Financing A/R Successfully

Enterprise resource planning (ERP) systems increasingly dominate the European landscape, but their potential has yet to be fully utilized to obtain payback on what is a major investment for any corporate. This paper discusses whether international direct-debit service could be the answer.

"Account receivables financing is quickly becoming a commodity product!" to any multinational that has struggled to create an efficient accounts-payable system, this may seem a controversial statement. However, the major providers of cash-management services would probably agree with it. This way of thinking can be traced back several years to the time when major corporate began installing large, sophisticated and usually expensive ERP systems into dedicated Shared Service Centres (SSCs). Banks quickly identified the need to develop interface technologies with these systems to continue to support their clients' business, or to face the prospect of losing ground to a competitor.

Financial institutions typically tried to cover a multitude of systems and focused on delivering solutions for accounts payable, which was felt to be the "easier" part of the task. Certainly, transferring files of automated clearing house (ACH) payments from the clients' SSCs direct to the bank's mainframe systems is now a common infrastructure service. Furthermore, the implementation process has become simpler as both the underlying integration technology has advanced and ERP vendors have consolidated. Today over 80% of ERP systems used in existing or planned SSCs in Europe are provided by only five vendors.

With the accelerating migration to SSCs, corporate clients are looking for ways to fully leverage this expensive investment. It is increasingly expected that banks should provide more than simply a good account-payables platform. As a result, the major cash-management banks agree that the next big challenge will be to achieve full commercial integration, thus allowing the SSCs to efficiently manage the complete cash-management operations cycle. To do this, banks must develop sophisticated collection solutions and deliver quality account information to their corporate clients to ensure comprehensive, timely and accurate end-to-end reconciliation.

This is a challenge which cannot be undertaken lightly many have already tried and very few have been successful to date. However, the technology has improved and market attitudes have become sophisticated enough to allow banks, their clients and this time also the major ERP vendors to take a clear look at the opportunities presented by cross-border direct debiting using central collection platforms. Initially cash-management providers overcame the challenge of efficient account reconciliation by delivering a mixture of receivables-matching services. These focused on standardizing invoicing procedures, often going as far as taking electronic data feeds direct from the client and then printing and posting physical invoices to individual debtors.

This approach ensured that all invoices quoted appropriate common invoice details. However, the success of the reconciliation process was largely dependent upon market vagaries when crossing different payment systems. Initiatives to overcome these difficulties met with varying degrees of success and often took years to fully implement.

Many of the problems associated with these initiatives stemmed from qualitative issues requiring the matching of invoice details with the incoming payment or were the result of the banks' inherent inability to control the receipt mechanism. Debtors often either quoted an incomplete invoice reference on a payment, or simply did not quote anything at all.

Additionally, the debtor habitually sent a single payment to settle multiple invoices, often with insufficient reconciliation information attached.

Account Receivables