Lockbox Outsourcing: How to Nego5ate and Manage an Effec5ve Contract. Pamela A. GarreC, ICP President, GarreC Consul5ng Group, Inc.

Transcription

1 Lockbox Outsourcing: How to Nego5ate and Manage an Effec5ve Contract Pamela A. GarreC, ICP President, GarreC Consul5ng Group, Inc.

2 Overview How to Nego5ate and Manage an Effec5ve Lockbox Contract Gather data for lockbox bid (or rebid) Document your requirements Nego<ate lockbox contract terms Service level agreements Incident repor<ng / priori<za<on Other important terms Understand pricing schedules and terminology Contact references Ac<vely par<cipate in vendor management 2

3 Data Gathering/Documenta5on Publish all per5nent lockbox data and requirements in RFP Full and accurate disclosure of requirements allows vendors to provide fixed cost quotes Eliminates discovery aler the contract is signed Facilitates accurate comparison of bids 3

4 Data Gathering/Documenta5on Required Documenta5on Average monthly volume by transac<on type for retail: Singles match pay, Singles par<al pay, Mul<ples, Check Only, Check List, Stub Only Payment mix (% check, cash, credit card) Regular vs. peak monthly volume Projected annual volume increase / decrease (%) Return envelope size / type / window posi<oning (retail) % white mail (retail) OCR / barcode/ account number format including check digit algorithm (retail) 4

5 Data Gathering/Documenta5on Excep<on processing requirements Account / invoice number research (web, flat file, reject) Mul<ples transac<on backup capture (tear off voucher) Envelope capture Valida<on tables Account / invoice number master file Check only / check skirt / check list MICR database requirement Check list rope and zone requirement Cash / credit card handling 5

6 Data Gathering/Documenta5on Business Rules Workflow Balancing Research / Rejects Correspondence (stub vs. miscellaneous) Web access vs. PDF file export Extract (A/R) File Format ICL (X9.37) File Depository bank (addi<onal setup / test costs could apply) Depository endpoints (accounts) 6

7 Data Gathering/Documenta5on Repor<ng Daily / monthly volume by payment type Daily Balancing Report (GL totals / deposit totals) Carryover Rejected Checks Custom Reports Image Archive Reten<on (standard 2 years) Number of concurrent users Grayscale images (money orders) Image Export (if required) File format Reconcilia<on requirements (everything exported properly) 7

8 Lockbox Contract Terms Service Level Agreements (SLAs) Incident Repor<ng / Priori<za<on Penal<es Contract Length Right to Audit Lockbox Early Termina<on Fees Exit Strategy Audit / Security Requirements Pricing Schedule / Terminology 8

9 Lockbox Contract Terms Service Level Agreements (SLAs) Same Day Processing (Regular Mail) Same Day Processing (Priority Mail) Excep<on Processing (define excep<ons such as check only, check skirt, check list, etc) Timeliness of A/R Files Timeliness of Deposit Files Example Mail received by 6am will be processed same day or For mail received by 6am, 80% will be processed same day, 20% will be processed by the next business day Mail received by 12 noon will be processed same day Excep<ons received by 6am will be processed by the next business day Percentage of A/R files sent on or before specified cutoff <me: 98% Percentage of ICL files sent on or before specified cutoff <me: 98% 9

10 Lockbox Contract Terms Service Level Agreements (SLAs) Timeliness of Reports Processing Errors - Missapplieds, Encoding Errors, Duplicate or Missing Payments, Procedural Errors, Packaging Errors Example Daily reports will be provided by 8am next business day Monthly reports will be provided by 5 th business day of next month 3 per 100k payments excellent 7 per 100k good 10 per 100k average Image Quality Errors 3 per 100k checks excellent, 7 good, 10 average System Availability - Archive, Web Excep<ons Timeliness of SLA Repor<ng System availability Monday Friday 7am to 5pm (excluding scheduled downtown for maintenance): 98% Monthly repor<ng of SLA performance will be provided by 15 th business day of next month 10

11 Lockbox Contract Terms Incident Repor5ng / Priori5za5on Customer Support Hours Incident Priori<za<on Priority 1 system/interface is down Priority 2 seriously impacts produc<vity, but there is a work around Priority 3 minimally impacts produc<vity Priority 4 does not impact produc<vity Escala<on Procedures Example Monday- Friday 8am 5pm Typically highest priority has no work around, lowest minimal impact Priority 1: 15 minute response, work 24x7 un<l fixed Priority 2: 1 hour response, 1-2 business days Priority 3: 3-4 hour response, 5-7 business days Priority 4: 24 hour response, business days Timeframe, chain of command 11

12 Lockbox Contract Terms Penal5es Failure to meet expected SLA monthly performance measures Credit for monthly service charge (2-5%) Failure to meet expected SLA monthly performance measures for 3 consecu<ve months or 5 months in any 12 month service period Early termina<on with no penalty Contract Length Typically 3-5 years with 1 year op<onal extensions (bejer pricing with longer terms) Cap 1 year extension price increases (5-10%) 12

13 Lockbox Contract Terms Right to Audit Lockbox Unscheduled, performed by client staff or authorized third party Early Termina5on Fee Six month cap based on average invoice cost for last three months. If less than six months lel in contract, only owe remaining months. Exit Strategy Merger clause with no early termina<on fee Archive access for full reten<on period with con<nued payment of lockbox monthly maintenance fee aler termina<on 13

14 Lockbox Contract Terms Audit / Security Requirements SAS 70 audit cer<fica<on HIPAA compliance (healthcare forms) PCI compliance (credit card processing) 14

15 Lockbox Pricing Schedules Retail Pricing typically <ered based on volume Tiers at 100k, 250k, 500k, 1m per month Realize that the price changes if your volume drops to the next <er nego<ate pricing at lower <ers Wholesale Pricing not based on <ers (typically low volume) 15

16 General Hidden charges make sure you understand all the items in the pricing schedule Lockbox Pricing Schedules Beware of lijle expenses. A small leak will sink a great ship. Benjamin Franklin Have vendor include explana<on of all line item charges Have vendor provide a monthly pro forma statement to facilitate comparison to other bids Nego<ate fixed pricing for standard reports, future changes 16

17 Lockbox References Before you decide on a lockbox vendor, contact their references Ask for at least three references from your industry Ask about their ini<al implementa<on and on- going support Ask about change request costs and implementa<ons Ask about issues and errors Ask them what they would do differently if they had the chance to rebid the contract Try to find other companies using the service that were not included in the vendor reference list 17

18 Lockbox Vendor Management At least one person in your organiza<on must be responsible for managing the lockbox outsourcing rela<onship: Monitor issue tracking log and vendor report card Handle issue escala<on Review invoices Par<cipate in monthly mee<ngs with vendor Work with vendor to determine root cause of recurring errors Ini<ate and manage change requests 18

19 Lockbox Vendor Management Learn all you can about vendor s technology and workflow op<ons Partner with vendor to find solu<ons to any outstanding issues Are business rules contribu<ng to the problem? Can rules or procedures be changed? Invoke penal<es if necessary, but also offer to par<cipate in success stories (white paper tes<mony or quote) Offer to be a reference for clients considering the lockbox service 19

20 Lockbox Vendor Management View your vendor rela<onship as a partnership Take ownership in improving it Be proac<ve instead of reac<ve Open the lines of communica<on 20