Receivables and payables
operations are the source of many challenges for corporates and
financial institutions around the world. As Victoria Conroy
reports, the nature of these challenges is very much dependent on
the size and type of the organisations involved.
all sizes recognise the need to have well-functioning receivables,
treasury and payment collections operations, as the more efficient
they are, the less dependent organisations are on external sources
of credit and funding – which have been particularly hard to come
by despite many economies coming out of recession.
But significant challenges remain
due to a complicated mix of factors, ranging from the type of
payments received, the size of the organisation and whether it is
B2C or B2B.
Shining a spotlight on these
particular challenges is a new report, Insights into Corporate
Receivables, published by US payment research consultancy Aite
Group. The report surveys senior US-based receivables and treasury
managers from corporations with annual revenues of $1bn or
It notes that average day sales
outstanding (DSO) is an important measurement for receivables
processing, as it determines how quickly a company collects on
consumers’ bills and companies’ invoices. The overall average DSO
is 44.5 days, according to the report, but approximately one-third
of survey respondents have worse (ie, longer) average DSOs than the
total group and three-quarters of respondents have average DSOs of
greater than 30 days, which is standard payment terms for consumers
The importance of
Straight-through-processing (STP) represents full
automation of the receivables and cash application processes, and
is popular with companies as it leads to quick, accurate and
inexpensive processing of payments and related data. Approximately
half of surveyed companies’ receivables are STP, while the other
half require manual intervention, meaning there is significant room
for improvement in receivables and cash application STP.
However, when it comes to the main
challenges regarding receivables processing, the situation is
complex. Respondents gave a wide range of responses, but 23% cited
timeliness of payments from payers as a major area of concern,
followed by internal processing delays or errors (cited by 17%).
Other pain points included matching and reconciling payments to
invoices (15%) and the weak economy and its impact on the financial
strength of buyers (11%).
The size of an organisation may
also determine the scale of the pain points – according to the
report, respondents from companies with annual revenues of $5bn or
more mention invoicing issues as their top challenge, more
frequently than respondents from companies with annual revenues of
$1bn to $4.9bn.
Provision of remittance
Automated provision of remittance details and the matching
of those details to original invoices is key to improving STP.
Financial EDI was developed to
provide remittance information in standardised formats that allowed
companies to automate the receivables posting process. However, EDI
is expensive and complicated to implement, so EDI solutions have
mostly been implemented by large companies and their suppliers.
18% of respondents indicate they do
not use EDI and more than 70% say their company seldom receives
remittance details via EDI (less than 25% of the time). EDI is not
adequate as the only method for automating the receipt of
remittance details. If details are not provided by the payer to
apply payment, rarely do receiver companies request remittance
details from payers – only a quarter of receivables companies
request data from the payer 25% or more of the time. It should be
noted, however, that remittance details may be supplied separately
from the payment via e-mail, fax, telephone or regular mail.
Details received through these channels are usually not automated
feeds to companies’ receivables systems, so do not support STP.
Therefore, it’s no wonder companies
experience delays in posting payments and updating receivables.
Much of the receivables and cash application staffs’ time is spent
reconciling payments received with invoices sent. Receivables
processing continues to be fraught with inaccurate and incomplete
data and a lot of manual intervention to resolve discrepancies.
Companies with annual revenues of
$5bn or more are apt to experience higher negative impact from
existing infrastructures’ shortcomings, in support of electronic
payments (39% cited “major negative impact”), than companies with
annual revenues between $1bn and $4.9bn (11%).
larger the company, the more likely it is to have invested in
technology that needs to be upgraded or replaced to support its
current processes. Larger companies want to do more than replace or
upgrade antiquated systems; they seek additional value from their
systems investments, including real-time solutions and more
detailed remittance information in usable formats.
However, companies that primarily
receive business payments fare better than those that primarily
receive consumer payments – 45% of the former cited “major/some
negative impact” compared to 63% of the latter. However, companies
with 60% or more business payments experience greater pain than
companies that have mixed consumer/business payments, with 45%
indicating “major/some negative impact” from their infrastructure
not supporting electronic payments well, compared with only 23% of
companies receiving mixed payments.
Another major negative impact is
the lack of real-time remittance processing, which was cited by 27%
of companies with annual revenues of $5bn or more, compared to only
5% of companies with annual revenues of $1bn to $4.9bn. 42% of
companies with annual revenues of $1bn to $4.9bn indicate “lack of
real-time remittance processing” has “no impact” on their
businesses, whereas only 24% of companies with annual revenues of
$5bn or more say there is “no impact” on their businesses.
Despite companies’ continued push
to eliminate paper processes in order to reduce costs, 41% of large
companies receive payments through the mail. Online payments are
received by an average of 18% of respondents, while 13% report POS
Online channels in particular
clearly have room for further penetration, especially for bill and
invoice payments. E-invoicing presentment and payment (EIPP) used
for B2B transactions represents, on average, 12% of received
payments. Its corollary on the consumer side, e-bill presentment
and payment (EBPP), provides an average of 9% of payments.
When EIPP is used, the provision of
remittance details is more common and accurate because the payment
can be generated directly from an approved invoice. Therefore,
receiving companies should actively encourage use of this channel.
Considering the state of the economy and regulations that demand
greater accountability, even payers are embracing EIPP.
By receiving e-invoices, fewer
invoices are lost in routing or misfiling, and payables processes
can be optimised to take advantage of desired discounts. Further,
progressive buyer companies facilitate credit for their suppliers
by giving financial institutions access to information on invoices
scheduled for payment.
Looking specifically at commercial
payments, the report notes that these tend to be in response to
invoices. While the number of invoices issued per year by surveyed
companies range from “fewer than 25,000” to “5m or more”, the
middle number of annual invoices is 550,000, or nearly 46,000
invoices per month, while the mode (most frequently named number)
is 1m, or approximately 8,300 per month. Almost 30% of survey
respondents report that their companies issue 1m to 4.9m invoices
per year, and nearly a quarter issue between 100,000 and 999,999
invoices per year.
Business payments are presented to
corporations via cheque and automated clearing house (ACH)
payments, at 42% and 28% respectively. Cheques are intractable in
B2B payments because of their ubiquity. Wire transfers round out
the top three payment types used in B2B transactions at 17% of
received business payments displacing credit cards because of their
same-day settlement and finality of payment attributes. Commercial
credit cards comprise 8% of the total number of monthly business
payments received; respondents cited them as the newest methods for
received business payments.
Although almost 20% of respondents’
companies receive no cheque payments, the overwhelming majority do,
with the average percentage of total monthly cheque payments at
respondent companies being 42%. B2B ACH payments tend to be credit
payments initiated by the payer company (as opposed to direct
debits, which are mostly used to draw out consumer payments from
consumers’ bank accounts on a pre-approved basis). On average,
nearly 28% of monthly business payments are received via ACH,
despite almost one-third of respondents indicating that they do not
receive ACH payments from other businesses.
Only about half of companies
receive wire transfers for monthly payments, but wires still make
up an average of almost 17% of total business payments per month.
Companies that receive wire transfers get a fairly significant
percentage of their business payments that way. Wires are primarily
used for high-dollar-value payments that are time-critical and for
which settlement finality is desired.
Commercial cards make up an average
of 2% of total monthly payments. Almost 60% of surveyed companies
do not receive commercial card payments – commercial cards tend to
be used at the POS for employee purchases or as single-use accounts
for departmental orders. There is movement towards expanding the
use of commercial cards to more strategic purchases but many
suppliers resist accepting cards for larger purchases due to
interchange pricing, which can make the cost of accepting cards
When it comes to debit cards,
survey respondents indicate average payments comprise about 2% of
total monthly business payments. Debit cards are used more by small
businesses or represent prepaid cards. They are seldom used in B2B
transactions; their adoption for B2B payments will grow more slowly
than consumer use of debit cards.
In perhaps the most contentious
statement in the report, Aite says commercial card payments could
grow exponentially if the card industry adjusts its policies,
whether through changes to interchange, pricing or other fees.
But Aite acknowledges the important role that such cards play:
“Since these cards are able to include remittance details that can
be applied automatically to suppliers’ accounts receivables, they
could be a highly valued payment mechanism.”