Processing A/P And A/R

National City moved into AP outsourcing gradually, broadening its role with corporate clients over a period of years. "It was evolutionary," Francis says. But in the last three to four years, National City's customer base for AP services has doubled to approximately 100 large to mid-size firms, Francis says. She adds, about a third outsource their entire AP department to the bank.

"The invoice comes to us, and all of the work that a typical accounts payable department would do to audit that invoice, to verify its authenticity and to get it approved and get it into the accounts receivable software system is what we do."

Banks getting into AP and AR outsourcing expect to offer cheaper processing based on economies of scale, a best practices approach and state-of-the-art technology. "While people focus on staff costs and things like that, what they overlook is the tremendous savings that can be had simply by changing the way customers go about paying them and increasing the use of automation in the customer service area," Mellon's Valenzuela says. For its AP product, Source2 is using a secure database on the Internet as a cost-cutting way to make payment information available to suppliers. The cost to a company each time a customer calls the AP department with a question or problem is about $25, while providing automated online information ultimately costs the company about $1.50 a query, Valenzuela says.

"We quote 10 percent to 25 percent savings [for AP outsourcing] right up front," Francis of National City says. And while she acknowledges those savings are contingent on the client agreeing "to do what we suggest," she notes, "There's no such thing as a cookie- cutter approach ... You can't just walk in the door and say, I'm going to automate everything. This is considered very proprietary, the lifeblood of the company," observes Mellon's Valenzuela.

One Size Does Not Fit All In fact, the potential for individual clients to require customized solutions leaves many bankers skeptical that AP and AR outsourcing can ever be a winning proposition for both the bank and the corporate client.

At San Francisco-based Bank of America [BAC], Product Consultant Bill Jetter doesn't even think the technology exists to outsource the AP process effectively. "Making the pay/no pay decision requires reconciliation between the purchase order, the invoice and the shipping document received from the vendor. Right now, I don't think the technology or the business process flow is in such a state that banks could step into that accounts payable decision seamlessly and cost effectively."

Jetter also is unconvinced of the practicality of outsourcing the AR process. "Anyone who suggests that outsourcing is something that can be packaged and put on a shelf is just not approaching the problem properly," Chase's Sherer says. "The fact is every company is different and has unique goals and unique competencies ... that includes systems integration, process engineering and transaction processing."

Account Receivables