronic payment (either sending or receiving) and advises other departments (AR, AP, etc.) as they weigh alternatives.

Over time, as the Federal Reserve closes processing sites and image clearing continues to increase, the float benefit of checks will diminish, supporting the transition to electronic payment methods.

Cal State AAA

Over the last 5-6 years AAA has made an effort to transition toward more electronic payments. They tried a one card solution, but it didn't work as well for the purchasing department. Now they use both a T&E card and a purchase card. They also send ACH transactions without addenda in many cases, but follow up wiht remittance information however the supplier wants to receive it (email, fax, etc.). They also use a ghost card via Peoplesoft.

Ellecamp from AAA observed that it is much easier to send electronic payments than receive them. They have put little attention toward AR so far.

AAA tries to be as flexible as possible in sending remittance data to its suppliers "we give them every opportunity so they cannot say no." Ellecamp explained that by implementing ACH payment with key suppliers (glass replacement, car rental, body shops) AAA saves $100,000 a month and significantly streamlined its payables process. 

When asked how he would feel if suppliers mandated sending electronic payments to the AAA AP department, Ellecamp responded "I'd love that!"

Ellecamp observes that electronic payments are "not sexy, not exciting" and that he often has to cajole other departments to change their processes. But the savings are hard dollars that continue indefinitely (for years to come) and that's appealing.  He also advocates getting an advocate to support the cause, e.g the CFO. [I advocate marshalling the support of senior leadership, too. See more here.]

Both Costco and AAA agreed that better products from banks, particularly those that support small and mid-sized businesses will help ease the transition to electronic B2B payments.

>> Return to index of my posts from NACHA Payments 2008

The Return of The XML All-Star Team [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

The Return of The XML All-Star Team [NACHA Payments]

Susan Colles CPA, CBA
Senior Vice President, Bank of America
Robert Blair CCM
Vice President, JPMorgan Chase
Susan Boeri
Manager, Treasury Services, GE Corporate Treasury
Fred Laing, II AAP, CCM
President, Upper Midwest ACH Association
Leonard Schwartz
Director, ABN AMRO Bank

Synopsis from Conference Program

ISO 20022 XML messages for corporations and banks are now beginning to be exchanged on B2B interfaces on a daily basis. Corporations continue to seek automated solutions in order to increase their efficiencies and transparency of transaction processing. Banks have collaborated so that a consistent usage is applied to the message content, and they have worked with ERP vendors to validate the data support within the business applications. Discover the initiatives being advocated by corporations and the benefits they have realized with their ISO XML integration. Hear how U.S. clearing systems, including the ACH Network, are incorporating these standards into their processing environment.

My Observations & Comments

A survey by GTNews and ABN AMRO reveals that the needs of Accounts Receivable are still inadequately addressed by today's payments environment. Eighty-five percent of respondents feel that legacy EDI standards are not helping enough. 44% believe that XML is a promising solution for delivering dollars and data together. Standards are the only means to achieve straight-through-processing (STP) of payments and remittance data. 

The goal of ISO 20022 ("twenty-oh-twenty-two") is to facilitate transactions, not become the business process. It is syntax neutral (doesn't have to be XML, can adapt as technology evolves) and addresses a wide variety of financial business processes including payments, FX, trade, invoicing (under development), and securities. Thus far the payments transactions address credit, debit, and bank to corporate reporting. 

Will NACHA adopt XML for ACH remittance data? There is a great opportunity to leverage XML to include remittance data with ACH transactions. XML is less expensive to develop, easier to use, and easier to understand. NACHA has developed a business case for incorporating XML and formed a rules workgroup. A request for comment will be distributed this summer and all interested parties are encouraged to comment. The idea is not to replace the existing ACH formats, but rather to incorporate XML in the addenda records (there was much discussion on this point during the session). It doesn't make sense to reinvent the wheel, so NACHA is looking at the ISO 20022 version of XML, particularly as it is gaining traction as a global standard. 

Other uses of ISO 20022 In March 2009 NACHA will implement the International ACH Transaction (IAT Standard Entry Class Code) in order to address OFAC screening of transactions that involve parties outside the United States. The format of this transaction is based on ISO 20022. The Federal Reserve just announced that remittance data will be added to wires in either STP 820 (simplified EDI) or ISO 20022 format starting in late 2010. In addition, many banks are utilizing XML to drive the middleware layer between their various front end channels and back end legacy transaction processing systems.

File Mapping - SWIFT has published mapping guidelines to translate SWIFT FIN messages to XML and will shortly publish mapping guidelines for XML to IAT. NACHA committed to to the same.

Banks and Vendors Supporting ISO 20022 XML

Banks

Vendors

>> Return to index of my posts from NACHA Payments 2008

Getting to Know David Peterson of Goldleaf Financial [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

Getting to Know David Peterson of Goldleaf Financial [NACHA Payments]

Unlike the rest of my vendor conversations, David Peterson and I didn't talk about his company and its products (Goldleaf bought Alogent earlier this year). I reached out to him after seeing him speak at the TAWPI Conference last month and wanted to get better acquainted. We see eye-to-eye on the need to bring electronic payment functionality to small and mid-sized businesses in order to break B2B dependence on paper checks.

We also discussed the evolution of NACHA from a rules-based organization to its current product-focused strategy (I had just come from a small press gathering with the NACHA Leadership) and David shared his perspective. He voiced concern that the organization was less inclusive of vendors and the regional payment associations than it used to be. He is particularly unsettled by recent changes to the NACHA rules via the "administrative change" process that does not require approval or vetting by all of the stakeholders. Where they erred (in David's opinion) is that they used the administrative change rule option to change something that requires software changes.  This triggers two issues, one is that if a change requires a software coding change, by definition it is not an "administrative" rules change.  Secondly, the timeframe for an administrative change is short and asking all stakeholders to make software coding changes in the timeframe allowed for administrative changes is not reasonable.

I appreciate David's candor (although I imagine he is making the NACHA folks crazy) and look forward to more conversations in the future.

See also my notes from David's presentation on global deployment of remote deposit capture.

>> Return to index of my posts from NACHA Payments 2008

NetDeposit and the Future of Remote Deposit Capture [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

NetDeposit and the Future of Remote Deposit Capture [NACHA Payments]
 
After exchanging "small world" stories demonstrating all the ways that Danne Buchanan and I should have crossed paths before this week, we settled into a discussion of the future of remote deposit capture (RDC). By all estimates RDC growth is expected to continue for the foreseeable future, and NetDeposit is one of the industry's superstars, riding the wave of Check21 to offer remote check imaging and presentment solutions to banks of all sizes.

But as the industry matures, how will banks support the increasing number of RDC "seats" (scanners deployed at customer locations in offices across the country)? Banks are not in the business of supporting hardware and providing IT technical support to thousands of customer locations. As more and more banks roll out RDC capabilities and RDC migrates to the consumer market, how will the industry serve this base of customers?

One option is to go the route of credit card merchant acquiring, relying on independent sales organizations to sell to and provide servicing of RDC customers. Banks move one step away from their customers - and cross sell opportunities - but they avoid the headache of serving thousands of RDC seats. This scenario seems highly likely to me (and is already underway).

Another key development in the maturity of RDC will be how it is integrated with other payment channels (web, telephone, ACH debits and credits) in order to provide a holistic payment view to bank customers. Those banks that provide seamless reporting and exception management across silos will retain the most customers. And it's all about customer retention, in the end. After all, that's the big story with RDC - an opportunity to consolidate banking relationships regardless of the bank's footprint of physical branches. Robust product features will be the key differentiator.

For more on the future of remote deposit capture, check out this panel discussion at Bank Systems & Technology featuring Buchanan and three other industry leaders. See also this panel from the TAWPI conference last month.

>> Return to index of my posts from NACHA Payments 2008

WAUSAU's Evolving Remittance Solutions [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

WAUSAU's Evolving Remittance Solutions [NACHA Payments]
 
Kathy Strasser and I discussed the ways that WAUSAU is continuously evolving in order to meet the growing demand for paper to electronic payment solutions via remote capture, remittance, image/item processing and enterprise content management. Strasser is responsible for WAUSAU's remittance products, so naturally our conversation was focused on lockbox solutions.

WAUSAU has 48% market share across the retail, wholesale and "wholetail" (blend of one-to-one scanable retail-like items and more complex, non-scanable wholesale-like items) segments and is the leading source of ARC transactions (paper checks received at the lockbox and converted to ACH payments for settlement). With a long history of retail lockbox expertise, WAUSAU acquired DMP Payment Systems a year ago in order to expand its wholesale services. And, in its effort to meet the ever-evolving needs of its customers it announced a partnership with ClairMail to offer lockbox services via the mobile channel (more on that here).

The emphasis at WAUSAU is on providing solutions that act as an integrated, value-add extension to the corporate customer's receivables system, with workflow, exception processing, and document imaging to support core lockbox payment processing features. I cannot emphasize enough the value of offering a single platform for exception processing regardless of how the transaction is received for processing or settled.

WAUSAU offers remittance solutions via banks but also sells directly to corporations with volumes great enough to justify in-house or outsourced lockbox services. WAUSAU has optimized its solutions to meet the needs of industry verticals such as insurance, property management, utilities and is redoubling its efforts to support healthcare. The company will continue to build out industry specific capabilities through partnerships.

>> Return to index of my posts from NACHA Payments 2008

The Global Reach of Remote Deposit Automation [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

The Global Reach of Remote Deposit Automation [NACHA Payments]

David L. Peterson
Executive Vice President, Goldleaf Financial Solutions
Todd McGuire
Senior Expert, Global Concepts/McKinsey

Synopsis from Conference Program

Remote deposit capture has not only eliminated geographic boundaries within the U.S., but has also leaped across national borders and continents. In this financial institution case study, organizations interested in global remote deposit deployments learn valuable lessons and gain unique first-hand insights. Speakers examine logistics of global deployment, challenges to overcome to extend globally, impact on daily operations between countries, transportation logistics and costs, bridging differences in cross-border work flows, and the likely affect SEPA will have on work flow processes.

My Observations & Comments

Sadly, I only caught the tail end of this interesting session. Peterson and McGuire explored the pros and cons of remote deposit capture as a means to facilitate inclearing of US dollar check payments from all over the world. An estimated 10-15% of payments to foreign suppliers are checks (particularly mid-market companies that are less likely to maintain bank accounts in a number of countries) and the number is growing as International trade grows. Traditionally paper checks were couriered by foreign banks to US based correspondent banks for clearing, and funds availability varied considerably. With the enthusiastic success of remote deposit capture, many of these international checks drawn on US banks are being captured outside the US and presented as an image for payment under Check 21. No known rule or regulation prevents this.

There are three models: 1) The correspondent banking model (most widely used) leverages existing relationships between correspondent banking partners.For the US Bank, their customer is another bank, facilitating know your customer compliance, and the operational and time savings are clear. 2) The third party aggregator model comes into play when the foreign bank "doesn't get it" and utilizes a third party to gather and scan the checks for presentment. The aggregator makes money by offering availability sooner than if the checks were cleared via paper, not as soon as if the bank presented the items itself. 3) Direct deployment is the third and most infrequent model. Most banks are loathe to provision and support remote capture scanners to the offices of their multinational companies overseas. But in some cases where there are very few but very large check payments (e.g. the Middle East) a US bank will equip the local office of a large customer with a scanner.

The risks are genuine. Some banks have additional fees to cover OFAC suspect review (although whether the check is presented physically or via image, the OFAC risk remains the same). Returns risk for correspondent banking relationships are handled in a variety of ways, depending on the specific agreement between the bank partners.

>> Return to index of my posts from NACHA Payments 2008

OB10 is Middleware for the Financial Supply Chain [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

OB10 - ERP and FI Agnostic Global eInvoicing [NACHA Payments]

OB10 is a well established buyer-centric eInvoicing solution, but they are in the process of reaching out to AR as well as AP to offer ERP agnostic, electronic payment and remittance solutions for buyers and suppliers alike. OB10 supports any file "any-to-any data formatting" and supports client workflow solutions to route payment data for approval and dispute resolution as well as messaging between trading partners to help resolve problems with exception invoices. The company is developing more robust AR support that will provide electronic remittance files for posting to AR, as well as PO delivery and validation, and supplier financing support. These features will be rolled first in Europe.

I was struck by the openness of OB10's platform and how it is positioning itself as the middleware of supply chain finance. In order for B2B payments to transition to electronic in meaningful numbers, there has to be a way to seamlessly connect the proprietary formats utilized by banks, ERPs, and payment processors.

It is not surprising that OB10 perceives paper scanning and OCR as its biggest competitor. Recognizing that businesses have to manage a mix of paper and electronic transactions for the foreseeable future, OB10 partners with a document processing firm to handle paper. Yet the persistence of paper, and the introduction of data entry errors, only exacerbates the B2B payment challenge.

OB1o offers its brand name buyer customers supplier enrollment expertise, the "infantry" necessary to facilitate supplier implementation on a multinational basis.

>> Return to index of my posts from NACHA Payments 2008

ChoicePay's New Multichannel Electronic Payment Platform that Extends Remittance Solutions for Small & Mid-sized Billers [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

ChoicePay Offers a Powerful, new Multichannel Electronic Payment Platform that Extends Remittance Solutions for Small & Mid-sized Billers [NACHA Payments]

I am really excited about a new service from ChoicePay that will allow remittance vendors and financial institutions selling to small and mid-sized billers to quickly and easily add electronic payments to their lockbox offering. Elspeth Bloodgood, demo'd for me how ChoicePay has taken its multi-channel payment platform (kiosk, call center, walk-up retail, IVR, and online) and repackaged it for quick deployment via white-label solutions. The biller customer will receive a single stream of payment data (either via their remittance provider, or via ChoicePay) combining all payment channels and supported with Business Objects reporting capability.

The rapid provisioning of this tool blew me away. The solution is not only completely modular, but the onboarding process is a series of workflow-driven screes with validation alerts built in. The biller enters preferences to match its business process and adding a new payment method is remarkably simple. In the background, the parameterized ChoicePay engine drives the necessary web services. The ease of implementation means that small and mid-sized banks can offer a comprehensive payment solution to businesses with as few as 1000 transactions a month. ChoicePay will train the resellers implementation and product teams to deploy and support the solution.

The online interface can be customized to match the branding of the biller (adding a logo, modifying colors, etc. is as easy as formatting this blog - even easier). The solution is multi-lingual and the interface for a one-time payment is the same as for a recurring payment (you simply check a box to make the one-time payment recurring and can elect to turn off paper billing).

It's very cool. I'll be monitoring the uptake of this solution over the coming months and will post follow ups.

>> Return to index of my posts from NACHA Payments 2008

eGistics - Scalable, Flexible Hosted Document Management [NACHA Payments]

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

eGistics - Scalable, Flexible Hosted Document Management [NACHA Payments 2008]

I had an opportunity to speak with Bob Lund, CEO of eGistics, and discuss the company's transition from a payments-centric archive to a more holistic document-centric model, encompassing not just images of check payments but the accompanying remittance and correspondence, as well as other key business documents,  thereby enabling its financial institution and payment processing vendor customers to better serve the needs of billers and retailers.

Through its hosted business model, eGistics provides a scalable, secure, redundant document image archive to support payments applications such as retail and wholesale receivables processing, check processing/Check 21,medical payments processing (EOBs) and records management, and loan processing and management. Because it is a hosted solution, customers do not need to make a capital investment and simply pay a one-time fee to load each image. Subsequent viewing of the images is free, thus customers can predict their archive costs based on transaction volume rather than usage of archived images.

I was particularly impressed with eGistics workflow and business rules capability. Customers can define escalation procedures for the timely review and resolution of exception items. For example, a brokerage that receives a payment a their lockbox with a letter requiring exception handling can provide email addresses for employees that should be alerted with a link to the item for review. And if the initial contact does not respond, a second employee will be contacted. Similarly, if the deadline for resolution of a particular item is approaching, additional employees may be contacted.

eGistics is in partnership with ChoicePay (more on their latest offerings here) and US Dataworks, as well as other payment firms and many of the top financial institutions. The company has already gained traction within the healthcare industry and is well positioned to continue to serve the growing needs of that vertical.

>> Return to index of my posts from NACHA Payments 2008

Distributed Capture Panel Discussion (TAWPI Conference)

[I am in Las Vegas for the TAWPI Payments in Transition conference – these are my notes from one of the sessions. An index of all of the sessions and links to the rest of my notes is here. - EMc]

Distributed Capture Panel Discussion
Wally Vogel, President, Creditron
Mary Hockridge, Executive VP, NetDeposit
Brandon Kunz, Director of Product Strategy, Enterprise Payments Division, Goldleaf Financial Solutions
Charles W. Kelly Sr., formerly Senior VP, Huntington National Bank
Jon Reneslacis, Director, Product Management, VSoft
Moderator: Mark Brousseau, Brousseau & Associates

[program blurb] This interactive panel discussion features insight and advice from prominent solutions providers.  During the session, attendees will gain a better understanding of the latest technologies and strategies for remote deposit capture, payments automation and receivables management. The main focus of the discussion will be to detail the most important technologies shaping the market and the key trends and innovations that are changing the way information is captured, processed, managed and delivered 

My notes/observations:

It was great to re-connect with Mary Hockridge - we worked together on a distributed capture prototype for Wells Fargo nearly 10 years ago when she was with Carreker. Back then everyone thought we were crazy because banks and vendors were concentrating on consolidated, huge item processing sites and we wanted to capture images in remote branches. It was hard to find vendors who understood what we were trying to accomplish but Carreker and Panini got it and embraced it. Now Mary is at NetDeposit riding high on the remote capture wave and is a panelist this morning.

Q - How does your organization approach the distributed capture space?

Mary, NetDeposit - technology solution provider for check electronification products: remote deposit and image cash letter – either licensed and ASP. Resell scanners to bank customers and their end users (ordering, fulfillment, taxes, etc.), provide back room services for banks that want to outsource, and offer end to end marketing/sales tools for RDC to help customers’ product introductions succeed.

Wally, Creditron - End user remittance and wholesale lockbox. We are focused on what the check represents for the AR/cash application process. Scalability and flexibility to extend AR.

Brandon, Goldleaf - software for financial services, from small/community to top 10 banks. Recently acquired Alogent. Focus is on payments and deposit automation. Branch back counter, front counter, kiosk, ATM, all on one platform. automation rather than capture alone.

Jon, VSoft - privately held company. Doubled employees. Acquired a bank data center recently (former customer) to offer in house and ASP service. Mostly community/smaller banks + some top 25 and non-bank customers (gov't).

Charles, Huntington - Regional bank, 54 million in assets. Will share experience from transition due to acquisition of Sky Bank (which had in house service provider) vs. Huntington (which had an outsource model) - and lessons learned during re-evaluating the two strategies.

Q – Mary, where do you think we are in the evolution of RDC and DC

Mary, NetDeposit – Clearly RDC has gone through fast evolution from inception to adoption. Moving well into the mainstream. Analysts predict that by end of 2009, there will be 1 million remote capture installations live, e.g. sold scanner, trained, setup, and scanning deposits. The wild card is small biz and micro biz adoption. Huge numbers, but can service providers and banks, adapt their pricing, service model to match small biz (smaller budgets). Further differentiation of vendors to address niche industries (property management, insurance). Also non FI players (ISOs that sell merchant card products, and software companies that provide AR software for specific industries, direct adoption by insurance, broker/dealer with significant needs such that they go straight to technology provider, by-passing banks.

Q - Brandon what do you think the big story is for distributed capture?

Brandon, Goldleaf– The adoption of RDC hasn't gone as anticipated - thought full service applications were more likely than self-service applications. Makes sense that branch back counter was first, now moving to front counter/teller. Transportation and accuracy benefits. But eclipsed by remote deposit at companies of all sizes, rather than just top companies. Great opportunity for everyone.

Q - Jon, what is story in community bank market?

Jon, VSoft – Dominated by fear, maintaining traditional idea of being more nimble, closer to customer. Big banks have volume, can buy into new territories. Community banks feel pressure to protect and provide intimacy for customers – small businesses and sole proprietors. Use technology to enhance not erode customer intimacy.

Q - Charles, what about larger (mid-size) banks?

Charles, Huntington – go beyond large customers, even small biz. Target high net wealth customers with desire to make deposit from home office (coolness factor counts for them). Link with cash vault - virtual vault - or to capture remittance as well as payment. Or capture other key documents and store securely. Leverage platform investment and link to other products and services that the bank offers.

Q - Wally, what is the interest among companies you are talking to?

Wally, Creditron – Over the last 25 years, traditionally higher volume means a better business case. But with RDC the cost of trip to the bank amortized across a very small number of items, making the biz case look even better. Moving away from bricks and mortar, but how to bring client close to you if visiting the branch less frequently? Provide value add using information. Integrate deposit solution into QuickBooks, Great Plains, etc. 

Q – I am struck by how few lockbox providers are not offering distributed capture to wholesale lockbox customers, particularly B2B implications.

Wally, Creditron – It is starting to happen. Concern surrounding security and control. Lockbox operations management is nervous about extending scanning outside their controlled environment to remote site at customer location.

Q - Goldleaf, how much interest is there in distributed payments capture?

Today in branch, can accept deposit (payment) at teller line, scan payment and payment coupon. Read both and parse, validate data account number, determine principle vs. interest, and create a complete solution. How to apply to remote deposit as well? Add logic so that when scanning check, recognized that we've seen one just like this last month – same RTN, account number – and we credited it to Wally. So this must be a payment from Wally, too. Automate data population (acct number, etc). Smaller billers may not have coupons, so there may be more work to standardize.

Q Charles?

Charles, Huntington – We did remote deposit lockbox in 2005. Provider needs to interface with lockbox (or item processing system that looks like a lockbox). Company with software suite addressing RDC needs to integrate with lockbox vendor. But how do vendors determine who they want to allocate precious development dollars to interface with? [EMc comment – this where we can better standards to move payment and remittance data from one system to another, avoiding the need for custom interfaces.]

Mary, NetDeposit – The challenge is in enabling edit routines, intelligence of lockbox system in remote capture at client location. Customer has intelligence of business; lockbox software had check processing optimization expertise. Remittance capabilities are hard to control/optimize at customer location vs. the highly controlled lockbox workflow environment. There are usability trade-offs and automation tradeoffs The less that customer does, the less likely that here will be edit rule exceptions when the transactions reach the lockbox. By utilizing SaaS it is possible to distribute capture to corporate and have centralized - solid - process for exceptions. Allow end user to make corrections, repair their own transactions.

Jon, VSoft – I am a former lockbox product manager. For now, put aside customer that has a lockbox and is only trying to deal with a few strays that wind up at corporate office. But what about the customer that is debating whether to have a wholesale lockbox or handle myself, cannot compete with the mail float advantage of a lockbox. Scanning needs are greater than what a small, desktop scanner can address.  More appropriate for nuisance payments.

Q – Charles, how did you sell this?

Charles, Huntington – The company had a lockbox, but still received payments at corporate office. ROI was calculated for 9 months, but actually paid off in 30 days. Allowed customer to get huge payments (delivered to their office) deposited more quickly and got funds availability a day ahead. Most customers don't appreciate or understand mail float. Float savvy customers will want a lockbox in the right geography. Remote capture is appropriate for desk float. Appropriate for certain industries, e.g. healthcare offices.

Q – Billers: we aren't check processors. We outsource to you for a reason.

Charles, Huntington – A typical medical practice has one person does all office tasks: receivables, ordering, payments, organize meetings, etc. Help them save time, avoid extra errands.

Jon - vsoft - Why should I pay you when I am doing the work? Sales challenge is to find the value for each individual customer. Of a universe of ten possible RDC benefits, 1-2 benefits are most applicable for each customer. For instance, we had a customer whose office manager was really sloppy with the ten-key. They got $8 charges from the bank for out of balance deposits on a regular basis. They were sold on a remote capture solution that requires transaction balancing.

Q – billers are looking for a solution that drives receivables. Might be coupon, invoice - need that data yet we are using check scanners. How can industry address need to scan supplemental documents? Some customers waiting until there is a solution that addresses remittances.

Jon, VSoft - Initially treasury was excited about fast check deposit. Now moving on to the data integrity, and more value-add: Is it a local install, is it ASP? How do I administer users? Merchants are not item processors or document imagers. They have other responsibilities.

Brandon, Goldleaf - merchant customer with two scanners (one for check one for doc?). Who are we expecting to take on responsibilities of trained lockbox personnel? Will technology take up the slack as capture moves to customer locations?

Q – Wally, how do you respond? Biz model needs documents plus checks…

Wally, Creditron – Yes, customers are capturing both check and remittance data. What is the need for the data? The AR system needs it to apply the payments to the customer accounts. Ideally the solution is linked to cash application batch screen. Simply add a scan button to the screen they are already using - integrated with their usual process.

Q - Why can't we use page scanners instead of check scanners?

Mary, NetDeposit - Page scanners do not include MICR reading. So rely on optical recognition. NACHA rules have limitations if you use a device that does not recognize MICR. But the rules are fuzzy. As consumer capture becomes more prevalent, quality of the image becomes the primary issue. Skew, etc. Everyone downstream is subject to the quality of the image that is captured. Need affordable, accessible scanner price tag for heavy users as well as small, micro biz , down to consumer. Package in such a way that it is a natural purchasing decision for customer. In the early days, company treasurers agreed to pay $1000 for scanners up front. Not likely for other market segments.

Q – Wally, are you comfortable using page scanners for check?

Wally, Creditron - Not with current technology. [Mark interjects] It happens today, using OCR to read MICR. Leading vendors are doing it – [Wally continues] … but you asked me if I am comfortable with it. Different in a high volume shop with trained operators. In a small environment, capture is harder to control.

Brandon, Goldleaf - flatbed scanners have benefit over deposit automation because of remittance automation. But invoice is a whole different situation, with non-uniform format. Need more programming. For the deposit itself, you can use the image. Vendors are thinking about it (holy grail) because it makes deposit automation pervasive on a much wider scale. Comfortable in some situations. FIs using it today, but the non-MICR model has a different risk profile (have assets on deposit, know their customer very well).

Q - Billers have accused vendors of dragging feet on combined check + page scanning.

Brandon, Goldleaf - device support is fairly easy with only a few major providers of check scanners. But there is a wider range of page scanner providers. TWAIN provides some consistency. Do you want to optimize the current workflow (for which subset of customers) and integrate to QuickBooks or are you going to re-evaluate the paradigm and have deposit itself drive the transaction?

Q - Jon, what about your customers?

Jon, VSoft – I’d rather talk about consumer capture than billers – I have an intense internal debate about consumer capture. I love the idea from a technology perspective, challenge of integrating flatbed, the opportunity for consumers. I want to do it! But I get very few checks: $2 refund, $25 from my grandmother - how will banks make money on a consumer remote deposit product? Banks don't want to have anything to do it with it. Credit unions think vendors are too late. But where is the business case?

Charles, Huntington - he's right. No biz case on typical consumer. How many checks do you receive? Very few. But for high net worth customer the bank struggled to develop a product, but the customer demanded it! Developed product, established process/rules to govern check storage, etc. Some niche markets (talent management firms dealing with celebrities, for example). Vary by customer niche. But the delivery mechanism is key.

Brandon, Goldleaf - What options does the customer have with a $2 check? Mail to bank using a 42 cent stamp, drive to bank with gas at $4/gallon, or just throw it out? Value to consumer is huge (convenience) and huge opportunity to attract new deposit customers. Once BofA or WF introduces it, consumer remote deposit will take off.

Jon, VSoft - But until the scanner can give me a $20 bill I will go to ATM. A small dollar check is not urgent. I'll carry it around until I go to the ATM next. Banks by their nature are risk adverse; selling this to a consumer is hard. Who sells - teller? They aren't savvy. Hard to train sales force to sell RDC to customer: treasury, IT, receivables. Who can address consumer questions about availability? Technology interfaces?

Audience comment: no business case, occasional usage, huge support costs. Ouch!

Q – Will BOC meet expectations?

• Mary, NetDeposit - yes
• Wally, Creditron - no
• Brandon, Goldleaf – [didn’t catch his response]
• Jon, VSoft - yes, but expectations should have been much smaller
• Charles, Huntington - [didn’t catch his response]

Q - What will be the key differentiator in RDC?

• Mary, NetDeposit - reporting
• Wally, Creditron - integration with accounting/receivables systems
• Brandon, Goldleaf - tech has to do work, flexibility to integrate
• Jon, VSoft - matching to most prevalent uses of customers
• Charles, Huntington - open technology

Q - Are there too many RDC providers?

• Mary, NetDeposit - yes
• Wally, Creditron - too many similar providers
• Brandon, Goldleaf - yes
• Jon, VSoft - no, focused on separate segments
• Charles, Huntington - no

Q - Biggest mistakes banks make in implementing RDC?

• Mary, NetDeposit – not enough training of users, back office folks
• Wally, Creditron - central office rolling out standard, without taking into account varying processes, needs of their office locations/divisions
• Brandon, Goldleaf - not involving everyone (stakeholders within customer and bank)
• Jon, VSoft - training
• Charles, Huntington - not understanding full scope of solution

Q - What will be the big story in 18 months?

• Mary, NetDeposit - greater risk management, integration with authorization of checks for e-tailers/POS customers.
• Wally, Creditron - Remote deposit of cash (that's what our customers are asking for)
• Brandon, Goldleaf - intraday settlement, from 1-2 days to 1-2 hours
• Jon, VSoft - Businesses’ treasury departments understand least cost routing, and the best way to clear. But what about slower way to clear? They are interested in slowing down disbursements!
• Charles, Huntington - Technology emerges to allow integration of RDC in market segments we haven’t even considered.

>> Return to index of TAWPI conference sessions

Business Drivers for Payment Automation (TAWPI Conference)

[I am in Las Vegas for the TAWPI Payments in Transition conference – these are my notes from one of the sessions. An index of all of the sessions and links to the rest of my notes is here. - EMc]

Business Drivers for Payment Automation
Andrew Pery, Chief Marketing Officer, Kofax

[program blurb] Over the last five years, the role of accounts payables has changed dramatically. In the past, accounts payable departments were cost centers with responsibility for paying suppliers and updating the general ledger. Today, however, it is viewed as a critical function for optimizing cash flow and providing financial management support.  Driven by the need to improved efficiency and meet regulatory compliance mandates, accounts payable departments are striving to improve the services they provide for their organizations, while looking to reduce costs, increase efficiency and enhance business relationships.   In this presentation, Andrew Pery will explore these business drivers and how technology is evolving to reduce points of failure in the payment process, improve customer relations and drive repeat business. Pery's presentation will focus on five key phases of process: 

    * Early capture
    * Intelligent invoice recognition and extraction
    * Process transparency
    * e-invoicing
    * Data quality

[presentation]

My notes/observations:

Technology exists but integration is challenging.

Value of intangible assets “Physical assets are generally subject to decreasing returns while knowledge assets generally enjoy increasing returns because knowledge is cumulative –the more intensive the use of knowledge, the larger the benefits.” (source: Baruch Lev, Brookings Institution Press, 2001)

For example: 1) human capital, collective knowledge and wisdom of employees. How they interact with customers and suppliers. 2) process capital – enable and empower knowledge worker 3) customer capital – during relationship with customer, repeat business, customer loyalty.

Beware of cost of poor customer service. McKinsey study reveals that a nominal decline existing customer revenue can have major impact on profits. 5% decline in revenue from existing customers, results in 15% decline in profitability.

Customer- invoice, remittance = standard artifacts of business; predictor of repeat business, use data for competitive advantage.

How are organizations utilizing payment data? Not very well. Significant lack of visibility into payment – less negotiating leverage when entering contracts with suppliers; discounts/rebates/penalties, invoice status – working capital management is hampered.

Need integration.

AP spends a lot of time responding to inquiries (30%) – Have you received my invoice? When will I get paid? Rather than focus on resolving exceptions. Cost approx. $5-30 per call.

Invoice processing costs $80 – worst, $1 best (best requires EDI peer-to-peer, large provider with significant IT and small number of very large suppliers). Median cost is $11 per invoice.

Workflow – the real cost is exception handling and manual error corrections. In and outbound calls, invoice data clean up $20-40 per invoice for AP, $4-10 for AR. (See slide 6 of presentation for good diagram depicting average cost per element of workflow.]

What is the solution? Integrated, continuous channel for capturing data from various sources. A transactional vs. batch process. Capture invoice with email, fax, scanner, wherever it enters the organization. Capture and parse data – meta data related to vendor, date, inv #, dollar amount + line item information, what kind of document, determine status (no errors? Needs review/exception processing) is the PO number correct? – Use workflow to alert appropriate organizational contact (or supplier) to resolve issue.

5 possible ways to improve

1. Control paper flow – initiate early capture – when are docs scanned? AP 60% at end of business process (scan to archive, not as part of workflow). 71% respondents indicate they will implement early scanning. Yet organizations are decentralized, with offices in different time zones, locations, etc.
2. Reduce manual labor – capture data from document based on technology. Meta data moved to business application for matching and processing. Organizations (esp AP ) have not make use of it. Manual keying is labor intensive and error prone. Delays. Can’t get discounts. Intelligent doc recognition (requisition, PO, sales invoice, etc. – scan samples into system so system can infer based on doc layout and data elements)
3. Process transparency. Persistent, bi-directional dialogue with customers and suppliers – with access to image, analyze whether correct. Event based workflow to notify customer of exception or error. Push responsibility for resolution to supplier rather than AP. Provide supplier with acknowledgment that invoice received, notification of error, or acknowledgment that approved, processed and payment is forthcoming. Allows AP to focus on exceptions. Good service to supplier customers of AP.
4. Add electronic invoicing, too (2011 electronic expected to equal paper invoices). Hybrid solutions are necessary – receive invoices both electronically and paper. Similar workflow. 2-3 days to transmit paper invoice. Electronic 2-3 seconds.
5. Ensure data quality. Need highly reliable, quality data at every step in order to increase level of automation STP. Validate against PO

Savings = $22 savings per invoice.

Q – how far along in adoption of automated invoice processing?

Most organizations can capture invoices. Adding better doc recognition and proactive notification. Accelerated adoption of e-invoicing. But hybrid for many years to come.

Q biggest challenge?

Disparate technologies for capture, e-invoicing, notification – need to integrate in order to realize maximum benefit.

Q – How to encourage customers to send electronic invoice. They send PDF. That doesn’t really help. Okay, I’ve got an image.

XML version of document is most powerful, but not all supplier AR systems have capability.

>> Return to index of TAWPI conference sessions

Payments in Transition Town Hall Meeting (TAWPI Conference)

[I am in Las Vegas for the TAWPI Payments in Transition conference – these are my notes from one of the sessions. An index of all of the sessions and links to the rest of my notes is here. - EMc]

Payments in Transition Town Hall Meeting
Joseph Sass, Senior Regional Manager, US Bank
Jay Matyas, VP & Sr. Product Manager, PNC Bank
Steve Nugent, Director, Product Mngt., First Data Corp.
Ronald Victor, VP, Receivables Product Mngt.,JPMorgan Chase
John Mintzer, VP, Citizens Bank
Moderator: Mark Brousseau, Brousseau & Associates

[blurb] This lively panel discussion will overview the current payments landscape, highlight major trends in instruments, volumes and marketplaces and then will discuss how these trends offer both opportunities and challenges for financial institutions and corporations

My notes/observations:

Q what is the big trend?

Steve, 1^st Data/Remitco - Tipping point, in-house providers start looking to outsource as unit costs go up. As number of checks decrease. Most consumer checks processed in-house today. OS and lock in rate for 3 years. Hard to make business case internally – let go of something you’ve done for so long. Not easy, but right thing to do. Checks declining but consumer payments are increasing (10% increase over next 4 yrs). Prime market for Lockbox providers.

Ron, JPMC – certainly on consumer / retail side yet. Wholesale, gov’t – changes in receivables management. B2B single digit decline, but value is data from receivables. Receivables collaboration: single repository – lockbox, wires, ACH. Consolidated, not only by payment type but also across geographies. Invoice matching services are very important. [follow up Q – aren’t you competing against yourself? ACH vs. lockbox? A: Trying to find the right solution for each customer.

John, Citizens Bank – more expensive to run in house lockbox. One key area that billers should be looking to outsource – disaster recovery and contingency planning. Better to outsource than duplicate own facilities/resources. Go with provider that has multiple sites (one rational for citizens to os)

Joe, US Bank – retail volumes up a little bit YOY, at least at US Bank. Biggest challenge during transition (last12 months) is to keep very close eye on volume and match labor accordingly. Monitoring FTE on a weekly basis rather than monthly. Measuring items per hour. Very cautious on replacing open positions. Management of lockboxes is challenging – try to develop internal talent (promote supervisors) rather than taking months to hire managers from outside and paying a lot. Juggling match.

Steve, 1^st Data/Remitco – Labor is 60% of retail lockbox cost. Now that image, MICR, CAR.LAR not much more innovation on the way. This is it; won’t get much more cost effective.

Q. Services mix is changing. Move away from LBOX as deposit solution and more to data capture/receivables solution.

Ron, JPMC – Customers want 8.5 x 11 paper scanned. And if you can match it, even better.

John, Citizens Bank – incorporate changes to retail lockbox. Consumers want to pay in a variety of ways. But billers aren’t embracing whole spectrum of payment methods. How to incorporate into the retail lockbox? Debit/CC trans thru web interface, or thru IVR, or thru eCheck. Hyperlink from customer website to processor website (and then tie to retail lockbox data transmission). Fair amount of interest – particularly among billers receiving payments from Checkfree, Online Resources (keep fully electronic, rather than drop to paper). Utility companies are very interested – often attempting on their own, thru service providers. Very receptive to bank service offering, with tie in to retail lockbox.

Joe, US Bank – Correpsondence. No one wants it back. Scanning information and posting to bank website for billers to view. Don’t want rejected payments (unbalanced multis, check only) – want wholesale services on retail lockbox to handle exceptions.

Q – What about interest in Inter-day exception management?

Adoption rate is sky – rocketing. It’s in every RFP. No one wants paper back (package maybe processed next day, or second day, or even later). If can resolve same day and get funds same day. Improve customer performance, improve working capital. Used to think it is too hard for lockbox processor. But now expecting lockbox to handle.

Ron, JPMC – Retail lockbox have had it for awhile. In Wholesale offering for real estate, property management (specific verticals). Another key factor is paper truncation. Eco-friendly pitch to wholesale customers. Up-sell image services as green.

Q – Archive non-payment related documents, too. New product announced recently.

Ron, JPMC – doc management is non-financial scanning. Health care documents that gov’t wanted digitized. Back log + ongoing transactional support. Leverage existing platform. Started offering service because Pittsburgh Steelers wanted online archive of photos, press clippings, etc. approached JPMC who partnered with Kodak.

Distributed capture – rush to scan checks. But what about the other info? Scannable coupon, remittance, etc. Starting to be closer to wholesale lockbox services. In fact, JPMC is developing a distributed capture product that looks like wholesale lockbox product targeted for November.

John, Citizens Bank – Remote capture and remote capture developed separately. As yet, haven’t tied in capture of info into lockbox. Silo challenges.

Joe, US Bank – still haven’t consolidated. Lockbox and remote capture is separate.

Steve, 1^st Data/Remitco – Remitco is wholly integrated. Brokerage industry – lots of money, lots of branches. Big dollars sent overnight to lockbox processors. Can offer same day, fees are lower. Tied to lockbox. Checks and stubs. Can take full page docs and incorporate them but no one has taken them up on it yet.

Q – Where are we in automating healthcare payments?

Ron, JPMC – public sector (child care, parking tix,) created healthcare centers of excellence. Acquisition to bring to market faster; long sales cycles, customers have their one challenges (patient accounting software integration). EOB ICR templates to recognize information and creating image file to customer. Want to get ERA (835) elec remittance advice from customer. Varies by customer. Many hospitals with varying levels of adoption 0% - 80% direct to electronic. Huge market out there: $4 billion claims, 2 trillion dollars. But need to walk before you run, challenging environment. If you want to digitize paper and capture EOB – easy entry. But if you want to provide end to end solution, with claims management there are significant learnings. Two biggest players acquired by banks (JPMC and BofA).

John, Citizens Bank – retail lockbox, healthcare is pretty straightforward. Basic payments, strip data from OCR line and create 835 for hospital. Not as far down the path on wholesale side as JPMC. Working with vendor, trying to find better easy to capture info (image EOBs, claims matching on 837s)

Joe, US Bank – infancy. Two sites coming online with EOB processing.

Q - How well are lockboxes doing to create parallel processes?

Joe, US Bank – ops side. Complexity is being reduced. But challenge is for the product folks – how to position services, how to integrate. Create road map for product.

John, Citizens Bank – will get increasingly difficult on ops side. New responsibilities and lockbox becomes repository of data. Balancing, settlement, parsing of files. Checkfree files – parse to individual customer lockbox, ensure match to check deposits, and all balance to transmission to customer. Burden on operational area to ensure funds are good and information is good.

Ron, JPMC – increase in labor, for healthcare for sure. Decision management. How long store? When truncate paper? Notifications and compliance issues (broker dealers with SEC rules, HPPA for health care). Customers own compliance / audit

Steve, 1^st Data/Remitco – least cost routing – more demand from customers on how to handle clearing of items We hand off to bank,

Q – what’s going on with pricing? Retail perceived as a loss leader.

Steve, 1^st Data/Remitco - not at remitco. We do a pro forma on a deal by deal basis. Determine if you are making money. Larger deals with significant buying power, may purchase other services, leverage against potential loss for lockbox. Pricing is done with as much info as possible. % volume of each exception category to determine resource needs, swag at productivity rates, I’ve heard there is a loss leader, I believe there is a loss leader out there. Not at this table! Price is what makes the deal. We all offer relatively same services, in same locations, same equipment, same software. May trip and fall once and awhile. How quickly can you get back on your feet and make sure it doesn’t happen gain. It’s all about price.

Ron, JPMC – measure on variable basis, or fully loaded? 88% of respondents believe wholesale banking is profitable. Other electronic products with higher margin. Float, liquidity. Have to evaluate the total deal, total relationship. Stand alone, wholesale lockbox isn’t always profitable.

Q - Talk to me about float? How big a factor is it?

Ron, JPMC - Still pretty key. Measure on every deal we price. Included in our internal P&L measurement.

John, Citizens Bank – in our market, run against people who are giving away float, so we do too. Everything next day availability (retail). Difficult to be profitable in a retail lockbox (scan coupon check, single check only; wholesale customers wanting to be retail so they can pay less. Bringing huge volumes. Yet there is a big upfront effort to bring retail customer online (up front costs, testing, programming, scan lines, etc). Technology getting expensive for doing things outside what is typically retail lockbox. Hyperlink on customer location that allows cc trx processing (need too build interface to), eCheck gateway to ACH system, - always costs. Lot of things that work against profitability of retail lockbox.

Q – Business process outsourcers are coming into market - takeover bank or business lockbox servicing. Does this make sense, how do they make money?

Steve, 1^st Data/Remitco – evidently you can make money, people are doing it. Mature, declining market (extremely mature on the verge of ancient). But there must be a business case somewhere.

Ron, JPMC – makes sense for larger institutions. Indirect expense. OS and get off balance sheet. JPMC wants to be last man standing, work with customers to get rid of paper.

John, Citizens Bank – if vendor already has investment, adding incremental volume makes sense. New BPO entering the

Q - SaaS – getting corporate to do the capture. Is that a model you’ve looked at?

John, Citizens Bank – difficult operationally.

Ron, JPMC – remote capture, get beyond traditional footprint, compete where you could not historically compete. So applicable in wholesale. Perhaps buy less hardware.

Q Steve, what is biggest threat to 1^st Data/Remitco?

Steve, 1^st Data/Remitco – we joked about this all night last night. The decline in checks. We’re the largest processor of mail in consumer payments in the country. Will be billions for time to come, but it is declining.

Q – Ron, biggest threat to lockbox processors, like JPMC?

Ron, JPMC – We have a lot of market share that everyone is trying to pick at. Merger took care of some of that. We need to compete against non-bank providers. They don’t have to have a clearing system. Can use remote capture. Smaller banks can compete in mid-small biz. Positive – mostly large volume. 16% market share (BofA has more) but customers are still doing a lot of their own processing. But they won’t be forever, and that’s good for us.

Q – non bank competitors, intermediaries

John, Citizens Bank – look at what they don’t do. Incorporate into bank-centric offering. Decline in checks, competition of intermediaries Break down silos between paper and electronic. One track with integrated solutions for all types of payments.

Q - Biggest threat to operations manager,

Joe, US Bank – where do I start. Volumes and capabilities. Customer wants capability – if you can’t provide you won’t get business.

Q – impact of BOC

Steve, 1^st Data/Remitco – not that big a deal

Ron, JPMC, what is BOC? [laughter all around] Oh, back office conversion. No impact.

John, Citizens Bank – not much impact.

Joe, US Bank – none.

Q – 18 months from now what will be the big news in payments?

Steve, 1^st Data/Remitco – Image Capture – remote payment capture (tie in payment that someone gets in branch to AR transmission. Invaluable for billers and lockbox).

Ron, JPMC – online user experience, next generation remote capture, impact of paperless on workflow (vendor models currently setup for batches)

John, Citizens Bank – image exchange, new products in property management, broken down silos

Joe – continued consolidation of industry. Worried about adequate resources. Labor. Where are the talented young people that want to enter changing industry.

>> Return to index of TAWPI conference sessions

Convergence of Payments & Forms Processing (TAWPI Conference)

[I am in Las Vegas for the TAWPI Payments in Transition conference – these are my notes from one of the sessions. An index of all of the sessions and links to the rest of my notes is here. - EMc]

The Convergence of Payments & Forms Processing
Mark Fairchild, Chief Technology Officer, BancTec

[program blurb] This session will explore opportunities and challenges related to the convergence of document processing and payments automation. You will hear what’s driving convergence, what we can expect in the next five years, and how to position your organization to compete.

[presentation not available]

My notes/observations:

Turning attention to the OTHER documents – not just checks. What is driving convergence of forms and payment processing, what can we expect in next 5 years, and how can your organization position itself to succeed?

Why? Competition creates differentiated services and drives down pricing. Paper payments market is commoditizing – very difficult to differentiate, evaluated on price alone. Using new services to compete more effectively: RDC, forms technology.

Businesses always trying to improve efficiency. Paper is inherently inefficient. Whether application, letter, remittance document, invoice, etc.

Regulation and Legislation play a key role in enabling process improvement– payment truncation requires regulatory change (e.g. Check 21) but on the forms side, no regulatory governance. Unless requiring legal signature.

US Adoption – Check 21 is helping to remove the document/check barrier. Now processers can treat check just like other documents that have to be imaged. No longer two separate processes for checks and other supporting docs (application form, for instance)

Technology is another key enabler – network band width, more centralized IT (web, smart client), more computing power for lower price, both color and grayscale images for forms.

Forms technology is much better in last 5 years. Structured forms (always same e.g. tax forms) vs. unstructured (e.g. letter) vs. semi-structured (invoice, you know what is on it but unsure where) – continued improvement in management and processing of forms data.

A lot of paper out there. US far more than other countries, although declining. Businesses are trying to reduce paper-based transactions. But won’t be disappearing anytime soon.

Countries with high cost of labor are early adopters of technology. Scandavia (high) vs. US (medium) vs. India (low).

Fairly consistent evolution, regardless of country:

1. Regulation – gov’t legislation that image is okay substitute – truncation okay.
2. Technology investment – image
3. Volume decline – businesses prefer electronic transactions, rather than paper.
4. Outsourcing becomes prevalent
5. Consolidation of processors
6. Processors develop new services in order to differentiate

Norway and Sweden. 100% outsourced, were a handful now 1-2 processors left. Other markets, mostly outsourced, 2-3 processors left. But US is different. Thousands of banks (vs. dozen on other countries), volumes are huge (30 billion vs. France 2^nd largest with 4 billion). Smaller countries legislated a time line. US “enables” and relies on market forces. Fairchild predicts that US will still trend toward consolidation and outsourcing like other countries. Outsourcers, processing fewer and fewer paper payments (volumes decline) and look to form processing to add value to services offered.

Globalization continues, greater competition, new payment types.

96% of B2B invoices are paper (per AIIM)

Continued blurring of form and payment processing. More forms automation with higher degree of accuracy. Full text search archives and by product of processing. Support costs drive centrally hosted systems that support capture and key anywhere for all doc types (SaaS); remote deployment via thin client/smart client.

Extend digital horizons – digitize at first opportunity FORMS too. Move toward STP. What you cannot read through CAR, use remote key (low cost locations). Reach out to customers and suppliers (integrate in order to reduce exceptions) – push automation throughout the whole value chain, not just one segment.

Fairchild suggests that rather than silo’d AR, AP solutions, companies should develop Shared Services Operations – essentially an internal outsourcer for document automation. Benefits include

• Aggregate volume from different parts of organization
• Consistent approach to planning, compliance and business continuity
• Foster best practices centrally vs. attempting to drive consistency and process improvements across a number of locations
• Can be complementary to outsourcing (peak volume outsourced, or outsource keying only to arbitrage labor costs)
• Similar processes in three areas: order input, receivables (payment + remittance), payables (invoices) – aggregate all docs/forms in one shared service with one archive, sufficient volume to outsource keying, one integration with ERP/host. Easier integration with supplier/customer (one interface vs. multiple)

Look for provider that can do forms + payment (eventually you will want to capture forms) where is the first opportunity to capture.

Network of common input and data entry devices – anywhere: mobile, regional headquarters, local offices, central corporate office, mail room, etc.

Shared Service Center provides central visibility, audit, control and prioritization of work.

Leverage payments technology and operational expertise to address forms. Higher levels of automation, cost savings, and new services.

>> Return to index of TAWPI conference sessions

The Invoice Deduction Dilemma

The collections and receivables company 9ci hosted a webinar today on preventing and managing invoice deductions. Having spent many years in the trenches helping my clients overcome their receivables challenges, I know that invoice accuracy and promotional activity are major contributors to short paid invoices, particularly when selling to retailers. Disputes are often the least collectible of outstanding receivables (as much as 95% are disputed transactions are not collected) but they cause the most "noise" and customer service issues.

Customers short pay or dispute invoices for the following reasons:

• Inaccurate invoice - price is wrong, or quantity on invoice does not match quantity shipped.
• Discount terms - customer is eligible for a discount if they pay within a specified time frame. Customer pays later than specified, but takes the discount anyway.
• Freight - customer pays their own freight, but seller mistakenly includes it on the invoice.
• Compliance issues (relevant for some industries) - seller fails to provide shipping notice or include packing slip, resulting in a "fine" levied by the buyer and deducted form the payment
• Promotion/incentive programs - in many industries volume is driven through promotions (two for one, or deep discounts for a limited time period) that often lead to misunderstanding -- not only between the sellers sales/marketing departments and accounting team, but also between the seller, buyer, and intermediaries such as distributors. This wrecks havoc on collections teams.

Yet most credit and collection teams have limited influence over the factors that cause invoice errors. They can't ensure that orders are picked accurately in the warehouse, or that the sales department communicates promotional pricing and timing to distributors in a timely fashion. Thus, fostering collaboration between your receivables team and other departments within your organization is key to resolving disputes.

Jim Torongo, VP Credit at 9ci customer Hartmarx (HMX) shared how his firm successfully reduced invoice deductions from $3.5 million/year (nearly 35,000 transactions per year with customer disputes) to less than $1 million/year. Hartmarx uses 9ci to manage disputes as well as manage collections.

The key is to use workflow to route disputed transactions to various departments for input and use business intelligence tools to track resolution, root causes, and measure results against performance metrics. Tying the bonuses of supervisors in shipping/warehouse departments to quick resolution of disputes is an effective means of promoting shared accountability. Visibility to who is supporting  receivables/collections in their effort to reduce disputes and resolve them faster will be of interest to senior management once they realize the amount of money left on the table uncollected.

Research by PayStream Advisors indicates that  collectors spend only 20-45% of their time contacting customers to collect funds. The rest of their time is used collecting backup data, doing research, and analyzing disputes. By proactively capturing shipping documentation and customer agreement data (whether electronic via EDI or scanned paper documents) and linking the documentation to invoices collectors can focus on calling customers.

Learn more:

• 9ci
• Article in Business Credit magazine "Prevent What You Can, Manage What You Can't: The Role of Technology in Deductions and Dispute Management"
• Hartmarx

Corporate Collections Suffer as Economy Worsens

Today the National Association of Credit Management released its monthly Credit Manager's Index. For the first time since the index was calculated in February 2002 the combined manufacturing and services index has fallen below 50, indicating an economic contraction.

[Excerpt from CFO.com] accounts receivable departments have been feeling a major crunch. Credit managers told The National Association of Credit Management (NACM), which conducts the monthly survey, that they've had to send out more late-notice letters to clients, while others report customers asking for more time to pay. "Collecting receivables is becoming more and more difficult," a furniture vendor said. Added a grocer supplier, "Customers just don't want to pay current bills."

Credit Managers Index for the last 12 Months:

As companies struggle to collect cash, pressure to maintain working capital increases just as recent market gyrations and more caution among lenders restricts the availability of credit.

More info

• CFO.com article "It's Getting Much Harder to Receive"
• National Association of Credit Management March 2008 CMI Report (PDF)

Remote Capture: What's the Fuss?

Over at the TAWPI blog, Mark Brousseau asks Wally Vogel of Creditron What's the fuss over remote capture?

Wally responds as follows (emphasis is mine):

“The strategy of moving image capture to the point of presentment provides numerous advantages,” Wally Vogel president of Creditron, Inc., told me. “Obviously, there is the reduction of payment document handling and forwarding, and the associated lag time. This improves cash control and offers faster funds availability.”
“Beyond that, image capture at the point of presentment allows for greater control and audit capabilities,” Vogel added. “As soon as the document is scanned, it is captured and logged, and can be tracked through various processes for depositing, accounts receivable updates, and handling change of address requests and customer service inquiries, among other functions.”
With the proper systems in place, Vogel added, document images can be viewed from any authorized inquiry station on the network for customer purposes, within minutes of receiving the document. This means that data completion from image can be completed in a remote office or in a centralized location, providing greater flexibility while maintaining strict control and a complete audit trail for each transaction, wherever it is processed.
“One of the significant challenges of image capture at the point of presentment is the need to standardize rules, processes and practices across remote offices. Otherwise, users may not get the full advantage of remote capture,” Vogel said. “This may require a thoroug