By David Gustin, Managing Partner

Global Business Intelligence

Global Business Intelligence recently interviewed senior Treasury and Import staff at 80 of the Fortune 500. From our research, it became clear that the Payable event is an area where corporates can spend time developing solutions. Buyers of merchandise, domestic and international, always require transportation services as well (custom brokers, railroads, truckers, consolidators, airlines, etc.) The work involved in receiving invoices from vendors and logistic parties is paper intensive, disconnected from the supply chain (ie, goods flow) and has many costly business processes associated with it (approvals, disputes, close-outs, merchandise allowances, discounts, settlement, etc.)

To date, corporates have been hesitant to outsource any element of payable management services. Their reasons tend to fall into one of three categories:

• Do not want third parties communicating with their vendor base
• The A/P process is a high touch process. They are concerned merchandise payables present special cases. Each company will have very different business practices, rules for working with vendors and dealing with disputes, etc.
• They feel they are already efficient in processing, and third parties would add little value

Third parties, especially Banks, can offer several value added functions for domestic and international payables - merchandise, logistic, and other payments, but it will not be 'one-size' fits all. Issues need to be understood at a granular level and by company, such as discount practices, merchandise allowances, chargeback philosophies, and what triggers payment on open terms. In fact, solutions are being put forth as the model changes from a seller oriented one (EIPP) to a buyer driven model filled with many solutions and value propositions.

The prospect of handling thousands of domestic paper invoices, and another few thousand international invoices and the corresponding compliance checking, dispute handling, merchandise allowance, etc. can be daunting and expensive. Retailers/Department stores receive invoices from many entities as part of their merchandise procurement function and this process can be a nightmare as they track if the goods have been received, the correct prices, ensure parties are paid and paid on time, etc.

The benefits of a third party that can tie all payments related to a purchase order (PO) together and maintained and processed together makes intuitive sense as companies move to integrate systems and connect product flow, customs flow, and financial flows. Banks are positioned to leverage on their money movement monopolies (cheques, ACH, wires, etc.) to provide payment solutions Banks can help provide the confidence that goods being paid for have arrived (through linkages with logistic providers, overseas offices, etc.) This goes beyond the tack of cutting clerical heads and pure efficiency plays.

In order for companies to begin evaluating their international and domestic payables back office and look at opportunities for improvement, we suggest a look at the following

1. Are you looking to treat international and domestic payables in the same manner?
2. What business rules do you use to pay invoices (domestic and intl). Have you looked to automate?
3. Is your inventory and receiving systems connected to your payable systems? How significant are ASNs as payment trigger points within the supply chain?
4. Do you have any external metrics on the efficiency and effectiveness of your payables area? Our analysis has shown that most companies metrics are apple to oranges. Many back office business functions are not included, including disputes, settlement, reconciliation, etc.
5. Are you pursuing improvement on your international or domestic A/P flow? What do you see as the priorities:

 Data Exchange that allows you universal access through Internet connections to deliver real-time information about purchase orders, invoices, receipts, and the entire payment process?

 Pre-Payment Audits

 Automated Approvals

 Exception Resolution

 Electronic Settlement

 G/L Accuracy

 Reporting & Analysis

6. How many different parts of your organization are involved in the payables process (could include sourcing offices, distribution centers, etc.). Do you view money as a supply chain function?

As A/P outsourcing and electronic invoice presentment solutions are not a 'one size fits all' proposition, there is a requirement to evaluate what the corporates need to be successful. Solution providers, be they accounting firms, banks, or non banks, must understand the business processes of this space to have any success.