5 Factors for Integrated Receivables Adoption
There has been plenty of talk in the payments industry lately about investing in integrated receivables (IR) solutions but findings suggest that adoption has been slow.
According to a recent IOFM studies only 19 percent of companies have actually automated receivables processing while 22 percent are using or planning to use AP/AR processing through banks and twenty percent of respondents said in a related study of AR professionals that they are planning significant investment in this area this year.
The biggest obstacles companies are grappling with when considering IR adoption are disparate systems and resistance to streamlining siloed payment channels.
AR/AP users work with entrenched technologies and payment workflow processes; they go from payments portal to payments portal day in and day out which increases exceptions and processing times.
We have identified five main areas that you will want to consider as you look to adopt an integrated receivables initiative.
- Identify the business need.
Is automating receivables a good investment for your company? The benefits of a consolidated payments data stream would seem to outweigh putting off the decision.
Research shows that CTOs and AR professionals are struggling with many challenges including:
- Consolidating legacy systems
- Non-intuitive payments programs that require extensive training
- Lack of compatibility and integration issues between existing infrastructure and new deployments
- Lack of visibility into payment trends, reporting, and cash position
- Growth in exceptions and returns which delay posting.
- Redundant systems, legacy systems and/or incompatible systems keep overhead costs high.
If you can identify clear business needs from any or more of the above, then your payments operation would likely benefit from:
- Accelerated cash application due to improved straight-through processing in a multiple payment method environment
- Reduced operating costs, less manual intervention, fewer processing errors
- Real-time financial data – enhanced understanding of cash and credit positions
- Improved general ledger accounting and bank reconciliation – automated receivables posting, exceptions management and invoice matching
- Flexibility to handle a changing payment mix – you can add payment methods as you go
- Consolidated reporting with the ability to extract and export data
- Trend analysis across payment types.
- Build or buy it: What is the best IR approach for you?
Market penetration of IR deployments is fragmented. Accenture reports that, “More than 60 percent of banks use external packages for their payments systems, and only about 20 percent use the same package for more than one payment type. So, while a ‘payments hub’ remains a goal for many banks, few – if any – have yet achieved it. Our research also finds that about 18 percent of banks use only legacy or custom systems for their core payments system needs, and that 50 percent use a mix of legacy and package solutions.” (Source: 2012 Accenture Payment Services Report.)
Here are a few ways companies (including banks) are approaching this:
- Re-platforming: Using packaged software upgrades for core payments systems while planning incremental steps toward integrating the entire receivables function over a longer timeframe. Some companies are looking to quickly standardize processes and connectivity to show improvement fast.
- Building the solution step by step: Another approach would be to build out the solution one step at a time. For instance, additional payments types – beyond cash and remittances – can be added once the payments hub and electronic lockbox are up and running. Companies can start leveraging technology to reduce the cost of receivables in a modular way while planning to add future capabilities.
- Outsource – Rather than invest internal resources to upgrade independent and outdated systems, outsource this function to a third-party vendor. This would eliminate company capital expenditure up-front, ongoing IT costs, and allows companies to focus on their core competencies. Another benefit of outsourcing is that regulatory or compliance risks is shifted to the service provider.
Regardless of the approach, an IR processing solution should have, at its core, a payments hub designed to aggregate payments and remittance details from any source
- Delineate your functional and business requirements.
Get started with a business requirement/needs analysis to make a nitty-gritty determination about how to proceed. A business analyst would document requirements for the project – from a functional or user or end use perspective – which would be used to either generate a Request for Proposal (RFP) to start the vendor selection process or used as an initial roadmap for internal deployment.
Other criteria and questions to ask:
- Writing Use Cases to demonstrate that enhanced functionality will deliver quick access to billing data
- Understanding the complexities of working with and consolidating legacy systems
- Is the solution easy to use or does it require extensive training?
- How secure is the solution? Can it be integrated into disaster recovery?
- What is the deployment scheme? Is the deployment completely onsite or is remote access required or is it a hybrid solution?
- Is the solution scalable to future business requirements?
- How customizable is the solution including sub-components?
- Does consolidated reporting give you the visibility into processes you truly need?
- Is there a module that allows for collaboration with customers, partners, and employees?
- Identify pain points in your receivables process.
What is the risk of not adopting a payments management solution?
Without a non-integrated receivables processing environment, companies risk:
- Higher costs due to processing inefficiencies
- Increased exceptions handling
- Delays in posting cash
- Collection delays (high DSO rates)
- Poor visibility into AR and cash positions.
If working with a third-part provider, you want to resolve your particular pain points within the framework of automation, process improvement and workflow design in order to improve straight-through processing and accelerating your cash position with faster, more efficient posting.
- What to look for in a solution provider.
You’ll want to make a fact-based determination with a well-chosen cross-functional team from treasury, purchasing, IT, production, engineering, QA and AR/AP department staff who would be familiar with IR solutions providers. The selection team would have subject matter knowledge of technical applications of the IR solution, existing/future infrastructure, and be able to benchmark goals for the implementation.
Supplier selection criteria:
- Previous experience and past performance with an IR solution
- Meeting any regulatory requirements for quality and security
- Ability to benchmark straight-through processing rates
- Technical support availability
- Ability to provide long-term strategies for building out the solution
- Financial stability
- Total costs, fee structures
- Provide detailed Service Level Agreements (SLAs) – benchmarking the contractual arrangement.
Receivables processing may remain a complex process. Adopting a complete IR solution adds value to companies by aggregating payments from multiple payment sources; providing consolidated reporting and AR feeds; and automating the consolidation of internal and external data sources to resolve exceptions.
Managed receivables also provide trend analysis across payment types and accelerate posting cash in a uniform data stream that gives CTOs timely and valuable information that is vital to making decisions.