Emerging Trends in Receivables Management

Date: 24 April 2018

Minnesota Association for Financial Professionals

PUBLIC

1

Agenda

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Current Landscape

Business AR Challenges

Emerging Trends

Integrated Receivables

Virtual Accounts

Real Time Payments

Electronic Invoicing

Future Vision

Questions & Answers

2

Current Landscape

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 Business to business (B2B) collections is often a complex process with multiple payment types and

remittance streams

 Suppliers have to handle a myriad of payment and remittance types. Manual processes result in delays

in processing, input errors, increased costs and ultimately an increase in Days Sales Outstanding

(DSO)

Order to Cash Lifecycle

Customer Invoice

Generated

Supplier

Invoice Receipt &

Adjudication

Payment

Processed

Buyer

Payment

Received

Reconciliation and

Cash Application

Supplier

3

Current Landscape (cont’d)

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Paper to electronic migration is happening, but check remains a dominant payment method

Source: 2016 AFP Electronic Payments Survey

Percentage of B2B Payments Received via Check Payment Method Used to Pay Major Suppliers

75%

64%

54% 50%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2004 2007 2010 2013 2016

Checks (41%)

ACH Credits (34%)

Wire Transfer (13%)

P Card (5%)

ACH Debit (3%)

Other Cards (2%)

Single Use (1%)

Other (1%)

4

Current Landscape (cont’d)

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Business Catalysts for Increasing Electronic Payments

Source: Institute of Finance and Management

Fraud Mitigation (10%)

Cash Flow (6%)

Error Reduction (3%)

Operational Efficiency (43%)

Cost Reduction (12%)

Increased STP (25%)

 Strong desire and business rationale to move towards

electronic payments

 Significant barriers to acceptance remain

5

Business AR Challenges

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 Lack of straight through processing leads to increased expense & inefficient resource allocation

 Electronic delivery ≠ straight through processing in all cases

 Remittance information does not travel with the payment & requires manual re-association

Source: 2016 AFP Electronic Payments Survey

Methods of Receiving ACH Remittances

(Percent of Organizations)

3%

4%

5%

11%

15%

18%

18%

22%

55%

0% 10% 20% 30% 40% 50% 60%

ISO 20022

Other

Supplier Website

Third Party Website

Fax

EDI CTX/CCD

Customer Website

Mail

Email

6

Business AR Challenges (cont’d)

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 Process automation and achieving straight-through processing can help deliver a number of business

objectives

Source: 2015 Celent Survey of AR Practitioners

Corporate Accounts Receivables Goals

11%

12%

12%

21%

30%

33%

35%

39%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Improve AR STP rates

Reduce unauthorized discounting

Increase same-day AR posting rates

Streamline handling of remittance info.

Reduce AR processing costs

Migrate payers to preferred e-pmt. Method

Increase electronic payment rates for AR

Reduce DSO

7

Integrated Receivables

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 To address growing challenges along the financial supply chain, banks and Fintech providers have

started to develop integrated receivables solutions

 Integrated receivables platforms vary widely in terms of functionality

 Consolidated Receivables Reporting

 Automated Remittance Capture and Payment Matching

 Receivables Matching

 Exception Management

 Artificial Intelligence and Machine Learning

 Data Analytics

8

Integrated Receivables (cont’d)

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Integrated Receivables

Acceleration of Cash and Information

Application

Payment & Remittance

Analytics

Match Payment

and Remittance

Details

Exception

Management &

Deduction

Management

Consolidated

Reporting, File

Output and

Alerting

Holistic Customer

and Payment

Analysis

Trend Analysis

and Cash Flow

Forecasting

Benefits

 DSO Reduction

 Operational Efficiency and Cost Reduction

 Increased STP

 Facilitates Paper to Electronic Conversion

 Customer Behavior & Root Cause Analysis

 Reduced IT Support

9

Virtual Accounts

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 What are virtual accounts and how can they help with receivables management?

 Virtual accounts are essentially non-physical accounts that can be used to help streamline cash application

 Funds report at the VA level, but money posts to the physical account

 Ongoing management of virtual accounts can be on a self service basis (open and close through online interface)

 Can help facilitate treasury centralization or receivables on behalf of models

10

Virtual Accounts (cont’d)

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How it works

Stage 2Stage 1

Integrated

Receivables

Customer

AR or ERP

222-123456 XXX Co

40,000.00 40,000.00

222-654321 YYY Co

13,500.00 13,500.00

222-111111 ZZZ Co

4,500.00 4,500.00

Combined with our Integrated

receivables management solution the

Virtual Account first identifies the

payer and then matches the

amount/remittance details with open

AR file

Virtual Account 1

2 2 2 1 2 3 4 5 6

Payor 1: XXX Co

Amount: USD40,000.00

Virtual Account 2

2 2 2 6 5 4 3 2 1

Payor 2: YYY Co.

Amount: USD13,500.00

Virtual Account 3

2 2 2 1 1 1 1 1 1

Payor 3: ZZZ Co.

Amount: USD4,500.00

Customer can identify the payer

(remitter) by matching the Virtual

Account number (in red) - as found on

electronic statement or integrated

receivables file - with the payer to

which was originally assigned the

Virtual Account.

Customer Account

(Physical Account)

24 April 2018

CR VA 222-123456 40,000.00

CR VA 222-654321 13,500.00

CR VA 222-111111 4,500.00

11

Real Time Payments

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 Real-time Payments (RTP) combines immediate funds availability, settlement finality, instant

confirmation, and integrated information flows

 Contextual data needed to identify a payment and the reasons for exceptions can accompany a

payment

 Two-way communication between trading partners within the secure system

 Request for payment capability allows supplier to send payment request to customer along with invoice

information

12

Real Time Payments (cont’d)

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Seller/Payee

Shipping Order Entry

System

Order Fulfillment (ASN)

Buyer/Payer

Accounts

Receivable

Accounts

Payable

Seller Issues Request for Payment

Exchange of Payment Messaging

Payment Initiated

Send and Receive Funds 24/7/365 in Seconds

13

Electronic Invoicing

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“An electronic invoice is one that has been issued by the seller, transmitted and received by the buyer in a

structured digital format which allows for automated processing.”1

 Electronic invoicing (e-invoicing) enables straight-through-processing from “order-to-cash” and “procure-to-pay” for

business-to-business payment transactions

 e-invoicing approaches are diverse and complex. Differing standards are used depending on the size of the company,

industry, and country

 U.S. e-invoicing is estimated to be 24% of total bills/invoices generated (6.8 billion out of 30 billion total)2 and is growing

about 5% annually3

 FRB Business Payments Coalition e-Invoicing work group

Sources:

1. FRB Payments Improvement Catalog of Electronic Invoice Technical Standards in the U.S.

2. E-invoicing/E-Billing: Entering a New Era Billentis

3. 2014 Global eInvoicing Report, PayStream Advisors, 2014

14

Electronic Invoicing (cont’d)

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Biller Benefits

Source:

1. Paystream Advisors 2014 Global eInvoicing Report

2. FRB Payments Improvement Catalog of Electronic Invoice Technical Standards in the U.S.

Cost Reduction One estimate shows that businesses can save $4-$8 per invoice when

migrating from paper to electronic1

Improved Efficiency 92% of invoices received electronically are approved and paid on