Executive Summary

In implementing and deploying complex technologies, enterprises often engage the services of strategic partners. As contrasted with either pure technology companies or consulting firms, banks offer a number of advantages to the enterprise as a strategic and solutions partner for implementing, deploying, and operating an electronic invoice presentment and payment (EIPP) solution.

With a bank-driven EIPP solution, the bank is the chief contact point for the enterprise. This does not imply the bank also develops, maintains, and delivers the actual solution. In fact, third parties provide many of the technological solutions offered by banks today. This is an effective and necessary division of expertise and labor, where the technology company’s role is to develop the best possible EIPP systems that current technologies can support. The financial institution’s role is to help the enterprise implement those EIPP solutions, integrate the solutions with related cash management offerings for better overall service to the enterprise, and to maintain fiduciary responsibilities to parties on both sides of the transaction.

Thus, in using the bank as an integration point for a separately provided EIPP solution, the enterprise has the best of both worlds: obtaining best-of-breed solutions from technology providers, while leveraging the trust and other key attributes the enterprise already gains through its bank relationship.

The Value of EIPP

Current EIPP solutions offer compelling value proposition. A number of studies have presented potential costs and cost savings. Although the studies differ on the specifics, all demonstrate the same magnitude of savings. Figure 1 shows some sample EIPP cost and savings figures for the buyer and seller.

Figure 3 – Cost Savings Potential from EIPP
*Assuming 12 billion invoices per year. All figures in U.S. dollars.

In addition to these hard cost savings, EIPP provides several distinct business advantages²:

• Accounts receivable (A/R) and accounts payable (A/P) processes are streamlined in several ways, including electronic invoice distribution, automated approval routing, and payment scheduling.

• Reconciliation of AR and AP subsidiary ledgers is facilitated by including electronic remittance information as part of the payment.

• The use of cash management services is expanded to include much more financial activity done by the enterprise, thus integrating more of the activity under one reporting stream.

• Overall payment cycle is shortened, giving the payer more time and control over the use of payment terms and discounts.

• Control and risk management is enhanced in the issuing of payments, avoiding late fees and penalties, reducing the opportunity for fraud, eliminating the risk of duplicate payment of invoices, and minimizing lost checks and stop payments.

• Relationships between buyers and sellers are often improved; facilitated by EIPP capabilities, such as electronically assisted dispute resolution, enhanced channels for person-to-person communication, and improved workflow processes, including the handling of disputed invoices.

• Superior integrity of receivables, allowing for securitization, factoring, and other capitalization options.

• Enhanced accuracy and timeliness of information through improving data management, automating information flow, eliminating manual data entry, and allowing for “hands-free” processing.

The Ideal EIPP Model

Consider the elements that comprise an ideal EIPP solution from the enterprise’s view. The global features of such a solution include:

• Integration with back-office systems and ERP systems. This component is necessary in order to offer a complementary technology rather than a disruptive one.

• Support for the enterprise’s role as both a bill collector and payee. In short, it should be noncommittal with regard to this distinction.

• Support for legacy data integration, using open public protocols.

• Integration with existing financial institutions.

Buyers and sellers can transact directly with each other or as an option via an intermediary, such as a marketplace (Figure 2). Regardless of the type of interaction, a financial institution lies at the center, using the technology provided by a partner:

• Seller: The seller is responsible for providing the goods or services to the buyer, and for presenting the invoice to the buyer. The seller needs to integrate the EIPP system with the A/R back-office system, the processes for dispute resolution, and the systems for processing the payments.

• Buyer: The buyer is responsible for processing, verifying, and approving the invoice following the buyer’s internal processes, and for approving the payment. The buyer needs to integrate the EIPP solution with A/P processes, dispute processes, and payment processes.

• Financial Institution: The financial institution can facilitate the invoice presentation, provide the payment mechanism and related data to facilitate reconciliation, and offer value-added financial services to buyers and sellers.

• Technology Partner. The technology partner provides the software and/or hosting of the computerized processes.

Figure 2 — Buyers and Sellers Interaction Options

Of course, technology providers may deliver the EIPP service directly to the enterprise, rather than indirectly through the bank. Either way, the bank plays a direct role in the transaction process if only to manage the payment, cash management, settlement, and reconciliation. However, because EIPP is a natural extension of what the financial institution is already doing, the bank as provider of the service can deliver better comprehensive service overall encompassing:

• Receipt and reconciliation of the payment.

• Settlement dispute resolution assistance.

• Related cash management services, such as payables discounting or receivables-based lending.

• Integrated services, such as wholesale lockbox and controlled disbursements.

The Bank’s Role in EIPP Implementations

The bank’s specific role in an ideal EIPP solution depends on the specific deployment model. Ideally, the bank supports either a one-to-many configuration (i.e., a private exchange offered by one enterprise to its trading partner community) or many-to-many model (i.e., an open hub connecting any buyer to any supplier).

A single enterprise (whether buyer or seller) uses the bank to deploy EIPP to its trading partners via a one-to-many model. A buyer-driven example of this model is an automobile manufacturer and its component suppliers. A supplier-driven example could be the same automobile manufacturer deploying EIPP to its dealer network. In either case, the EIPP solution is typically enterprise-branded with the bank and its technology partner operating in the background.

In the many-to-many model, banks serve as a specialized marketplace for invoice presentment, payment, settlement, and related financial services, in short becoming the hub through which invoices and payments flow among many buyers and sellers.

In this context, multiple buyers and sellers trade with each other via a marketplace or directly. The financial institution, in its marketplace role, acts as an invoice consolidator and settlement aggregator. Financial institutions excel at this because of their expertise in payment systems, lockbox processing, and providing remittance information for payment and account reconciliation. Institutions are also neutral in the role taken by the enterprise and thus reflect the reality of the enterprise by acting as either buyer or seller. Finally, banks are in an enviable position as the acting guarantor of the transaction, ensuring completion to the satisfaction of both parties and establishing a contractual trust relationship between buyer and seller that is crucial to the success of any public exchange.

Figure 3 — Deployment Models Supported by Banks

Banks as Ideal Partners for Invoice to Settlement

Banks provide a variety of services without which enterprises could not function. As such, banks are in an ideal position to act as the hub or chief integration point for business-to-business (B2B) as well as business-to-company (B2C) technology solutions. The activities a bank can perform take EIPP beyond the functions of electronically presenting an invoice and processing a payment. The aggregate of these activities constitute the settlement of the transaction, including the provision of mechanisms for dispute resolution, cash management reporting, integration with back-office systems, debiting and crediting of accounts, financing, and so on. In fact, the use of banks as EIPP providers to the enterprise takes EIPP to the next level of electronic invoice presentment, payment, and settlement (EIPPS).

There are a number of benefits to an enterprise when obtaining EIPP from a bank:

Banks Are Key for Driving Adoption

Many of the barriers to adoption come from human elements in the deployment. Financial institutions can aid a great deal in helping an enterprise overcome these barriers by guiding the implementation to integrate new technology within the context of current systems and procedures wherever possible (for example, tying EIPP directly to lockbox operations).

Among possible barriers a bank’s presence can overcome are: lack of acceptance by the enterprise and its trading partners, perceived lack of cost-effectiveness of the EIPP solution, organizational resistance to change, and a perception of untested fragile technologies and inexperienced partners. Banks can help minimize or eliminate all such barriers.

Leveraging the Bank’s Existing Services

Banks are genuinely relationship-oriented. Although banks provide a number of processing services for enterprise, above all banks examine the overall customer relationships in order to provide as many services as possible. Several benefits accrue from this orientation:

• EIPP integrates into existing services, such as lockbox where payment remittance data is directly tied back to the EIPP application. EIPP uses the bank’s existing links to payment and remittance processing systems, including ACH, FEDWIRE, and SWIFT.

• EIPP also complements other products and services the enterprise already uses from the bank. These products then do not require integration directly into the EIPP solution, such as bridge financing.

• With greater integration, and use of more services, the enterprise can negotiate for more favorable fees as well as other considerations.

Using the Bank’s Customer Orientation and Expertise

Because a bank’s customers are both buyers and sellers, the bank is neutral. It must treat both with the same orientation toward service and satisfaction.

The expected areas of expertise from a bank include effective risk management tools and various financial products, such as trade financing and letters of credit. Banks also have enormous expertise and processing capability in high-volume transactional environments, including check clearing and electronic debiting. Because EIPP is typically linked with ACH processing, the bank also can seamlessly integrate EIPP payments with the enterprise’s other streams of ACH activity.

Extending the Bank’s Security Orientation

In a recent survey asking respondents about customers’ concerns with regard to electronic invoicing almost one out of five cited “discomfort with the Internet and security.³” Banks understand the need for and have been implementing secure electronic solutions for decades. More than most entities, banks understand that security is contained not only in the correct technology tools, but as a part of the fabric of daily business activities. Additionally, banks are an extensively regulated business in North America. The regulatory environment as well as the requirement to maintain fiduciary responsibility in all interactions with clients reinforces an orientation toward security. Banks are likely to have higher standards for fiscal risk management, business continuity, and disaster recovery than technology providers.

Leveraging the Bank’s Total Relationship

Having the bank at the center of an EIPP solution reinforces its role as a true business invoice-to-settlement hub for the enterprise:

• The enterprise has a long relationship with its banks and banks have more at stake than a single technology provider. The bank has, at its core, a firm and strong relationship model with the enterprise that is difficult to match.

• The enterprise already has a number of master legal agreements in place with the bank in connection with using the bank’s services. Getting an EIPP solution from the bank merely extends the legal agreements, rather than having to negotiate a separate legal agreement with a different entity, such as a technology company or a consulting firm.

In its role as a point of contact, the bank can act as the EIPP coordinator between the enterprise and technology provider.

Conclusions

To make an informed comparison between a bank-provided EIPP solution and one obtained directly from a technology provider, the enterprise should develop criteria for decision-making, at a minimum, in the areas listed below. Among these criteria are:

• History and Size. This reflects the stability of the institution and the extent of its local presence. Many banks have been in existence for generations, while technology companies offering EIPP solutions have been in existence for less than a decade.

• Relationship. The relationship the enterprise currently has with the institution, including the type of legal agreements already in place as well as understanding the nature of the enterprise’s business, is important.

• Services. This refers to the number and type of services that the enterprise currently uses with the financial institution. The greater the number of services, the more likely the EIPP solution will be integrated with those other services, especially in the context of cash management services and payment processing.

• Fees. This criterion refers to the fees an enterprise can expect to pay for the implementation and operation of the EIPP solution. The enterprise may find the fees associated with a bank’s EIPP solution cheaper than those from a technology provider. Fees are often reduced due to the use of other bank services such as cash management, lockbox processing, and account reconciliation.

• Expertise. The institution and its technology partner executing EIPP implementations as well as the services that underlie EIPP, such as invoice and payment processing in secure transactional environments, are essential to consider.

Banks are among the best partnership candidates because they recognize the value of the current enterprise and have dealt with the problems many enterprises now face: how to implement a technological solution while maintaining the value of the existing business. Banks already have systems in place to handle many aspects of an EIPP solution, including a plethora of cash management, treasury services, payment processing, and reconciliation. Banks provide financing of receivables on the part of the payer in the transaction as well as trade financing for the biller, thus providing liquidity to both sides of a transaction. Finally, of all the trading partners and other components an enterprise deals with regularly, banks are the single most trusted entity by far. Trust is the cornerstone of the relationship, permitting an effective implementation of the EIPP solution.

Endnotes

¹ Electronic Bill Payment and Presentment, The McKinsey Quarterly, 1998

² Trade Settlement: A Vital Part of B-to-B Commerce, Aberdeen Group, October 2001.

³ EIPP Adoption: What Makes Your Business Customers Say Yes? BCE Emergis, 2002.