Enterprise Commerce: The New Paradigm for Treasury Management
While treasury has always been charged with enterprise-wide responsibilities, recent advances in enterprise and electronic commerce (EC) technologies have opened up entirely new ways of looking at treasury management. From these technological perspectives, today's treasury is empowered to manage payments and collections with an unprecedented degree of automation and control. The latest bank EC systems can interface seamlessly with corporate enterprise solutions so that payments and collections data flow straight through from system to system in either direction.
A company can now contemplate reaching all of its payees, no matter how they're paid or where they are, simply by sending a single file from its accounts payable (AP) system to its bank. The bank's EC system automatically initiates payments in the specified formats, whether electronic or paper, domestic or foreign. Similarly, collections data for all of the remittances processed by the bank can be consolidated and sent to the company in a single file for download into its accounts receivable (AR) system. When EC payments and collections solutions like these are combined with Internet reporting and simplified client access, the possibilities for reengineering treasury management operations expand exponentially.
The best news is that EC services, because they employ open architectures, work with almost any type of enterprise resource planning (ERP), treasury workstation, or AP/AR system, whether vendor supplied or developed in-house. These services are also highly scalable and easily adaptable to work with a wide range of transaction volumes and large and small sets of payment types. That means a broad spectrum of businesses can take immediate advantage of enterprise EC payments and collection services.
Companies who implement these "enterprise commerce" payments and collection solutions greatly improve their ability to manage cash and working capital, while realizing significant savings in hard-dollar costs and man-hours. EC services speed transactions, resulting in more predictable payments and collections. As a result, cash positions can be more accurately forecasted to minimize borrowings and free up working capital for short-term investments or other uses. Greater predictability of cash flow means a company will be better positioned to negotiate more favorable payment terms and take full advantage of early payment discounts. Equally important, the increases in efficiency on both the AP and AR sides means lower operating costs, which of course contributes directly to a company's bottom-line. Finally, EC treasury solutions can provide the catalyst for rationalizing banking relationships, providing the impetus for even greater cost-effectiveness and operational efficiency.
Payments
Streamlining the payments process is a logical first step in applying the enterprise approach to treasury management. An EC solution can generate a wide range of payment types and payment volumes from a single disbursements file sent from a company's AP system to its bank. This eliminates much of the treasury staff's work if they initiate wire transfers using bank-supplied desktop PC software, transmit automated clearing house (ACH) files, and print, insert, and mail checks in-house. An EC payments service can also deliver remittance detail separately from payments via email, transmission, or fax. This means electronic payments can be sent to payees who would otherwise receive checks and printed remittance advices, broadening a company's support base.
EC solutions can be scaled and tailored to meet the types of payments a company makes and its transaction volumes. Corporations doing business internationally can take advantage of the capabilities of an EC bank with a large global network. Banks with global connections can route foreign currency payments directly into the local high-value and low-value clearing systems where payees are located. Companies that issue large numbers of checks will want to consider check outsourcing. With this type of service, a file of check payment information is sent to the EC bank, which then prints the checks and remittance advices, inserts them in envelopes, and mails them. Ideally, the bank can also initiate direct deposit of payroll from the same payables file. This helps smooth the transition from paper to electronic payments.
Payments Pay Off
EC payments solutions make good business sense. Using an enterprise payments solution enables treasury staff to establish daily cash positions quickly, improve cash forecasting, and streamline reconciliation activities because payments information is consolidated in the company's own systems. Since there is no need to manually enter data from paper documents, valuable time is saved and rekeying errors are eliminated. Because a wide range of payment types are generated from a single payables file, the amount of work treasury personnel must do to initiate disbursements is greatly reduced, cutting costs.
Another major benefit of EC payments services is improved control. By centralizing authority for payment initiation in treasury, the timing of payments is controlled much more effectively than if disbursement operations were scattered throughout the company. Management of payment approvals is greatly simplified as well.
An EC payments solution also provides greater security and reduces the risk of fraud. Files are transmitted from company headquarters to the EC bank using advanced security methods. Check outsourcing further reduces exposure to fraud by eliminating all the risks associated with printing and mailing checks in-house.
Collections
With business-to-business (B2B) collections, two of the biggest challenges for speeding the collections process are hastening the flow of remittance information and streamlining the payment dispute resolution process. For many companies, B2B remittance processing frequently involves manual rekeying of data from paper advices and time-consuming exception investigations. This, in turn, leads to excessive customer inquiries about payment status and payments disputes that further slow the collections process and increase the cost of processing remittances.
Implementing an ERP system or treasury workstation by itself will not eliminate all manual processes. This is precisely where an enterprise EC collections solution can help. The EC bank can consolidate the remittance information from the payments posting to a company's accounts and transmit the data directly to the company in a format that downloads directly into an AR system. This file can contain information for ACH, electronic data interchange (EDI), and lockbox payments. If a company is not EDI-capable, an added plus is that it can receive EDI payments and have its EC bank translate the attached remittance data into a format that the AR system can read.
Retailers, utilities, telecommunications providers, and other companies involved in business-to-consumer (B2C) commerce can further cut costs and improve AR processing efficiency through electronic consumer collections solutions for processing payments information from third-party consumer bill pay services. With an electronic consumer collections service, the EC bank accepts payments from consumer bill pay services, consolidates payment information, and transmits data directly to a company's receivables system in the specified format. Exception items are automatically returned on a company's behalf to the originator, who is then able to correct the transaction sooner. The end result is that good funds are credited to a company's account more quickly and manual entry of paper "check-and-list" data is no longer required. As a result, reconciliation problems caused by key-entry errors are eliminated and the cash application process is greatly accelerated.
Collecting on Collections
Taking an enterprise approach to collections yields major dividends. EC collections solutions can cut operational costs dramatically. For instance, a company that implements an electronic consumer collections solution would see bill pay service per-item processing costs cut to about one-fifth of what they were before, while inquiries to resolve exception items would typically drop to one-third of previous levels. On any basis, the savings are substantial.
EC collections services for B2B applications deliver equally significant cost savings by reducing the amount of time staff spends rekeying data from paper documents. Furthermore, by automating the flow of remittance data to an AR system, the speed and accuracy of the cash application process is increased, enhancing the ability to track and forecast cash positions. Improved cash application also means improved customer service, again with lower costs. By reducing the number of misapplied payments and eliminating mistakes due to key-entry errors, the amount of time a customer service staff spends on the phone resolving customer inquiries and payment disputes is significantly cut.
EC collections solutions eliminate investment in costly translation systems and can also improve trading partner relationships. As noted above, even if a company is not EDI-capable, it can still receive EDI payments and have remittance information translated into a format compatible with its receivables system. This value-added translation service saves money and makes it easier to connect with trading partners.
Preparing for EC Treasury Solutions
While enterprise treasury solutions represent significant opportunities, they can present major challenges to an organization. Because of the changes that may be involved, one of the best times to consider implementing EC payments and collections is when a company is planning to install or upgrade a treasury workstation or ERP system. This provides an opportunity to leverage project resources in determining system needs and requirements, documenting and validating workflows, and planning how processes might be modified.
A company will also need to determine the best way to exchange data with its EC bank, which will depend on systems architecture and the volumes of payments, collections, and information flows. Choices include browser-based connectivity such as secure file transport protocol and hyper text transfer protocol post, direct dial-up, and value-added networks, all of which have different technical and cost implications. The company and bank must work together to accommodate the optimal connectivity solution.
An equally critical requirement is having all the necessary project resources for a successful implementation, as well as the support of treasury, accounting, information technology, and other internal partners impacted by the new solution. It goes without saying that sponsorship from senior management to promote the project and gain buy-in from business partners is mandatory. To drive the project to successful completion, a team should be assembled to work with the EC bank in determining technical design considerations such as file structures, data flows, and system-of-record constraints. This team also needs to work closely with the bank's technical experts to jointly develop, test, and implement the EC treasury solution.
Enterprise solutiuons for treasury offer entirely new ways of managing the payment and collections processes that are the foundation of financial operations. |
Choosing an EC Bank
Choosing an EC bank to develop and implement an enterprise-oriented treasury solution is one of the most important decisions an organization will face. Implementation requires tight coordination, good communication, and a commitment to achieving a mutually satisfying result for both the company and the bank. Here are some of the key issues to explore when choosing a bank for EC payments and collections services:
- Does the bank have the requisite electronic commerce capabilities? Unlike the more traditional treasury management services, enterprise solutions can be delivered only by banks with sophisticated EC systems. A bank's EC systems must communicate with the company's in-house systems and provide translation capabilities. Other functions to consider are support for the connectivity protocol to send and receive files, as well as Internet access for reporting and other commercial banking services.
- Can the bank's EC solutions deliver high rates of straight-through processing and consistently meet payment cut-off deadlines? EC solutions must be highly automated to be cost-effective. If manual intervention is frequently required to process files, or if payments miss clearing system deadlines due to bank systems being down, the expected benefits of the EC solution will simply not be there. Additionally, the bank should provide online confirmations, such as Fedwire reference numbers, in near real time.
- Can the scale of payments and/or collections solutions be supported? A key objective with any enterprise solution is comprehensiveness. A payments solution, for example, should handle all the payment types in an AP file, as well as accommodate transaction volumes at peak times, such as close to the Fedwire cut-off time.
- Does the bank support requirements specific to a company's particular industry? A bank needs to provide services that meet the specific requirements of a business. A health care services provider, for example, should expect its bank to support the American National Standards Institute health payment types and any government-mandated standards for electronic payments that may be enacted in the future.
- Does the bank have the capability to deliver remittance detail separately from payments? This is a particularly important consideration, since many companies are increasingly trying to move payments from paper to electronic formats. If a bank has an electronic document delivery service, a company can pay its trading partners electronically and have the bank deliver the remittance detail separately in the required formats.
- Is the bank willing to work on a project basis to develop an enterprise solution? The bank must be willing to evaluate data flows, file structures, and system-of-record constraints that will affect the system interfaces. In addition, the bank must have the systems resources to develop code for unique customer-specific features. These resources include programming, systems integration, user acceptance, and implementation groups to develop, validate, test, and put code into production.
- Can the bank provide ongoing support as enterprise needs evolve? Enterprise solutions are a new direction for most businesses, and the initial "release" of an EC solution may need modification. A company must be able to count on its bank for support as business requirements and systems change.
- Does the bank provide Internet access for information reporting, treasury management, and other commercial banking services? Corporate treasuries are increasingly relying on Internet client-access portals to receive reporting and interact with banks. While not required for EC solutions, Internet access to international services, credit and loans, trust and investment, and related commercial banking services can add significant value to a banking relationship.
Taking the Enterprise Perspective
Enterprise solutions for treasuries offer entirely new ways of managing the payments and collections processes that are the foundation of financial operations. By employing enterprise-oriented strategies to streamline the interfaces between corporate and bank systems, organizations can greatly increase the speed, accuracy, and efficiency of treasury operations, while simplifying banking relationships. We believe that enterprise commerce solutions represent the new paradigm for treasury management in the 21st Century.
