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The order-to-pay process is one treasury area that offers fertile ground for technology-enabled cost-cutting initiatives. Many companies are taking a hard look at this key A/P process, says Fossaceca, with the goal of automating the value chain -- from purchase order delivery to invoice processing to the ultimate settlement of the transaction -- smoothing information flows and capturing vendor discounts that they previously overlooked. Some organizations are saving $3 million to $5 million for every $1 billion they shell out to suppliers, Fossaceca reports.

Treasurers can also reap worthwhile returns from remittance processing tools -- for example, software that enables them to process automated clearing house (ACH) transaction files. Herff Jones Inc., an Indianapolis-based provider of school rings, yearbooks and similar products, is a case in point. The company's sales representatives deposit payments in more than 200 local bank accounts around the country, says Mike Parrett, treasurer. "We use ACH software to electronically transfer [that] money to our three primary accounts," he explains.

In a cost-saving measure that also boosts control, many companies are moving toward more centralized treasury structures, reports Robert Edwards, executive vice president and business manager of the treasury management division with PNC Bank in Pittsburgh. "You create an area that's expert and efficient on a particular function," he says.

Outsourcing has been a popular cost-cutting tool in recent years, but this strategy's appeal may have peaked. This year, 60 percent of survey respondents indicated that their company outsources some business activities, down from 64 percent in 2004. Payroll and benefits is the function that's most frequently outsourced or targeted for outsourcing. Forty-four percent of respondents in this year's survey said their company currently outsources this function, down from 49 percent in 2004. (See graph 2, below.)

The outsourcing landscape is changing rapidly. JPMorgan Chase is seeing great interest among finance professionals in outsourcing techniques that treat treasury processes holistically, Fossaceca notes. "This isn't your typical business process outsourcing where you get labor arbitrage in a 'lift and drop' approach," he says. For example, JPMorgan Chase is developing an outsourcing service that helps companies streamline their processes and link to the bank's treasury offerings. That way, they can capitalize on JPMorgan Chase's technology and sidestep the large investment in new systems that treasury automation projects usually require. This outsourcing strategy "is not about downsizing but about using technology to automate processes," Fossaceca points out.

Thirty-six percent of survey respondents reported that merger-and-acquisition activity has had either a very important or an extremely important impact on their treasury operation in the past year. At Herff Jones, M&A is "a hot button," says Parrett, because the com-pany is growing rapidly, in part by acquisitions. Once a deal is done, Parrett and his colleagues must efficiently integrate the acquired company's bank accounts and accounting systems into Herff Jones' infrastructure.

Consolidation within the financial services industry has had a very important or extremely important impact on treasury, said 31 percent of respondents. Ongoing industry buyouts should benefit many treasurers by reducing the number of accounts they have to reconcile and fees they have to pay, according to Stephen McNair, president of FTP Consulting Services Inc., a Southlake, Texas-based firm that advises companies seeking to automate their A/R operations.

Edging Toward Check 21

Over the past year, treasurers have steadily increased their understanding of Check 21. In the 2004 survey, 21 percent of respondents indicated they were very knowledgeable or extremely knowledgeable about the term "check conversion." Thirty-five percent gave those responses this year. (See graph 3 below.)

Respondents' understanding of the new law directly relates to the size of their company. Among participants from businesses with less than $100 million in annual revenue, only 28 percent said they were either very knowledgeable or extremely knowledgeable about the term "substitute check." In contrast, those responses were chosen by 42 percent of respondents who work for organizations with revenues above $2 billion and by one-third overall. (See graph 4 below.)

"Banks are the primary source for the dissemination of information" about Check 21, observes Craig Vaream, vice president and senior product manager for domestic check deposits in JPMorgan Chase's New York City offices. Seventy-one percent of our sample indicated that they rely mainly on their banks for Check 21 information; only 18 percent turn to their technology providers. (See graph 5 below.)

Veronica Correa-Janssen, senior vice president and director of product management with KeyBank's global treasury management group in Cleveland, has noticed that the treasurers she talks to have a firmer handle on Check 21 these days. "Customers definitely get it," she says. Her clients no longer require basic information about the law, she reports. Instead, they're asking about ways to implement programs that exploit the opportunities it presents.

Increased interest doesn't always translate into action, however. "The majority of clients are taking a wait-and-see attitude towards adopting image capabilities," says Vaream. One reason is the challenges posed by the technology, he says. According to survey respondents, the biggest hurdles companies face in attempting to realize the benefits of Check 21 are the costs associated with implementing imaging technology, cited by 32 percent, and the work involved in reengineering process flows, cited by 26 percent.

Leaders at The Schwan Food Co. see no reason to rush into a Check 21 initiative. "The practicalities of applying it [would] cause a bit of heartburn," says Tracy Welch, senior vice president of risk management and treasurer with the Marshall, Minn.-based frozen food producer and distributor. The Schwan Food Co. has 500 depots around the country. When its drivers pull into one of these centers at the end of a long workday, few of them would want to jockey for position at a scanning machine to make images of the checks they collect, says Welch. The company could hire more staff to handle the task, but that would bump up expenses.

In addition, The Schwan Food Co.'s systems are programmed to accept one deposit for each route, and deposits can include cash and credit card payments as well as checks. "We would have to do some significant reprogramming for Check 21," Welch says.

Still, the number of companies taking the plunge into a Check 21 project is rising. Forty-three percent of survey respondents report that their organization either has already implemented an initiative to leverage Check 21 or expects to do so within the next 12 months. That's up from 37 percent last year. (See graph 6 below.)

"We're really excited about Check 21," says Darla Schroeder, assistant treasurer with Bachman's Inc., a Minneapolis-based chain of floral, home and garden centers. Bachman's 400 to 500 sales associates (depending on the season) handle checks from businesses as well as consumers, so the company doesn't use accounts receivable conversion (ARC), which is available only for consumer checks. That limitation doesn't apply to image-based solutions that leverage Check 21, so Schroeder and her colleagues are researching vendors that offer scanners. Schroeder hopes to have an image-capture system in place by the end of the year.

While Check 21 is ramping up, ARC appears to be losing steam. The proportion of respondents who indicated that their organization uses ARC or plans to do so within 12 months dropped from 33 percent in 2004 to 24 percent this year. (See graph 7 below.) "ARC has peaked," reports McNair. "I don't think we'll see the growth that we have seen for the past couple of years because most of the major players with any volume [of checks to process] have completed their projects."

But ARC is not about to disappear, according to Vaream. "Customers need payment solutions that work across various types of payments and clearing channels," he says.

Although the volume of checks issued in the United States is contracting, companies' use of lockboxes is extensive and growing. More respondents this year -- 57 percent, versus 47 percent in 2004 -- indicated that they use third-party providers of lockbox products and services. That proportion jumps to 71 percent among respondents at organizations with revenues in excess of $2 billion.

Many treasury professionals are working with their bank to expand their use of ancillary lockbox services. For instance, some banks can provide images of invoices and other remittance documents as well as images of checks. "Because of imaging technology, companies are better able to integrate what the bank does with their own back office operations," Edwards says.

Herff Jones receives images of checks and invoices several times a day from its bank; employees can view them online, says Parrett. Funds are wired from the lockbox to the company's primary account once a day.

Fighting Fraud

Payment fraud is an ever-present threat in treasurers' minds, and checks present the greatest risk. Checks were the most frequently cited source of payment fraud among survey respondents, reported by 43 percent overall. In contrast, only 6 percent said their organization had experienced fraud from consumer debit card payments. (See graph 8 below.)

Many treasurers are deploying the fraud-reduction services offered by their banking partners. For instance, 56 percent reported that their organization uses positive pay and/or reverse positive pay services. (See graph 9 below.)

Positive pay services verify a check's date, amount and number but not the payee's name, notes Rodney Gardner, vice president and disbursements business executive with JPMorgan Chase. However, a new service, payee verification, "closes the one remaining positive pay fraud gap," he notes. Banks that offer this service electronically scan the payee name on each check and match it to the name in the client's check disbursement file. This procedure eliminates the risk that a check will be paid after the payee name has been fraudulently altered or erased and a different one substituted. Forty-two percent of survey respondents said their company uses payee verification.

Based on anecdotal evidence, more and more finance executives are expressing an interest in electronic data interchange (EDI) for payments, says Tom Gregory, senior vice president, commerce cash management, with Commerce Bank in Mt. Laurel, N.J. The reason? If an EDI system is correctly implemented, information transmitted via the system is not readable by outsiders.

Despite these advances, many companies could be doing a better job of accurately assessing the risks they face. "Most commercial enterprises are unaware of the exposure they bear," says Gregory. That's particularly true of smaller orga-nizations that lack the resources to stay abreast of the ways in which changes in laws and technology impact their risk profile. For example, many finance executives don't realize that they have only 48 hours to identify and contest an unauthorized ACH debit, Gregory points out. In contrast, consumers have 45 days.

Treasury pros are often lackadaisical about implementing even fundamental internal controls, notes Gardner. "You would be surprised at the number of organizations that do not reconcile their checking accounts daily, utilize 'post no checks' restrictions on electronic payment accounts, or employ separate accounts for check and electronic payments," he says.

Survey data underlines Gardner's point. While 69 percent of participants said that their organization separates disbursement and reconciliation duties, only one-half reported that their company reconciles its check accounts daily, and only one-quarter said their company has separate accounts for check and electronic payments. (See graph 10 below.)

Part of the reason for this surprising laxity may be that companies with multiple accounting systems -- for example, as a result of M&A activities -- often experience difficulty in consistently implementing fraud mitigation techniques, notes JPMorgan Chase's Fossaceca.

PNC Bank's Edwards adds that, for some companies, guarding against fraud is not a priority -- until it's too late. "People don't get around to it until they've had some experience," he says.

Methodology

In June 2005, 415 treasury and finance professionals responded to a Business Finance survey that covered trends in treasury management, Check 21, ARC, collections, payments fraud and outsourcing. About 63 percent of the respondents work for organizations with annual revenue of less than $500 million, while 21 percent work for $2 billion-plus companies. Respondents represented a mix of industries; the most prevalent were manufacturing companies (22 percent), health services (8 percent), and business services and consulting (8 percent).