PayStream Advisors delivers unbiased, third-party market trend information, assessments of financial automation technology, and innovative ideas to business leaders in healthcare, consumer billing, finance and treasury, accounts receivable and accounts payable. | Read More
The regulatory environment surrounding sales and use tax is much more complex than most people realize…at least until you consider that there are over 13,000 taxing authorities in the USA, and that they made over 1400 rate changes in 2007. Jurisdictional boundaries are constantly changing, too. Incorporated municipalities regularly annex adjacent tracts of land, regional school districts often add or drop students from neighboring municipalities and so forth. And while a jurisdiction’s sales tax rate may be quoted as 6 percent, the price point at which the next penny of tax is collected can vary from the first dollar to the second and even beyond.
How a product is used can also affect its taxability and multiple layers of taxing authorities create additional variables. The typical fortune 500 corporation will offer over 1000 unique products and services, and will file returns each month with more than 74 different tax jurisdictions. Even if everything you sell is for resale, you still need to validate sales tax exemption certificates. In order to get it right and to then process all the filings requires significant dedicated resources.
Dealing with government auditors is another drain on resources. With state and local jurisdictions strapped for cash, government revenue departments are increasingly turning to audits to boost cash flow. The dollars involved are huge. Thirty-five states rely on sales tax for over 25 percent of revenues. The states also claim that e-commerce reduced sales taxes by a whopping $21.5 billion last year, and they are finding innovative ways to get their piece of that pie. For example, New York State has enacted the so called ‘Amazon Tax,’ which attributes nexus to online stores that merely get customer referrals from other websites based in New York.
As a result, businesses are turning to Tax Compliance Automation (TCA) solutions to address the complexity of their sales and use tax environments. TCA provides a set of technologies that ensure the accurate calculation and timely reporting of sales and use tax. Central to TCA solutions is a tax engine that addresses buyer and seller types, product taxability, order amount, tax jurisdiction identification and tax rates. The technology is supported by managed services that provide continuous rate updates and ‘geo-coding’ to correctly identify buyer and seller nexus. Together, software supported by managed services, enterprises are finding TCA solutions dramatically increase accuracy while reducing overhead.
We talk a lot about Business and Financial Process Optimization at PayStream. To quote Austin Powers, “It’s our bag.” But these two terms are fuzzy and often used in the industry without really drilling down into what exactly they do and/or mean.
I personally believe the novelty and uniqueness of our approach lies in the methods and goals we advocate for. Specifically, we underscore the Payment Tsar and the Payment Quotient as the primary goals of process optimization, as they provide strategic visibility, risk mitigation, and encourage entire culture shifts towards financial automation and efficiency.
A Payment Tsar/Tsarina is unique as he or she holds a C-Level position and is personally in charge of maintaining strategic visibility over the entirety of the financial supply and payment chain. This individual, properly endowed with effective tools and authority, is capable of informing his or her entire company on strategic process efficiency initiatives, up to and including major automation solution implementation.
At the same time, when we encourage clients to advocate for the Tsar or Tsarina, we talk about the Payment Quotient, an extensive best-practice rubric tool that guides their initial decision making process and naturally leads to the sort of corporate practices that establish a Payment Tsar. The Payment Quotient demands high-level analysis of all the various vendor/supplier/customer/expense/spend channels, segmenting them to achieve maximum visibility into the financial process.
For example, in the world of Credit and Collections, the some questions that Payment Quotient analysis would ask are,
How many payment channels are there?
How many customer segments are there by payment channel?
How much does it cost for one or another customer to pay by a particular channel?
So the Payment Quotient is a tool that highlights the need for a dedicated C-Level employee that constantly collects and analyzes these types of questions. At the same time, the Payment Quotient, or a modified version unique to the enterprise, is exactly the collection and analysis that leads to strategic visibility.
The question must be asked then, which comes first? The answer is whichever will get both the Tsar/Tsarina and the strategic visibility the fastest. If Management is on board to bring on a Tsarina because it’s aware that only such a position is capable of establishing true strategic financial visibility, then she will proceed the analysis. If Management doesn’t see the benefit of her position until it’s proven that without her the company will lack strategic vision, then Payment Quotient analysis needs to happen first.
The second is obviously the more difficult scenario - The solution, we’ve found, is for a team-player with the vision to become the Payment Tsar to formulate a cross-functional team that promises to bring together the data necessary to make Payment Quotient analysis.
These sorts of best-practice financial management positions and decisions are only now becoming possible due to the extraordinary analytic power of next-generation financial automation solutions. Putting all the pieces into play is challenging, especially when Management lacks cohesive strategic vision. The first question that you need to ask is, which comes first, the chicken or the egg?
If you need consolidated evidence that there are tremendous advantages that electronic collections and/or payment networks promise to collectors, look no further than Bank Technology News‘ recent article, “The Innovators 2007.”
I call attention to two impressive details having to do with customer enrollment:
Bank of America reported that online customers are 27% more profitable than traditional customers, with deposit balances 15 percent higher and loan balances 28 percent higher.
SunTrust Banks found that customers who receive at least three e-bills per month have a 78 percent lower attrition rate and were 86 percent more profitable than offline customers. The implementation of the Web RXP version prompted a strong initial boost in the number of customers signing up for ebills, says Sarah Overcash, SunTrust avp and online bill-pay product manager, with nearly 30 percent of the bank’s active online base currently receiving at least one e-bill.
Consider this in relation to the rather sluggish response by the Credit and Collections industry to move towards on-line self-service payment enrollment channels. As Henry Ijams recently expressed to me, “In a credit crunch situation where an individual is only able to pay three out of four bills on-time, he’s going to skip the one that’s a pain to pay.” Furthermore, customers used to paying with a self-service on-line channel are more likely to take advantage of auto-payment enrollment tools.
On that note, consider the advantage of auto-pay - the visibility it provides into the future of that customer’s payment record - the repetitive payment it encourages - the ease of payment the customer becomes accustomed to. Now ask yourself, what percentage of your customers pay you automatically?
OR, perhaps equally as important, are you able to account for clients who are using third-party on-line banking tools to pay you automatically? And is it possible that you can encourage that payment behavior to complement your own enrollment program?
Did you know that each Starbucks store offers almost 70 different types of beverages? Order a Blended Crème Frappucino at a Starbucks and don’t be surprised if they ask if you want to make that a Double Chocolate Chip, a Tazo Green Tea, a Strawberries-and-Crème, or one of five other types of Blended Crème Frappucino. It’s all about choices, and where there is consumer demand, there are bound to be options.
Consumers today are bombarded with numerous choices when shopping for, and we have to admit that it has become a way of life. It is not surprising, therefore, that consumers not only demand a range of products and services, but also a variety of options when it comes time to pay the bill. They are also looking for convenient options to make payments, as well as control over the frequency and timing of the transactions.
These three aspects – choice, convenience and control – are driving the dramatic shift in consumer behavior from paper payment options to electronic mechanisms. Most traditional billers are underserving the needs of their consumers. PayStream measures this with a metric we call the Payment QuotientTM.
The changing dynamics of consumer preferences have created a distinct opportunity for consumer biller organizations (utilities, credit card and telecom companies etc.) to optimize the way they collect funds. However, the decision to offer a variety of payment options is not as simple as it seems. Each additional payment type and channel offered by billers might result in improved customer satisfaction, but will also lead to increased costs and management issues. The PayStream Payment QuotientTM measures how effectively the biller is satisfying the needs of the consumers. This satisfaction index is divided by the costs of maintaining all the payment channels (Agent, IVR, Web etc) and payment types (Check, Card or Cash).
Billers are taking a serious look at automation solutions based on their potential to satisfy their customers’ desire for simplicity and flexibility throughout the billing and payment process. The goal is to satisfy consumers’ appetites, without leaving billers with any heartburn. In short, maximize functionality at an acceptable cost. A well-thought-out consumer payments automation strategy can benefit both billers and consumers by allowing billers to collect funds more quickly and cheaply, and by offering consumers more options as to when and how they pay.
“Build and they will buy,” was Henry Ford’s mantra in the early 1900’s when he introduced his first horseless carriage, the Model T. He built, and consumers eagerly lapped up the cars as soon as they came off the assembly line. But today, more than a century later, the days of Ford’s Model T are long gone.
Biller organizations – utilities, telecom, credit cards, mortgage companies and others that bill consumers on a recurring basis – can no longer be confident that all they have to do is provide easy and convenient electronic options for bill payments and their customers will adopt them. Results of a Billing and Collections Survey by PayStream Advisors, a Charlotte, NC-based research and consulting company, validate this fact.
The survey revealed that biller organizations were forging ahead on the automation curve – with 74 percent of survey respondents offering an electronic option when it was time to pay the bill, whether it was accepting payment over the Internet, the telephone or even automatic recurring debit. However, it was a completely different story when the survey measured actual consumer adoption and usage of these electronic bill payment methods. While there were wide variations by industry, the common trend was that less than a quarter of consumers, on average, were taking advantage of the alternative payment mechanisms offered, preferring to rely on paper-based payments through cash or the ubiquitous check.
There is no doubt that billers are building robust e-payment systems hoping to reduce costs and improve customer service, but consumers are not always buying into the value proposition. Here are some do’s and don’ts to keep in mind to help billers move from implementation to adoption of e-payments quickly and efficiently.
DO make the system simple and intuitive to use to increase adoption of e-payments.
DON’T offer a patchwork of services for different payment channels and types.
DO charge convenience fees for flexible payment options and to migrate consumers from expensive to cost-effective channels.
DON’T ignore the fact that billers and consumers have divergent priorities - consumers want to pay late while billers want to accelerate payment
DO design an e-payments program with the appropriate consumer incentives in mind.
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