New technologies are helping companies make manual exception processing the exception and customer information more informative.
Most treasurers at organizations that receive payments from consumers are all too familiar with checks that arrive without an account number or other identifying information. Processing these exceptions has always been a time-consuming, manual task.
About 500,000 of the 10.5 million customer checks that AT&T receives each month, for example, arrive without a payment stub or account number. The customers who send these checks may believe -- erroneously -- that their phone number and account number are one and the same, says Brad Saunders, director of remittance processing services in the telecommunication giant's billing operations division in Morristown, N.J. Until recently, these payments were processed manually, according to Greg Arlt, manager of systems and technology.
Not anymore. Over the past few years, Arlt and his colleagues have automated more than two-thirds of the tasks involved in processing exception payments. For example, they have implemented various applications that reduce or eliminate manual lookup of accounts. A high percentage of checks that arrive without payment stubs can now be automatically matched to the correct customer account -- so those funds reach AT&T's bank sooner.
AT&T's success in exception processing highlights one area in which treasuries' ongoing efforts to improve their remittance processing operations are paying off. And treasurers are making progress in other segments of this critical A/R function, too.
While few corporate treasuries are rushing to roll out technology initiatives to take advantage of the Check Clearing for the 21st Century Act -- commonly referred to as Check 21 -- many are experimenting with pilot programs, according to Stephen McNair, president of FTP Consulting Services Inc. in Southlake, Texas. Image capture technologies and electronic transmission of payment data are becoming more prevalent.
Treasurers are also seeing breakthroughs in their efforts to leverage the information their organization collects through its receivables process. And they are asking for -- and receiving -- better data from their lockbox service provider.
As companies' ability to electronically capture remittance information and check images grows, treasurers are gaining greater control over their relationships with banks and lockbox service providers. "Corporate customers are almost in the catbird seat for the first time," reports McNair. "They have much more leverage over their bank or financial institution than in the past."
Conquering the "Junk Mail"
AT&T's drive to free its billing operations division from burdensome manual processes reflects a growing trend among proactive treasuries. "Clients want to reduce the number of exceptions," notes David D'Silva, senior vice president and receivables business executive with JPMorgan Chase & Co. in New York City. Their goals are to streamline internal operations and push payments into their accounts more quickly.
The Indiana Department of Revenue in Indianapolis has taken vigorous steps to automatically process its "junk mail," as Linda Dollens, administrator of the returns processing center, calls exceptions. Between 15 percent and 20 percent of the 5 million tax returns Dollens' department handles each year fall into this category.
For example, some taxpayers send in their payments and returns separately, so Dollens and her colleagues have developed an application that reads key data on the remittance, including the amount and the taxpayer's name. The software transmits this information to the department's main data processing system, which determines whether it matches any returns that have already been submitted. If not, the payment is held in a suspense account until it can be linked to a return.
Publishers Clearing House (PCH) in Port Washington, N.Y., a direct marketer of magazines and merchandise, is another organization that's targeting exceptions. Sal Tripi, director of operations, reports that the company's goal is to eliminate manual processing for 98 percent of remittances that arrive without an account number or name. An initiative that's been in place for the past several months has already automated processing for 30 percent to 40 percent of these payments. "We'll get the rest in the next six months," says Tripi.
Part of the initiative's success can be attributed to PCH's decision to give its lockbox services provider -- Des Moines, Iowa-based Communications Data Services Inc. -- online access to its customer service system. For example, if the lockbox receives a remittance document that Communications Data Services' systems can't read, the service provider's employees can retrieve the necessary information directly from PCH's customer accounts.
An emerging trend in remittance processing is the use by a growing number of middle-market and large organizations of scan lines on payment coupons and invoices, says William Schofield, vice president and director of cash management products with Commerce Bank N.A. in Cherry Hill, N.J. Scan lines contain machine-readable character strings that contain key information such as the customer's account number and the invoice amount. This technology enables companies to process the coupons or invoices automatically; previously, the information had to be keyed in.
Slow Start for Check 21
The wide-ranging changes many observers expected to flow from Check 21 have yet to materialize in A/R departments, according to David Z. Pucci, senior vice president of treasury technology services with UMB Bank in Kansas City, Mo. "Check 21 received a lot of fanfare when it was implemented, but it's not like flipping the light-switch," he says. "Many companies still are figuring out how to automate the processing of corporate checks, which typically are more complicated than consumer payments. For instance, one check may cover dozens of invoices, or the customer may take a discount from the invoice amount."
Businesses may not be rushing to implement technologies that will enable them to exploit Check 21, but it's early days yet. And the new law promises significant benefits.
Companies can realize big gains by putting image capture devices in their back rooms, according to Jeff Vetterick, vice president of marketing with Advanced Financial Solutions, a lockbox services provider based in Oklahoma City. They can capture images of customers' checks and transmit them electronically to their bank, reducing float and lockbox fees.
And image-enabled companies can choose their bank from a range of institutions that extends far beyond those in their immediate vicinity, Vetterick points out. "Now companies can image [the checks] in their own location and beam them to whatever bank gives the best value proposition," he notes. Vetterick estimates the cost of remote image capture technology at less than $10,000 per location.
Dominion Resources is one organization that has seen rapid returns on an investment in imaging technology. The Richmond, Va.-based energy company implemented check imaging in the fall of 2004. "Utilizing this technology gives Dominion increased cash flow and availability since the checks are converted and transmitted electronically," says Gwen Beadles, director of customer billing and payment services. The new system has made call center representatives' job easier, too. When they're fielding payment questions from customers, they can click on a check image to retrieve the account information they need.
Image-based lockbox services offer fast access to vital information. When Skanska USA Building Inc., a Parsippany, N.J.-based construction company, started using lockboxes several years ago, its A/R function received copies of the checks by mail, recalls Ann Monahan, director of accounts payable and cash management. But that took too long. "We're in the construction management business," Monahan explains. "As soon as the [building] owners pay us, we have to pay our subcontractors."
Skanska worked with its lockbox provider, Commerce Bank, to implement a check imaging system in early 2003. Now Skanska receives online images of the 1,500 to 2,000 checks that arrive at each of its 29 lockboxes every month, so it can quickly authorize payments to its subcontractors. "Getting the images online has been a huge plus for us," Monahan says.
A couple of years down the road, treasuries may see some benefits from banks' image exchange initiatives. Under Check 21, financial institutions can enter agreements to exchange check images using a common technical standard, notes Mike Tallitsch, remittance product line manager with Wausau Financial Systems Inc., a provider of payment processing software, hardware and services based in Mosinee, Wis. Image exchange is still in its infancy, however; Tallitsch doesn't expect the number of institutions with this capability to reach critical mass until 2007, at which point it may become a lower-cost alternative to Automated Clearing House (ACH) transfers and paper processing.
For now, many companies are looking to improve their remittance processing function by investing in accounts receivable conversion (ARC) technology. The ARC program, which has been available since 2002, enables companies to convert some consumer checks -- but not business checks -- into ACH payments. Dominion Resources implemented ARC software from CheckFree Corp. in the fall of last year.
AT&T implemented ARC in the second quarter of 2003. At that time, all of the company's ARC payments went through a two-step process. First, the system scanned each check. Then a second presentation was necessary to enable the system to determine whether the payment should be processed as an ARC item or as a paper check.
In the third quarter of 2004, AT&T implemented one-pass ARC processing. The new system scans payments and -- in nearly all cases -- simultaneously determines their eligibility for electronic processing, according to Arlt.
Outsourcing and Whole-tailing
At the same time, more and more companies are outsourcing their payment processing function, according to Tom Edlin, vice president and sales manager with First Express Remittance Processing, a service provider headquartered in Memphis, Tenn. One reason for this trend is an ongoing decline in the volume of consumer checks and a steady rise in the number of electronic payments. According to the 2004 Federal Reserve Payments Study, 36.7 billion checks were issued in the United States in 2003. Electronic payments, including credit card and debit card payments and ACH transfers, totaled 44.7 billion.
Given these shifts in payment patterns, it doesn't make sense for businesses to invest in remittance processing technologies, Edlin argues. Companies that go that route may end up "shopping for new technology every couple of years," he asserts.
While there's no question that outsourcing is gaining momentum, some organizations are moving in the opposite direction. The Indiana Department of Revenue, for example, brought its lockbox processing in-house in 2001. Soon after that move -- right around the next due date for quarterly estimated taxes -- the department took in some $50 million. Those funds reached its accounts 21 days sooner than had ever happened previously, Dollens reports. "We weren't in line behind anyone else," she explains.
However, lockbox providers are working hard to improve their services. The concept of "whole-tailing" is gaining ground, says Vetterick. Traditionally, banks' operations for processing business checks -- or "wholesale" checks -- have been separate from their consumer check processing operations. Now banks are working to eliminate that distinction. The goal is to apply the high-speed processing techniques they use for many consumer checks to business checks, in so far as that's possible.
New technologies are helping institutions to make whole-tailing work, Vetterick reports. For example, some payment clearinghouses have developed sophisticated software that automates insurance companies' payments. These systems can read complex medical bills, which typically contain numerous line items detailing the services provided, the prices charged and the amount the insurer must reimburse for each service. Until now, reconciling these charges has been a manual process.
Leveraging Payment Data
Treasurers are seeking to use the information that the payment process generates more effectively. For some treasury pros, this is now a more important goal than reducing float. "We don't see requests for additional pickup in [float]," says Steve Stone, senior vice president of treasury management operations with PNC Bank N.A. in Pittsburgh. Instead, clients are increasingly interested in high-quality data, he reports.
The current interest rate environment is one factor in treasurers' growing hunger for data, according to Stone. With rates still low -- as of early May, the Fed funds rate was at 3 percent -- treasurers reason that they'll see greater returns from improving internal operations than from eliminating a day or so of float.
Companies that offer payment terms are using technology to keep better track of when customers pay their bills, Stone adds. Until recently, treasuries often lacked a way to record checks' specific arrival dates, so they resorted to arbitrary cutoffs. For example, they might offer discounts on all payments received by the 15th day of each month. Now payment envelopes can be captured as images, and treasurers can use the postmark dates to fine-tune their payment terms.
Treasurers are "the keeper of knowledge of customers' [payment] habits," observes AT&T's Saunders. Going forward, companies may find new ways to leverage the information they glean from their customers' remittance patterns, he adds -- for example, by using it to optimize the timing of invoice delivery.
Tim Plimmer, senior vice president of operations with Communications Data Services, agrees. Customers' remittance documents contain valuable demographic data, he points out. Addresses and ZIP codes can yield valuable information about a customer's probable income level. And companies might want to revise their payment stubs to include questions about their customers' purchasing habits. They can use that information to sell additional products or services, says Plimmer.