Electronic invoice presentment and payment (EIPP) services-an effective, affordable, Internet-based alternative to EDI-is a bold step toward paperless B2B invoicing. The question is how long will it be before billers and payers embrace "e-lockbox" technology and process change in a significant way?
The answer depends on our ability as bankers to communicate the opportunities and challenges of the electronic invoice solution to clients.
There are many incentives for banks to move forward. E-lockbox complements a financial services providers' existing EDI and paper lockbox solutions. With this new tool, banks can expand the market for treasury management solutions to clients with account receivable operations too small for EDI or paper lockbox to be cost effective. For larger companies, it complements existing paper lockbox and EDI services.
It also enables banks to move deeper into a client's payments and invoicing process, strengthening existing relationships with treasury management clients who, to satisfy their clients, will need to offer all three payments solutions.
By providing the gamut, banks are not only positioned as full-service providers, but also better equipped to retain their traditional lockbox business as clients' transition from paper to paperless services.
More importantly, it offers a new opportunity for banks to be a true financial partner with corporate clients. For billers wanting to reduce costs, improve cash flow, enhance efficiency, streamline processing, eliminate paper and improve service to their trading partners, the e-lockbox offering provides tangible benefits. Treasury, collections, accounts receivable, accounts payable, sales and customer service are among the functions that benefit when companies embrace this technology, both as billers and payers.
For example, when a client's accounts receivable department prepares an invoice, it also prints, stuffs and mails it, a time-consuming process involving special forms, envelopes, equipment, labor and postage. These expenses, which average $4.43 per item according to a TowerGroup study, can be reduced with EIPP.
In addition to eliminating paper costs, billers can eliminate the time that paper invoices lie stagnant in U.S. mailbags. With EIPP, paperless invoices are delivered over the Web to the payer's desktop computer system-already speeding the review, adjudication and payment process that can lead to a reduction in the biller's days sales outstanding.
Currently, once payers receive a paper invoice (often dozens of pages and hundreds of line items long), Accounts Payable physically routes it through the company for approval. Discrepancies requiring adjudication, which occur in as high as 40 percent of invoices depending on the industry, can further complicate and delay payment.
With EIPP, managers authorized to review an invoice can use a Web browser to review and approve certain items, and flag others for dispute.
Because Accounts Payable can easily issue a partial payment generated at the line-item level, both billers and payers win. Billers receive more timely payments, payers can take advantage of payment discounts without losing control of disputed line items and the processes for both have been shortened and streamlined.
Additionally, as payments are deposited into the biller's account, they can be integrated with any paper lockbox deposits, and a single file can update the biller's accounts receivable system. The lag time between receipt of a payment and the systems update disappears.
In this scenario, the winners are the billers and the banks. Billers are spared the time and cost of manual data entry and the embarrassment of collection calls to customers who already paid their bill. Banks provide a valuable and value-added service that ties the bank and client closer together.
THE TASKS AHEAD
Despite the many benefits of the EIPP revolution to billers, payers and banks, there are significant challenges as well.
Change is always a hard sell. Many corporate finance departments are running lean and lack the luxury of time to investigate new tools or lead the dramatic change in corporate culture required to adopt a new technology. Electronic invoice presentment and payment requires not only clients to change the way they do business, but their trading partners as well.
Neither will happen overnight, a fact necessitating vision, patience and realistic goal setting on the part of providers.
The cost-benefits will be readily apparent to those companies that truly understand their accounting processes. For others, there is great opportunity for bankers to work with clients and bring the advice and counsel they value from a trusted banking partner.
To reach a critical mass from which EIPP can take off on its own, banks need to help clients identify the strengths and opportunities in their current payables and receivables environments, relate them to the company's financial goals and understand the return on investment.
Paul J. Markovic is senior vice president of electronic banking solutions for National City Corp., a $106 billion financial holding company headquartered in Cleveland.
Mary Ann Francis is National City's senior vice president of treasury product solutions.
National City recently signed a letter of intent to offer EIPP services through BillingZone, LLC.