Receivables in Lockbox Processing
As return on investment goes, ‘increasing cash flow and strengthening the bottom line’ is as good as it gets, particularly when it’s the corporate finance department that spearheaded the initiative. That’s exactly what is motivating the treasury managers for more corporate billers to outsource their receivables. Many of these corporations are finding their bank lockbox provider is rolling out receivables services, providing a single source for outsourced financial supply chain management. It also doesn’t hurt that the information capture and management enabled by many of these receivables solutions lightens the load of meeting onerous financial reporting regulations.
Outsourced receivables processing is not new, and it already enjoys some market penetration. Corporate customers outsource approximately 20 per cent of all business-to-business payments to a bank for receivables management. But receivables solutions now are playing a larger role in the lockbox processing portfolios offered by major cash management banks. With accounts receivable being the largest current asset on the balance sheet at most companies, according to The Institute of Management & Administration (IOMA), it’s no surprise that corporate billers are paying close attention. The driving forces behind this initiative: the intense pressure to reduce costs and facilitate straight through processing to enable improved cash flow, streamlined information capture, easier regulatory compliance, and enhanced corporate responsiveness and client service.
Among the receivables services now being offered by bank lockbox providers are:
The returns can be impressive. Strategic outsourcing of receivables management yields cost savings of 20-50 per cent, depending on the industry, reports the Journal of Accounting.
Similarly, IOMA estimates that companies spend $360bn annually processing business forms. Moreover, about 15 billion B2B recurring bills and invoices generated a year, and 96 per cent of them are still arriving on paper. With this large cost base, corporate billers can achieve significant savings by outsourcing their receivables to their bank lockbox provider.
But the biggest benefit for corporate billers may be the increased control and visibility that these receivables services provide. Once a corporate biller has its receivables data, it can do data mining, drill down into the information, access more meaningful reports, and electronically monitor what’s going on with its financial supply chain and even with its partners and clients. Users across the corporate financial supply chain – sales, manufacturing, shipping, treasury, collections, etc. – can far more easily access information for proactively addressing payments disputes and discrepancies and even preventing payments issues from occurring.
For banks, expanded receivables capabilities give them an opportunity to grow fee income from an otherwise mature product line. It also creates an ‘electronic tether’ between the bank and its customers, making it more difficult for a client to change lockbox providers.
Most importantly, receivables functions help keep the bank lockbox vital and viable. Together, they position a bank’s treasury services group as an integral part of a corporate biller’s financial supply chain management.
Companies using outsourced receivables services – whether it’s for data capture, payables, electronic payments or other A/R functions – often eliminate so-called information float, the delay in accessing receivables data. Outsourced receivables services also rein in substantial costs associated with reconciling lockbox transactions; invoice-processing costs alone have risen 37 per cent in the past four years, according to the IOMA. And receivables services can assist corporate billers in the timely resolution of payments exceptions, which cost the US economy $700bn a year, according to the Commerce Department.
Companies also can receive real-time information from invoices that can be integrated into their enterprise resource planning (ERP) and customer relationship management (CRM) systems or fed into industry-specific solutions that apply logic on how receivables should be handled (for instance, in the management of EOBs).
And once receivables data has been captured and archived, companies can use it to learn more about their customers to improve cash forecasting or negotiate better contract terms. It’s no wonder that 64 per cent of multi-national companies regard the digital mailroom – where incoming mail, including receivables, are digitally scanned and routed electronically – as strategically important, according to a survey conducted by Byline Research.
Corporate billers that outsource their receivables also point to less quantifiable benefits such as senior management spending less time chasing payments exceptions. A/R exceptions have a negative effect on nearly every department of a corporation: treasury, sales, record keeping, customer service, shipping, and manufacturing. With resolutions taking up to 120 days, these exceptions can adversely affect operations, suppliers, inventory turns, trade credit, borrowing costs, and day’s sales outstanding. To be sure, the information capture provided by the receivables solutions offered by banks can help speed the resolution of exceptions and plug the resource drain they cause.
If that makes senior management happy, it should also generate smiles in the finance department. Pressured by new regulations, finance executives are trying to get a clear picture of the financial life cycle and how they can get an overview of receivables regardless of department, location or payment type. The information capture and delivery capabilities that are built into next-generation lockbox processing systems provide much needed help here.
As an added incentive, more bank lockbox providers now offer receivables solutions especially designed for the unique needs of specific vertical markets. Health claims processing tops the list. Among their efforts: applying business rules for the handling of payments, automating the capture of industry-specific information on semi- or even unstructured documents, and working with third parties to resolve payments exceptions. Capturing data at a much more detailed level at the lockbox not only gives health care firms better insight into their receivables, it also streamlines reconciliation, billing and patient care.
Today, a growing list of bank lockbox providers offer a range of automated data capture service options, for structured, semi-structured and unstructured documents, such as invoices. These data capture offerings are typically the foundation of a bank’s receivables services.
Data capture at the lockbox is a boon for corporate billers, since it allows them to get at valuable customer information earlier in the receivables process – and at low cost. If there was ever an application that lends itself to the lockbox, this early access to information is it. Receivables information captured at the lockbox, and delivered intra-day, can trickle up through a corporate biller’s organization, feeding enterprise business intelligence systems, whether it’s A/R, ERP, knowledge management (KM) or CRM. This real-time information management can help companies replace manual system interfaces, improve payback on these expensive systems, and make better business decisions. A key component to any CRM strategy, as an example, is gaining a 360-degree view of all of a company’s interactions with its customers.
In addition, automated data capture at the lockbox makes it easier for companies to comply with Sarbanes-Oxley and other regulatory requirements. And having one source for both outbound billing and inbound data capture can deliver even greater operations efficiencies.
Industry observers agree that corporate billers, will next turn to their receivables management systems for integrated, straight-through and real-time information management.
Make no mistake: bank lockbox providers will continue to expand their receivables services. With only 20-25 per cent of business-to-business payments processed through a wholesale lockbox in the US, and corporate billers demanding more receivables information, bank lockbox providers that arm themselves with next-generation technology will have a great opportunity to acquire more customers for receivables outsourced processing – and position themselves for future growth.
The next frontier is for greater integration between receivables management and lockbox processing for tracking and managing the financial supply chain and optimizing complex payments. For bank lockbox providers and corporate billers alike, the return on investment will be ‘as good as it gets’.