PAYMENT CYCLE MANAGEMENT: A NEW FRONTIER

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1 PAYMENT CYCLE MANAGEMENT: A NEW FRONTIER An AR & O2C White Paper by Sponsored by

2 Contents Introduction... 3 Payment Cycle Management... 5 Tailored Invoice Delivery: Best Practices... 6 Electronic Payments: Best Practices... 9 Cash Application: Best Practices...11 Conclusion...12 Contributors

3 Introduction There is a new frontier in the Accounts Receivable (AR) industry. Businesses are leaving behind a hodgepodge of paper and electronic invoice-to-cash systems that require manual intervention and heavy resources, and instead are moving towards fully integrated, end-to-end automated solutions. Although the necessary tools to reach this frontier have been available for years, it took strategic vision to match this overwhelming business need with an enabling technology. Most companies face a number of roadblocks to reaching such an integrated system on their own. Enterprise Resource Planning (ERPs) only automate some AR processes, while the accounts payable (AP) networks of customers aren t guaranteed to integrate with a business s ERP. Moreover, many businesses find their customers prefer to use paper checks, further complicating automation and integration efforts. By using strategic solutions like Payment Cycle Management, companies can not only save money and AR resources, they can see greater transparency in their AR processes, improve operational efficiency, and accelerate their cash flow. The Pitfalls of Old Invoice-to-Cash Systems History has shown us that many processes considered strategic and vitally important to business today once began as tactical efforts within companies that eventually evolved into standard processes such as ERP and CRM solutions like salesforce.com. Today it s clear that companies are now using strategic efforts to better their invoice-to-cash processes. According to Google s Keyword Analytics, there are more than 1,600 searches a month for receivables performance management, and more than 2,900 searches a month for cash-flow analysis. Invoice-to-cash addresses vital business needs around getting paid and customer satisfaction, but in most companies today, the process is cobbled together using manual processes and disparate tools. Mark Horn, corporate credit manager for Mayer Electric Supply Company, based in Birmingham, Alabama, has encountered common obstacles in AR processes. He shared his experience as a case study in the success of solutions like Payment Cycle Management. Back in 2007, prior to using the Billtrust s Payment Cycle Management, the invoicing process at Mayer Electric Supply was largely manual. In fact, the company relied on a giant printing and stuffing machine just to mail invoices. This machine was not only expensive; it was cumbersome to use and took up an entire room. Horn s company eventually outsourced printing and mailing invoices, but still had no way to electronically deliver those invoices to their customers. Their ERP system didn t offer fax or delivery options, so Horn and his company were looking for an integrated solution that could provide those options. 3

4 Figure 1 Mayer Electric Supply often works with contractors, and as is common in their industry, many payments were in the form of check by mail. This made cash application entirely manual, and Horn s company had to dedicate multiple people in AR to apply those checks. However, Billtrust was able to offer a solution for cash application as well. Like Mayer Electric Supply, many businesses have to overcome the pitfalls of a disjointed invoice-tocash process. If customers want to receive invoices electronically, most businesses rely on their ERP s native delivery feature. But ERPs typically lack automation and bulk functionalities. So AR teams will need to individually each invoice to a customer. And many companies that only offer invoice delivery also don t have the bandwidth or IT resources necessary to create a homegrown Electronic Invoice Payment and Presentment (EIPP) solution. Finally, some customers might request invoices through their AP network, yet ERPs typically don t integrate with AP networks out of the box, and building AP connectors can be expensive. As a result, most AR teams are tasked with logging into the customer s AP portal and manually keying in and submitting invoice information. Without a strategic, end-to-end solution, the invoice-to-cash process can disrupt a company s daily operation which can slow cash flow, hurt efficiency and lead to dissatisfied customers. 4

5 Figure 2 As many in the AR industry know, paper processes are also prone to errors. Paper invoices can get lost or damaged at any point during delivery, and companies with multiple branches may have difficulty tracking them. Even electronic invoices can be compromised if businesses are not religiously backing up their data. Cyber security is a concern for both electronic and paper forms of payment. If a malicious party gains access to valuable customer information, like credit card or ACH numbers, an organization could be in trouble. Yet, check payments are not Days Sales Outstanding (DSO) friendly and come with a host of manual processes. Accepting payments through secure electronic channels that enable the company to instantly apply cash is a much smarter solution. In today s technology-driven business world, customers expect timely invoice delivery and accessibility to technology that integrates into their AP processes and allows them to view and pay invoices the way they prefer. Some businesses utilize AP portals, while others prefer to pay and monitor expenses with purchasing cards. Integrating with all of these various AP processes is time and resource intensive, but necessary for customer retention. Payment Cycle Management Payment Cycle Management was created to address the growing need for a single, strategic solution for the full invoice-to-cash process. With its best practices, strategies and technologies, companies can use Payment Cycle Management to successfully manage their invoice delivery, invoice payments and cash application with the goal of improving cash flow. 5

Figure 3 Companies using Payment Cycle Management have seen results, including lowering their AR operating costs by more than 35 percent, reducing their DSO by 3-9 days and improving customer

6 Figure 3 Companies using Payment Cycle Management have seen results, including lowering their AR operating costs by more than 35 percent, reducing their DSO by 3-9 days and improving customer satisfaction. Tailored Invoice Delivery: Best Practices The invoice delivery process starts with the invoice itself. In the past, invoices were relatively standard but afforded minimal customization and tracking capabilities. Now invoices have evolved to be fully-customized, dynamic and easy to track. Print remains a popular invoice choice for many clients and although print invoices still require some manual intervention, there are ways to digitize the invoice process. No matter the delivery method, whether it s print or electronic, companies can include sophisticated functionality in both templating and tracking. Many companies today have multiple branches or subsidiaries, each with their own logo and their own branding. An integrated invoice delivery solution should have the ability to create different invoice templates for each logo, and be intelligent enough to automatically send the correct template to the right customer. With a smart invoice delivery system, it s a good practice to include a small area of each invoice that can be dedicated to messaging. This area can be used to promote a new product, include a copy of a customer s signature, or let customers know they can receive their invoices electronically through the company s online portal. 6

Figure 4 Tracking invoices is also a crucial process for many businesses, yet relying on postal and delivery services tracking numbers is inefficient.

7 Figure 4 Tracking invoices is also a crucial process for many businesses, yet relying on postal and delivery services tracking numbers is inefficient. Companies that monitor invoices by mail tracking numbers can t track by customer name, or account number. But by adding dual barcode technology to each and every invoice, it virtually eliminates the risk of invoicing errors or missing pages. Invoices can be read through a scanning system that ensures the right customer is receiving the right invoices. An integrated invoice delivery process can aid in other cost-saving shipping and invoicing practices. Take, for example, the practice of shipping invoices from multiple locations around the country. With computerized sorting by zip code and proprietary mailing facilities across North America, this type of shipping could be considered a best practice for print-and-mail invoice delivery. Having the ability to ship invoices from multiple locations around the country or the globe can take several days out of delivery times. Another strategy to make print-and-mail delivery process more effective is called bullpenning. If a frequent customer places consecutive orders within a given week, it can be profitable to wait to combine the invoices into a single envelope and send them at once to cut down on postage fees. 7

8 Figure 5 However, at a certain point, a high invoice dollar amount will outweigh the nominal postage fee, so it s smarter to send that invoice immediately so the company can get paid faster. Smart bullpenning technology allows companies to set parameters for a dollar threshold and maximum hold days, and allow for some clients to be excluded from the bullpenning process entirely. While print is still the dominant invoice delivery method, electronic delivery is growing in practice. Demand for EIPP is increasing because it delivers real cost savings and process efficiencies. Electronic invoice delivery can be seamless, efficient, flexible and transparent. Most importantly, electronic invoice delivery can leverage the data that is already stored in a company s ERP system. An electronic invoice delivery system can serve as a transition between the ERP system and the Payment Cycle Management solution, so companies are able to integrate invoice delivery and payments directly to the ERP. This leads to a more efficient, automated and accelerated invoice-to-cash process. By having an electronic invoice delivery solution pull from the ERP, it s easy to then reconcile payment information later if clients pay electronically. For years now, software solutions have been enabling companies to send 100 percent of their AR invoices and related billing documents electronically. And more recently, the same capabilities are available through SaaS models. More than anything else, the barrier to automated AR invoicing is a content management issue. Companies need a practical way to resolve varying customer and supplier preferences for receiving documents. 8

9 AR invoice automation can enable companies to easily tailor invoice delivery to the circumstances of each customer. It can also empower customers to control their own methods and frequency of communication. As they become ready to adopt electronic invoicing, customers can log on to a secure website to choose paperless electronic delivery and designate the appropriate recipients for documents. In general, invoice delivery should focus on a multi-channel approach that s flexible, transparent and seamless for paper customers who are ready to make the transition from print to electronic delivery. Electronic Payments: Best Practices Electronic payments are often overlooked during efforts to improve supply chain processes. In fact, according to IDC studies, electronic invoicing was the last priority of manufacturers in a list of 18 supply chain processes. Yet, when considering all of the factors that go into business-to-business (B2B) payments, roughly 80 percent of businesses have a manual process tucked away with their payment management methods. Not enough organizations are focusing on digitizing their procurements and purchasing, despite the risks of inefficiency of paper-based transactional techniques. According to payments.com, around 50 percent of organizations still use checks for B2B payments, yet the Automated Clearing House (ACH) emerged in Figure 6 9

Today more businesses are overcoming these concerns, and transferring over to the ACH network as it s becoming evident that digital payments provide the same level and quality of data as paper checks.

10 Today more businesses are overcoming these concerns, and transferring over to the ACH network as it s becoming evident that digital payments provide the same level and quality of data as paper checks. The ACH network also adds the benefits of security, lower fees on payments and a reduction in the number of outstanding payments or checks. With ACH, remittance details will also be transmitted, which was a historical barrier in adopting ACH for many companies. Businesses are also moving towards more purchasing card usage because of the large amount of data they receive from each transaction, which makes reconciling their payables easier. In fact, the use of purchasing cards among midsize businesses is one of the fastest-growing payment methods, with close to 60 percent paying via that method. Because of this trend, and in an effort to push purchasing card usage, credit card companies now offer vendors incentives in the form of lower fees. One way to lower purchasing card fees is to use Level 3 payment processing. Level 3 processing includes detailed invoice information along with each transaction, and qualifies businesses for lower rates. Many business and most government agencies now require Level 3 processing in order to monitor their purchases. Level 3 transactions collect more data, and the more data a company collects, the less likely it will experience fraud and chargebacks. Adopting Level 3 processing is a strategic way to keep many customers happy, and save money. In addition to gaining more control from a company s viewpoint, some electronic payment methods allow companies to offer customers the ability to manage and control how, where and when they pay. Cloudbased payment portals allow customers to streamline their invoice-approval process, which speeds up payments. At the same time, auto pay functionality can reduce delinquent payments, and payment portals can catch short-pay discrepancies. 10

11 Cash Application: Best Practices Despite the best efforts of many companies to transition their customers from print to electronic invoicing and payments, it s still highly likely that some customers will not achieve 100 percent electronic adoption. This makes cash application the final, but necessary, component of Payment Cycle Management. Cash application helps companies manage any decoupled remittance statements that arrive in the mail. It is one of the most important pieces of moving an AR department to this new, automated frontier in invoice-to-cash processes. A best practice in cash application involves a hybrid approach to ensure the highest level of accuracy alongside increased speed and automation. This hybrid model depends on a configurable, secure system to apply payments that is also accessible to a company s staff 24/7. The system also needs to work as a smart solution that can learn to intelligently read each customer s remittance statements, with less than 15 seconds of effort, and then apply payments automatically. When Mayer Electric Supply adopted an intelligent cash application system with their Payment Cycle Management solution, they saw a marked change in customer adoption of electronic services. Mayer Electric Supply now has a completely integrated solution that automates their entire invoice-to-cash process. The new payment cycle management solution directly integrates into their Oracle ERP system, allowing the company to automatically generate and route invoices to their customers preferred delivery method; whether it s by mail, , or the company s online portal. Figure 8 11

12 According to Horn, Mayer Electric Supply currently has more than 800 customers receiving invoices through their online portal. Payments that are made within that portal are automatically processed and applied into their ERP system. Customers who prefer to pay by paper check are routed through an intelligent cash application system that automatically reads and applies those payments into Mayer Electric s ERP, with very little manual intervention. This entire process is largely hands-off and relieves their AR associates of tactical work, giving them the ability to focus on more strategic activities. Currently, over 54 percent of Mayer Electric Supply customers are receiving invoices electronically. This has equated to an estimated savings in excess of $70,000 annually. Since the Mayer Electric Supply customer base is largely contractors, same-day electronic delivery of invoices allows customers to include more invoices when preparing their draws for material furnished to a project. With the old regular mail system, it took an added 4-5 days for the customer to receive those same invoices. This same-day delivery option has allowed Mayer Electric Supply to limit their 30 pastdue dollars to 6 percent or less of total AR monthly. Bullpenning has also created a major savings to Mayer Electric Supply. Since Horn started experimenting with bullpenning four years ago, the company raised the bullpen threshold from $500 (or five days) to $2,500 (or five days) and set the limit on bullpenning to the 20th of each month. This process has saved Mayer approximately $100,000 over four years. Mayer Electric Supply now has the ability to pull valuable reports on how the invoice-to-cash process is performing from their client portal. The company can generate electronic adoption reports to get a breakdown of paper, and portal user percentages; payment reports of online payment history between any date range; and bullpen reports of activity in the last 30 days, as well as estimated annual savings, and a list of the bullpenned invoices by customer number, name, invoice number, invoice date and amount. Thanks to the integrated Payment Cycle Management process, Mayer Electric Supply has greatly reduced overhead costs and reduced head count in their AR department all while the company was growing, according to Melissa Allison, who is the corporate accounts receivable manager for Mayer Electric Supply. Conclusion In today s business world, there is no single way to invoice or pay. As new technology and software emerges, people in the AR industry have cobbled together workable solutions to incorporate electronic and paper records into payment and invoice processes all while working with their customers various preferences. Luckily, there is a new option in AR that can help streamline the invoice-to-cash process. Payment Cycle Management is a strategic, end-to-end, cloud-based solution for the invoice-to-cash process that is flexible enough to meet the needs of companies and their customers while improving operational efficiencies, accelerating cash flow and increasing transparency. With Payment Cycle Management, companies can streamline and automate invoice delivery and invoice payment in ways that not only save money, but also offer insights into their business operations. Since many customers still prefer to work with paper payments, those in the AR industry can use Payment Cycle Management to accurately incorporate cash payments with little to no manual intervention, and to help interested customers transition from print to electronic invoicing. 12

13 Contributors Natalie Silverman is the Director of Product Marketing at Billtrust, where she leads a team dedicated to driving innovation, uncovering market problems and building solutions in the AR industry. Mark Horn has been in credit management for 40 years. Mr. Horn is an active member of the National Association of Credit Management and is currently the Corporate Credit Manager for Mayer Electric Supply Company, based in Birmingham, Alabama. Melissa Allison has been in the Accounts Receivable field for over 20 years and is currently the Corporate Accounts Receivable Manager for Mayer Electric Supply Company. She has been with the company for more than eight years. About the Sponsor Billtrust is the premier payment cycle management provider. Billtrust integrates three key areas of the invoice-to-cash process: presentment, payment, and cash application, helping our clients connect with their customers and cash. Our comprehensive suite of services deliver proven results enabling our clients to solidify customer relationships, increase productivity, improve cash flow, and seamlessly migrate to electronic channels. Visit for more information. About the AR & O2C Network The AR & O2C Network is the leading provider of training, education and certification programs specifically for Accounts Receivable, Order-to-Cash, Global and Shared Services professionals. Membership to the AR & O2C Network ( provides comprehensive tools and resources to financial operations professionals who manage or are deeply involved in the Accounts Receivable and Order-to-Cash process. Topics include Accounts Receivable and Order-to-Cash Policies, Managing Customer Information, Process Automation Technologies, AR Compliance (Sales & Use Tax, Canadian Tax, Sarbanes-Oxley, Escheatment, Government Restriction Lists and Uniform Commercial Code), and Accounts Receivable and Order-to-Cash management issues. A membership to the AR & O2C Network provides tangible ROI to any organization saving your organization time and money. Nearly 10,000 professionals have been certified as an Accredited Receivables Specialist or Manager (available in English, Simple Chinese and Spanish) through the AR & O2C Network and its parent company, the Institute of Finance & Management. AR & O2C Network also hosts the annual Accounts Receivable & Order-to-Cash conference, designed to facilitate education and peer networking. 13

14 AR & O2C Network is produced by the Institute of Finance and Management (IOFM), which is the leading organization providing training, education and certification programs specifically for professionals in Accounts Payable, Procure-to-Pay, Accounts Receivable, and Order-to-Cash, as well as key tax and compliance resources for Global and Shared Services professionals, Controllers and their F&A teams. With a universe of over 100,000 financial operations professionals, IOFM is the trusted source of information in the rapidly evolving field of financial operations. 14

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