Today, you will be hard-pressed to find an industry analyst that isn’t proclaiming that Electronic Invoice Presentment and Payment (EIPP) adoption is growing in the United States.
Or that checks represent a (slowly) declining percentage of business-to-business payments. For the most part, would-be affected parties didn’t put much stock in these predictions. There are many businesses that still rekey most of the remittance data that they receive from other businesses. Even today, since few banks still have yet to offer comprehensive receivables management solutions to help their clients manage the move from paper to electronic payables.
“The future ain’t what it used to be”
“The future ain’t what it used to be,” Yogi Berra was quoted as saying. While it is safe to say that the New York Yankees legend wasn’t referencing to the wholesale lockbox market in his quote, there is no question that things are changing fast there as well. It’s a very different landscape for lockbox providers than a relatively short time ago. The pain has shifted. Businesses are focused on cash application. And now these changes have resulted in three big gaps in how businesses manage their receivables.
Mailed-in payments: Despite the growth of electronic invoicing and payment, paper receivables are a fact of life. Since most businesses will not provide their open invoice file to their lockbox provider, businesses do a lot of downstream work to apply receivables. Complicating matters, many payers mail invoices for payments made electronically. Businesses must then use separate exceptions processing and cash application processes for each payment and remittance delivery mechanism.
Stranded payments: Regardless of whether they use a lockbox, businesses receive payments directly from customers (so-called “stranded” payments). Many businesses send these payments via overnight delivery to their lockbox provider. This results in shipping costs, higher transaction processing fees (payments sent via overnight delivery are treated as exceptions), and lost float.
Field-based payments: Many businesses receive payments in the field (think: distribution companies). Payments received in the field are as complex as wholesale lockbox transactions, may involve an electronic payment, and often require real-time cash application to clear a customer account (such as in food distribution to restaurants). Some businesses require field personnel to deposit the payments they receive at a local bank branch, which results in higher bank fees and more complexity in reconciling receivables. Other businesses process field-based payments using standalone remote deposit capture (RDC). While this approach improves funds availability, it requires bank fees and adds to the complexity of reconciling receivables. Some businesses mail or fax field-based payments in to their main office for processing, sacrificing funds availability.
Solutions that sustain a lockbox franchise
Traditional lockbox services are becoming less relevant. When the pain of receivables was exclusively associated with paper, banks could sell their lockbox services to anyone. But banks haven’t updated their receivables solutions to keep up with the migration from paper to electronic. The risk for banks is that businesses will use a bank’s image and data extraction services and do everything else with an integrated receivables platform from a financial technology provider. Banks will lose the high-margin fee income from services that businesses associate with paper payments.
Not addressing these gaps has the potential to jeopardize a bank’s wholesale lockbox franchise, especially as many disruptive start-up financial technology providers have started offering integrated receivables solutions right under the noses of financial institutions.
The solution is for banks to integrate RDC with an integrated receivables solution. RDC in an integrated receivables solution addresses the receivables challenges described above.
A combined RDC and integrated receivables solutions supports the processing and same-day application of paper and electronic payments and remittance received through the mail or at remote offices or in the field. The technology provides full-page distributed capture, so businesses can capture the images and data from paper remittance documents associated with stranded or field-based payments. A single portal enables businesses to view, analyze, post and report on all their receivables. Similarly, a single workflow speeds the fast resolution of paper or electronic exceptions by consolidating information in a single place and eliminating the need for back-and-forth e-mails and phone calls. Deposits for any transaction type are applied, reconciled and uploaded automatically to the business’ enterprise resource planning (ERP) application. And businesses can use data visualization and analytics tools to report on any payment or remittance mechanism.
Businesses are finding the value proposition for integrated receivables compelling, more so than the whole proposition for wholesale lockbox. Offering this level of seamless integration will enable banks to benefit from increased revenues, stronger client relationships, and new market opportunities.