Can e-Billing Streamline the Invoice Reconciliation Processes?

When customers pay as billed, the process of reconciling payments is fairly straightforward. But if there are any exceptions, returns, changes, disputes, credits, etc., the cost of processing an invoice can increase two to ten times, according to the Gartner Group. These exceptions are not only expensive but can lock up valuable working capital and reduce customer satisfaction. Some CFOs say that exceptions are the rule, and that the manual handling and reconciliation of exceptions are just a normal cost of doing business. While it is true that exceptions can’t be eliminated, recent advances in e-billing systems can streamline exception and reconciliation processing by 50-80 per cent if implemented correctly. This not only reduces costs, but can also minimize the impact on working capital and dramatically improve the customer experience.

Exceptions are a one-two punch to normal reconciliation processes. The first challenge is understanding, researching and resolving the exception indicated on the invoice. The second challenge is to reconcile payments received to the invoice while accounting properly for any credits. To further complicate matters, typically one payment must be reconciled to many invoices (such as on payment for invoices of products and services from many subsidiaries). But it is important to reconcile correctly, particularly in today’s Sarbanes-Oxley reality where scrutiny on financial controls require proper accounting for every penny collected or credited. If not managed, these exception and reconciliation processes can quickly get out of control.

To illustrate, let’s use the example of an office furniture distributor who receives an order for 20 new office chairs from a building manager. When the shipment arrives, one of the chairs is the wrong colour, and the building manager would like to send it back. The attached invoice, however, was for 20 chairs. No problem, right? Well let’s just look at a few possible outcomes to see how this scenario can quickly escalate invoice-processing costs:

• The customer requests an accurate invoice before they pay. Often a customer will hold up payment on all items on the invoice (the 19 chairs that were the right colour), even though only one line item is in dispute (one chair that was the wrong colour). Usually the distributor only finds out when the invoice is due and the collections department calls to inquire on payment. When the customer requests an accurate re-printed invoice, the distributor must calculate, print and mail a new invoice – adding an additional four to nine days to their day sales outstanding (DSO).
• The customer takes credit and sends a “short” payment. This is another common occurrence in which customers send a partial payment – taking credit for the returned product. Although this is better than no payment at all, short payments can complicate the reconciliation process, particularly when the estimated payment does not match the actual amount due for the remaining items. How do you account for the over/under payment? What is the expense of reconciling this remainder and communicating the outcome to the customer?
• The office distributor would prefer to negotiate a lower price for the incorrect product rather than ship a new one. The office distributor knows that the expense of shipping a returned product back, as well as re-shipping a replacement product, might be more expensive than giving a 10-15 per cent discount for the chair with the wrong colour. Can the office distributor do this in an easy fashion that is well documented?

In each of the above cases, it’s easy to see how additional expenses can creep up in the form of reprints, additional delays, phone calls to the customer, and reconciliation difficulties. Six Sigma fans will recognize this as “variability in the process” – the largest contributor to unpredictable costs and quality variations in a process. Reducing this variability is essential in minimizing the costs of exception and reconciliation processing, and exactly where e-billing can be applied.

Let’s assume that the office furniture distributor had an e-billing solution that sent invoices electronically to its customers, and allowed customers to review, dispute and pay invoices on its web portal. The customer could dispute the one line item for the wrong colour chair, selecting “wrong colour” as the reason code, and would immediately be presented with a re-calculated invoice for the remaining 19 chairs. This accurate invoice would eliminate manual reconciliation for over/under payment. The e-billing system could also offer the customer a calculated discount to keep a chair shipped with “wrong colour”, proposing this resolution directly on the invoice. In all scenarios, the situation is resolved without need for a phone call and properly reconciled without any intervention.

Many financial professionals are finding that modern e-billing systems can be a tremendous asset for refining exception and reconciliation processes and accounting for 70 per cent plus of the ROI for e-billing systems. In nearly all cases, it redefines the “rule of exceptions” for the Internet era and streamlines the process for both organizations and their customers. Best of all, it keeps working capital as it should – working.

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