Integrating receivables to boost lockbox revenues
With paper-based checks falling to about half of all B2B payments according to recent surveys, banks are feeling the revenue loss. Yet, at the same time, their commercial clients continue experiencing significant costs due to manual accounts receivable (AR) processes. For example, email remains the common platform for delivering and receiving remittance information.
Might there be an opportunity to fix both problems? Executives at Fort Lauderdale, Fla.-based Direct Insite believe they have. The vendor’s new cloud-enabled application, called Paybox, helps banks increase revenues while simultaneously reducing businesses’ AR expenses. After Paybox won the Payments Innovation Track award at BAI Payments Connect 2015, we asked Direct Insite CEO Matthew Oakes to explain some of the product’s vote-winning features:
Q: What problems does Paybox address?
Oakes: Although many businesses are interested in automating their payables and receivables functions, the technologies required to do this have been complex and costly. According to banks we’ve spoken with, the problem is so great that commercial customers have shown a willingness to switch banks to gain such services. For banks, the challenge has been steadily declining lockbox revenues.
Q: What are the biggest drivers for businesses to automate payables and receivables?
Oakes: With e-invoicing capabilities growing, businesses are calculating the costs of manual receivables processes. Our research shows that, on average, paper-based payments cost up to $32 per invoice for processing, printing, mailing and dispute resolution. And, in paper environments, Days Sales Outstanding (DSO) stands at about 50. For our large corporate clients, costs can range from $75 to $1,500 per invoice when invoice dispute and adjustment costs are considered.
Q: How does Paybox help banks provide a solution for their customers?
Oakes: With Paybox, banks gain a “reverse lockbox” solution they can private-label to their commercial customers. This generates revenue while strengthening customer relationships and providing insights into customer financial positions. Commercial customers use the solution to create, distribute, track and receive payments electronically from a single dashboard. Additionally, invoicing workflows are automated to ensure appropriate approvals as well as providing various types of notifications and alerts. Disputes are also handled electronically. As Paybox is cloud-based, it integrates with existing banking and commercial customer systems.
Q: Specifically, what’s required to integrate Paybox with existing banking and commercial client systems and how long does it take?
Oakes: Like many SaaS-delivered systems, integration is based on data feeds. Thus, for the most part, it’s about mapping systems to provide the correct feeds between Paybox, the bank and the bank’s commercial customer. As for the data formats, we can use a bank’s standards or supply standards, whichever is best for the customer.
From there, it depends upon how many payment products a bank offers and a commercial customer uses to determine the types and number of feeds. In general, it takes 120 days to integrate a bank’s first corporate customer and 90 days for each additional customer, depending upon the complexity of a bank’s legacy systems.
Q: How did Paybox evolve from your company’s early days as an e-invoicing vendor?
Oakes: We began as an accounts receivables company and have been offering e-invoicing services to corporate clients since 2002. Along the way, we’ve worked with numerous global businesses. When companies began coming out of the global financial crisis, they started reviewing their receivables and DSO, which generated a big uptick in automation interest. This, in turn, caused companies to begin asking their banks for such services.
As we’d built a Paybox precursor for IBM, which we called “integrated receivables,” we understood the entire value chain, in multiple languages and currencies. So, we knew we could develop a next-generation solution.
Q: What challenges did you have to overcome to create Paybox?
Oakes: We faced multiple challenges, starting with convincing banks that an all-in-one integrated solution was better than a siloed, segmented product approach. We also realized the needs of a global bank would be different from a regional bank, with the same holding true for their commercial customers. This required developing Paybox as a modular solution to ensure appropriate functionality across the size spectrums.
However, our biggest hurdle with banks turned out to be organizational, as product managers are typically incentivized based on the solutions they sell. So, a lockbox, ACH or invoicing manager would protect their turf by omitting discussion of “integrated receivables” with commercial customers. We overcame this by helping create a bank business model to assist institutions with shifting their organizational structure to promote integrated receivables sales.
Q: Do you have competitors in the market and, if so, how are you differentiating Paybox?
Oakes: We have several competitors, as outlined in the Celent Integrated Receivables Vendors report of January 2015. However, we believe we’re the only solution that provides the four legs of truly integrated receivables: SaaS-based, electronic methods-focused, enterprise resource planning (ERP) system agnostic and payment channel agnostic. Other vendors can do some of these, but not all. Plus, our dispute resolution capabilities are more robust and granular, which contributes significantly to reducing DSO cycle times.
Q: Are there any new or forthcoming regulatory concerns banks could face in the integrated receivables space?
Oakes: Not currently in the U.S., but we believe they’re coming. In April 2014, the European Union passed Directive 2014/55/EU, which regulates e-invoicing in the public procurement arena. The purpose of the directive is to encourage e-invoicing by establishing standards.
Q: What benefits have banks’ commercial customers seen from Paybox so far?
Oakes: Our first Paybox bank, a global institution, went live last November. So, it’s early days. But our experience with IBM, and others, shows what can be expected.
For IBM, it was eliminating 75% of their manual invoices, reducing the cost of those presentations from $600 to $1,500 per invoice to $25. Also, invoice disputes at IBM dropped by 65% and DSO was reduced by three to five days. For less complex invoices, or those already partially automated, we estimate costs can drop to under $1.
Q: Can you look into the future and tell us what it holds for integrated receivables and Paybox?
Oakes: For the category, generally, we believe it’s a matter of “when” not “if” as a combination of efficiencies and regulations will make integrated receivables increasingly attractive. As for Paybox, we’re gathering AR data, which will assist us with serving up analytics as a dashboard layer. And, we’re enhancing the solution to enable banks to set up financing plans within the system for specific commercial clients. From there, it’s a matter of the feedback we receive and deploying new capabilities to match.
Ms. Gabriel is a contributing writer to BAI Banking Strategies based in Minneapolis/St. Paul, Minn.