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Editor’s note | The following article was submitted to us by Abe WalkingBear, and can be viewed in full here. It comes from our previous discussion on Buyer Initiated Payments.
Phoenix, AZ:
It happened again.
Following my delivery of an after lunch presentation titled “What Top Business Managers Don’t Know About Credit and How It Hurts Their Company” several people approached me and said that they had planned to eat and then skip out on my presentation, but they were sure glad they hadn’t.
This group of distribution and manufacturing executives were no different than many other top business managers who still equate Credit with accounting and with risk management.
They learned a different way…and went away with their thinking changed.
In his book, The Structure of Scientific Revolutions, first published in 1962..Thomas Kuhn defines a paradigm as an accepted set of givens which provide a model problem and a successful solution that works for that time. And as things change the old paradigm becomes incompatible with the new reality. New knowledge in time brings about a shift, a Paradigm Shift.
The Old Credit Paradigm
The folks in Phoenix., like many other business executives, were caught up in thinking about credit in much the same way as their fathers and grandfathers did in the 1950s…but today’s world is very different and the old risk management/accounting thinking must give way to a new understanding if modern companies are to utilize their credit area to its fullest profit potential.
The 1950’s were very much defined by W.W.II which preceded the 50s. It was a time of pent up demand and growing demand for goods and services, it was a time of Americans having money in the bank or in war bonds, it was a time of great social change worldwide and a time of limited competition .
In a seller’s market, with people standing in line to buy things, credit was seen as a privilege, as a favor to some and not others. In such a business environment the focus was rightly placed on avoiding the risk of customers failing to pay, of incurring bad debt losses. DSO, average turntime on the A/R, and % bad debt were appropriate performance measurements when the goal was risk management .
Credit In Today’s World
The shortages of the 50s are long gone.
In today’s world of rapid change, of mergers, of huge international companies and of increasing local small businesses, of big box stores and of cyber competition the old risk management paradigm is a handicap.
Last year my colleague Declan Flood , Executive Director of the IICM http://www.iicm.ie/ , visited America for the first time. Prior to coming to America I said to him that like Ireland, it is a land filled with mini-storage warehouses, of basements, attics, garages and storage sheds crammed full of stuff…only more so. The shortages of the 50s are long gone, along with people having savings. Monkeys? We didn’t evolve from monkeys…but from pack rats.
In 2007 things are very different from the way they were in the 50s.
In order to compete modern companies must have quality in their products and services and quality in the way they carry out business functions. A lack of quality in a business will lead to increased cost of doing business for everyone involved in a transaction and in time to the failure of a company to survive, much less turn a profit.
The Profit System of B2B Credit
While the following explanation of the Profit System of B2B Credit addresses the purpose, the policies and lightly touches on people requirements and performance measurements of commercial or B2B credit; the same concepts apply to B2C or consumer credit.
However, a major difference between extending credit to consumers and to businesses is that there are many more consumers than there are businesses. And while, almost across the board, consumer customer service levels continue to hit all time lows; companies can and will stop buying from a supplier/vendor who abuses them, who drives up their cost of doing business…as will the next generation of managers. Long after the memory of failure fades the bitter taste lingers on.
Purpose:
The only reason for a business to incur the additional costs that go with extending credit to their customers is to get a profitable sale that would otherwise be lost.
If business customers have the ability and wiliness to pay up front extending credit should not be considered. If they can cut a check with the order… grab it.
Credit is a lubricant of commerce and allows for the expanded movement of products and services.
Policies:
Every business function can be broken down to its major components…every business function.
Understandable and thereby achievable goals can then be established for each of the major components. Policies are goal driven guidelines.
The major components for the credit function are credit approval, past due A/R management (Not Collections) and internal communications.
If credit is extended to get profitable sales that would otherwise be lost then it follows that the goal of credit approval should be to find a way to say yes to profitable sales while remaining confident of payment.
The vast majority of past due customers are not out to avoid payment. Past due A/R Management is not collections, the enforcement of payment, it is the process of completing the sale.
The goal of past due A/R Management is to keep customers current …and buying. The most profitable sales are often repeat sales to the same customers.
In the course of approving new credit customers and in resolving the many things that can and do go wrong in B2B commerce, the credit function interfaces with customers, vendors, and with many different internal departments.
This places the credit function in an ideal position to identify and communicate areas of opportunity for improvement which in turn leads to the constant improvement of how things are done. And that leads to controlling the cost of doing business for everyone involved.
People Requirements and Performance Measurements:
First and foremost the people carrying out the credit function must be able to communicate. Before you ask for a resume ask for a ten minute telephone interview.
Measure the performance of credit approval based on the % of applied for dollars successfully approved…or even exceeded.
Measure the performance of past due A/R Management based on % current to 30 days past due..and remember this is a general guideline and there are always possibilities for profitable exceptions.
Measure the performance of Internal Communications based on the number of improvements identified.
Summary
Whatever we focus on and we give energy to, grows.
Business executives who continue to think of their credit function as a negative, as a cost center, as a necessary evil and as the ugly step-child of accounting …do so at their own risk.
And they may hurry through lunch and miss out on the desert.
Abe WalkingBear Sanchez is an International Speaker / Trainer / Consultant on the subject of cash flow / sales enhancement and business knowledge organization and use. Founder and President of www.armg-usa.com , WalkingBear has authored hundreds of business articles, has worked with numerous companies in a wide range of industries since 1982 and has spoken at many venues including the Shakespeare Globe Theater in London. A hard hitting and fast paced speaker, he brings life and energy to a critical business function whose true potential has yet to be realized by most businesses.
Atradius, Irish Institute of Credit Management, Cimex Training, Export Development Canada, Vistage, CU, CSU, Texas A&M, National Association of Credit Management - Midwest, HTDA, BCFM, Poli Hi Solidur, Skinner Nurseries, Deardens, Rain Bird, STAFDA, IBM, University of Industrial Distribution, are but a few of the groups, schools, companies and associations for whom WalkingBear has conducted programs.
WalkingBear can be reached through:
A/R Management Group, Inc.
P.O. Box 457
Canon City, CO 81215
(719) 276-0595
email: abe@armg-usa.com www.armg-usa.com
The word “outsourcing†is still taboo in many finance and accounting circles. For many people, outsourcing conjures up images of large scale lay-offs and your friends and neighbors out of work. Or worse still, if the outsourcing mantra takes over your company, you could be the one looking for another job. As Harry Truman said “it’s a recession when your neighbor loses his job; it’s a depression when you lose yours.” We would like to ensure that there is nothing for employees to worry about when an organization has outsourcing on its agenda. Though it might sound like an oxymoron, outsourcing could, in fact, be the result of a company’s growth, rather than a downsizing effort.
A company that is growing rapidly might investigate outsourcing accounts payable functions to keep up with its growing invoice volume, instead of adding additional in-house full-time employees. Or a company might want to leverage the expertise of a third-party service provider to increase process efficiencies in its AP department, while allocating its internal resources to more critical tasks or redeploying them to other functions. Finally, another scenario where outsourcing makes perfect sense is when it is considered in lieu of large investments in the latest technology to manage AP processes.
Whatever the reason your organization may be evaluating outsourcing options, it is important to understand that it doesn’t necessarily mean job losses and unhappy employees; it can actually be a positive initiative for the AP department. PayStream is developing an in-depth Technology Insight Series report on “Accounts Payable Outsourcing” that will be released in early 2008. In addition to providing an overview of the finance and accounting outsourcing market, the report will profile leading providers of AP outsourcing services. We will keep you posted on updates to the report!
Digital Vision based in Northwich, Cheshire, United Kingdom is a system integrator who specialises in accounts payable automation. Its solutions are based on Kofax’s Ascent (DICOM), a data capture product that scans invoices and other purchase-to-pay documents. Through Optical Character Recognition (OCR) and Intelligent Character Recognition (ICR), Ascent converts data from paper to electronic data which can then be automatically fed in to an accounts payable system. As you very well know, this is not a bullet-proof solution, nevertheless it has a place in the current market until EIPP becomes the norm. Digital Vision also offers workflow and content management solutions to extend their data capture capability.Digital Vision has about 70 customers, some being UK based blue chips such as Barclays, BAe Systems, BUPA, DSGi, Countrywide, HBoS, Abbey/Grupo Santander and many SMEs. Founders Dennis Wright, and Peter and Robert Goodwin have done remarkably well to have such great names as clients on their books.
BasWare has acquired the entire share capital of Digital Vision for EUR 9.2 million, to be paid in two parts. EUR 9 million is to be paid upon completion of the acquisition. The remainder to be determined by Digital Vision’s net assets on the Interim Financial Statements on 31st August 2007 and to be paid by the beginning of October 2007. This could be interpreted as few anomalies on the balance sheet that require clarification.
It’s good to hear that BasWare intends to continue to employ the current management. This is a typical announcement at acquisition stage, for specialist companies such as Digital Vision. Organisational cultures will determine the survival of the management, plus whether the key shareholders would be keen to continue to build the business having worked so hard from inception to sale.
The acquisition strengthens BasWare’s presence in the UK market, both in terms of number of staff (about 70) and market share for data capture solutions (combining the offerings of Kofax led sales and BasWare’s own data capture solutions).
According to Hannu Vaajoensuu, Chairman of BasWare
“As a result of the acquisition, BasWare gains a leading position in the UK Enterprise Purchase to Pay market, be it in terms of the number of customers, net sales or the size of the organization. Additionally, we will gain valuable expertise on data capture and management. This improves our competitiveness in especially the financing segment and among multinational, large corporations. The expertise can be utilized within the global partner agreement we recently signed with DICOM”.
If you want repeat of this story with bit more juice, please click here.
Just this past week, Henry Ijams and I were talking about how, despite the rapid gains in the ePayables world, financing and integration continue to be problematic. Case in point: A client mentioned that early payment discounting is very inticing, yet currently out of thier reach due to lack of liquidity to invest in paying suppliers early. Henry and I went on to conclude that, until a solution came along to offer easy access to supply chain financing in the order of magnitude of, say, a p-card solution for larger ticket purchases, many discounts would continue to be lost even as technology for capturing became evermore sophisticated.
Enter JPMorgan Chase. They walked us through their newest ePayables solution on Friday, and Henry and I were not just impressed - we were blown away that the new Xign owners have responded so quickly to this giant market opportunity. AP Trac is being marketed as an integrated solution, a sort of “killer app,” so to speak, for the electronic payables market.
AP Trac, along with ExacTrac(SM) and pre-built adapters of the Xign Order-to-Pay solution, looks to give finance and AP managers the control they need to move to ePayments , while making financing and discount capture a reality in a way it had not been before. AP Trac uses the same ExacTrac single-use card functionality to pay suppliers electronically via a consolidated interface with their ERP System. In instances where the buyer doesn’t have the funds for early payment, JP Morgan can advance funds on behalf of the payer and settle with them up to 30 days later. Of course, you have to be credit approved by JP Morgan.
AP Trac leverages an enormous amount of technology in its Purchase to Pay integrated approach. JPM Xign calls this their Order to Pay product. A web-based environment provides a variety of tools for PO authorization, buyer initiated financing, fast invoice reconciliation, and dynamic payables discount capture.
Perhaps the most exciting feature of the system, however, is its ability to inject supply chain financing on a large scale. Common wisdom is that 80% of business-to-business transactions are settled with checks - In the AP automation world, we’re constantly made aware of the inefficiency of standard B2B payment processes. But even for those companies that have begun to take full advantage of electronic payment solutions, the promise of on-demand supply chain financing on the scale that JPMorgan Chase is offering is very exciting. More payers will be able to offer dynamic discounts for their suppliers.
The AP Trac mechanism is a sort of virtual account which settles the payment via the card network or ACH. Regardless of the settlement mechanism, the seller gets a postable ePayment together with full remittance details. According to our latest research report on P-Cards titled Purchasing Card Management: Technology is a Savings Tool, the average p-card transaction is $270; Paul Simons of JP Morgan Chase’s Global Treasury Services says that virtual account transactions are on average five times larger. In effect, JP Morgan Chase’s AP Trac system allows its clients not just for a highly efficient ePayables solution, but also for the financing required to consistently take advantage of dynamic discounts.
This is an exciting turn of events - Needless to say, it is rare to see solutions that take into account such a wide scope of business payment transactions. I’m sure that we will continue to be discussing AP Trac here at Paystream Voices.
PayStream analysts recently held a briefing with Basware to discuss the company’s AP automation solution – BasWare Invoice Automation (IA) – and understand its value proposition to clients. Basware is a Finnish company that now has operations in over 20 countries worldwide. BasWare IA applications enables its clients to automate all invoice types including purchase order (PO) or contract based invoices, recurring invoices as well we non-PO invoices that require review and approval.
Basware IA solution sets the company apart in several ways. Firstly, depending on your business needs, one can choose between using BasWare’s proprietary imaging solution – FastScan – and integrating the solution with a third party scanning application. Another differentiator for Basware’s solution is in its robust workflow tool, which offers most of its functionality out-of-the-box. BasWare prides itself on the fact that clients can “configure†the solution to meet their requirements rather than having to go through the time-consuming process of “customizing†it. Such an implementation can be completed in as little as 6 to 8 weeks.
We were also impressed with the fact that Basware has experience integrating its AP solution with over 175 ERP systems, resulting in a solution that can not only post transactions seamlessly to the clients’ General Ledger applications, but also gathers information, such as the vendor details, tax tables, etc. required for matching or approval from back-end accounting systems. Users also find the data archiving features helpful, as all activity performed in the solution is logged with date and time stamps. Further, if an organization elects to use a third party content management system, Basware can integrate with that as well.
The 3rd ExPP Summit was held on 10th and 11th of September at Millenium Glocester Hotel in London. I attended both days as a guest of Bruno Koch of Billentis. Bruno, who organized the event with Johannes von Mulert of Vereon AG, is to be congratulated for hosting an excellent gathering of the European e-invoicing community.
In the evening of the 1st day, I had the opportunity to speak to both Bruno and Jahannes. Whilst Bruno brings e-invoicing domain expertise and industry connectivity, Johannes brings skills and resources necessary to organize such a large event. Together, they have delivered a superb conference packed with users and providers of e-invoicing solutions as well as other stakeholders such as banks, regularity and legislative authorities. Johannes was fascinated by web 2.0 activities in the UK and is attempting to create a buzz in the Switzerland. I introduced him to the OpenCoffee concept as an excellent way to promote technology entrepreneurship in Switzerland. I also discussed with Johannes of my ambition to hold two e-invoicing seminars in the UK, one in the North and the other in the South.
This idea was generally well received by number of UK based vendors. My thoughts are of holding an event solely focusing on the corporates, perhaps inviting 30 or so prospects with five service providers. Keep it small, but effective. I know I have the full support of Henry Ijams at Paystream Advisors.
The only criticism I can draw on ExPP Summit is that it was not meant for users of technology but for providers of technology. Whilst EDI has been around for 40 odd years and XML based products has been around for seven or so years, we have achieved very little traction in terms of penetrating the market. According to Bruno, this sits around 3%. If that is the case, the priority ought to be “education education education” and not about technology - especially not about features and functionality. Unfortunately, ExPP Summit misses the opportunity to address this vital issue. Hence my thoughts of organizing two events in the UK.
I spent significant amount of time speaking to vendors, notably Accountis, OB10, Ariba and JP Morgan Chase. Ifor Williams of Accountis made some key introductions to those who are trying to address the issue of roaming. I personally do not like this terminology, but 100% behind the desire to interconnect e-invoicing networks.
According to Bruno, there are about 250 vendors operating in the European market, and he predicts this number to increase to 400 in 2009, a 60% increase with 15% market penetration. He also believes most vendors will achieve low penetrations of under 1 million transactions a year, resulting in eventual market consolidation. This belief has resulted in Bruno offering mergers and acquisition services. As you have already read in this blog, I have also discussed acquisition opportunities with one US company recently. I hope Bruno’s prediction will come true. This will certainly increase the level of activities injecting further funding into the sector, which will fuel development of new services as well as expansion both in terms of geographical coverage as well as provision of vertical solutions.
I always consider Bruno as the real guru of e-invoicing. Over the years Bruno has gathered significant market data. I will comment on this later once I get my hands on the relevant slides.
I also had the opportunity to meet Jamie Gunn, CEO of OB10 and Anders Hellermark of Trustweaver on 12th. I will cover these separately, as well as bringing more posts on the Summit. This is really a quick note to cover the event in brief as I have not kept up with blogging recently.
In a recent PayStream analyst briefing with Frank Davis, Managing Director of Sales & Marketing for PurchasingNet, Frank identified the greatest challenge he’s facing in marketing the new dynamic discounting module, Early Payment Discount Management, for PNet: Poor Cash Flow. Here’s what we uncovered:
Despite the promise that dynamic early-pay discounts hold for dramatic improvements in Supply Chain Finance management , the reality is that many companies struggle to pay their suppliers on-time. Indeed, the idea of moving a payment “forward,” whether in an automated on-line environment such as PNet’s Invoice Management solution, or any AP Automation solution, is not attractive for all buyers.
In our opinion, we don’t think there will be enough demand from corporates to trigger a wide-scale shift in corporate culture until we see more banks and finance companies start to advance funds on behalf of their corporate payers, much the way they do for corporate Purchasing Card purchases. In fact, the sort of adoption rates that will make large-scale adoption of dynamic payables a “best-practice†amongst the mainstream of companies is dependent on the development of the credit conduits to make this possible — likely three or more years off.
Regardless, listening to Mr. Davis and his associate Erinn Tarpey, Marketing Manager of PurchasingNet, two things become quite clear: First, they are passionate about their new PNet features and approach it intelligently and with a sound business strategy — supporting the evolution of thier customers. Second, that they see this sort of dynamic payables relationship along the supply chain as the future of supplier-to-business transactions. And they represent a company that has built the tools to accomplish it over the past 27 years. PNet really knows where this market is headed and is trying to shape the future. PNet has a very impressive team.
Offers suppliers the flexibility of discounting some or all of their receivables, eliminating the need to utilize high-cost financing options like factoring or asset-based lending to obtain cash liquidity and stronger balance sheet positions. It also mitigates the uncertainty surrounding the timing and amount of payments, allowing for superior cash flow forecasting capabilities.
Theoretically, dynamic discounting is a simple and obvious idea: That a supplier can allow its buyers to, in the event of various cash-flow and liquidity needs, elect to change payment timing “dynamically” without negotiation. A predefined algorithm calculates a discount on the supplier’s end as a “fee” for moving the original payment date forward, based on the difference in days from the original date to the new date.
The problem is that buyers and suppliers need new collaborative tools like PNet to make the process efficient and entirely software driven. The lynch-pin of dynamic discounting is that there are no negotiations on a new price, rather a flexible arrangement which allows for a supplier to be paid early based on their current needs.
Mr. Davis and Mss. Tarpey are certainly convinced that they are moving in that direction with their dynamic payables module for PNet, developed in-house in coordination with Liz Claiborne, a client. The module provides a multitude of tools for a supplier’s business partners, including a fully functional web-based environment. We were very impressed with PNet’s vision and aggressiveness in getting deeper into the business of AP Automation.
Collaboration is the highest form of business. Discussion, team effort, and collaboration - This is the very definition of today’s workforce. In the spirit of that, I was so pleased tonight to read Manoj Ranweera’s two-post discussion of his collaboration with Paystream Voices. I encourage everyone to read it. After a successful Accounts Payable webinar today, and the beginning of true blogosphere team, it is hard not to be hopeful for the future.
Since my entry into EIPP space 3 years ago, I have collected a vast number of documents on EIPP and related subjects (one reason for edocr). Among these were white papers and analyst reports produced by Paystream Advisors, which I found very informative especially with respect to understanding the US market. Over the years, I have come to respect Henry Ijams and his fellow analysts over their deep understanding of the Electronic Invoice Presentment and Payment (EIPP) and Supply Chain Finance (SCF). So can you imagine how delighted I was when Mitch Baxter of Transcepta asked whether I would like a personal introduction to Henry Ijams?
My first encounter with Henry took place less than 2 months ago and it became very clear to both of us that it made sense for us to work together. Henry was very interested in my blogging activities and the result is what you now know as paystreamvoices. Blogging allows Paystream to move from traditional analysis environment to new territory, not so much in terms of extending the services offered or markets and industries covered, but giving interactivity to what they do best. This should result in extending the loyal readership Paystream already has. I am a great believer that every corporate marketing strategy must include blogging as a mandatory component. If your’s does not, talk to me. A great example is Sun Microsystems.
I must thank William Donavan for his superb introduction, most of which I do not deserve. Will and I correspond on regular basis these days. Blogging helped me to establish myself as someone who has an understanding of the EIPP and SCF, as well as an entrepreneur. It also resulted in establishment of number of partnerships in early days for ebdex, notably with Pegasus. Blogging breaks corporate barriers - make it easy to do business. Bloggers also need to understand the impact their work has on others, both at corporate level and individual level (will address this through a separate post either here or at my place).
I see my role here as bringing awareness of the European EIPP and SCF to Paystream readership. I think you will also find my style of writing is different from Paystream, less structured and more opinionated. I hope you can forgive me for being less professional, after all I am a blogger trying to become an analyst. In conclusion, I am delighted to be part of the Paystream blogging family.
Electronic procurement – or e-procurement as it was known during the heydays of the dotcom era, when it was fashionable to use the “e†word with everything – has experienced an interesting lifecycle. In the e-procurement space, organizations have seen everything from hype to horror and now acceptance and even growth. During the late 1990s and early 2000s, owing to the maturation of Internet technologies and the astronomical growth of the Web to conduct business, almost every organization has “automation†on its corporate agenda, and e-procurement appeared to be a good place to start.
A plethora of procurement automation solutions cropped up in the marketplace and organizations were rushing to implement these in the hope of achieving tremendous cost savings, enhanced spend managed capabilities and improved supplier relations. Unfortunately, not every adopter of e-procurement saw the anticipated benefits materialize. The biggest stumbling block faced by these early adopters was their inability to entice suppliers to jump onboard the automation bandwagon. As is the case with most automation solutions – that aim to improve the exchange of information and funds between trading partners – getting suppliers to invest in the technology and change their business processes is never easy.
However, organizations learned a big lesson; technology cannot be the be-all-and-end-all of an automation initiative, rather it is just an enabler. The key to a successful e-procurement program lies in the redesign of the procurement process and a strong strategy to leverage the available technology to meet each organization’s specific business requirements. Research from PayStream Advisors is uncovering an renaissance of interest in Web-enabled procurement solutions – especially applications that have been enhanced by purchasing cards, approval workflow technologies and integration with online vendor catalogs. Results to PayStream’s Financial Automation Survey (FAS) revealed that 23 percent of respondents are already using an e-procurement solution, while another 4 percent and 22 percent respectively are in the deployment and planning stages.PayStream is developing a Technology Insight Series report in the Electronic Procurement space, which will be available through our website in October 2007.
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