real benefits to business of electronic bill and invoice presentment and settlement, The
Fensterstock, Albert
Abstract
Presenting paper bills by postal delivery (29 billion annually), and payment of those bills by paper check is expensive and time consuming, for both biller and payer. The presentment of a typical business-to-consumer (B2C) bill costs the biller between $1.50 and $2.50 per bill. For the presentment of a business-to-business (B2B) bill or invoice, the cost to the biller can be $8.00 or more. For billers, the cost of traditional print and mail delivery has become prohibitive. Electronic bill presentment and payment (EBPP) should be a can’t-miss opportunity. The expected savings from giving customers the opportunity to view and pay their bills online is huge. So, what happened?
EBPP is in a Stalemate
According to a Forrester Report, “EBPP is in a Stalemate.” The solution to which is a consumer EBPP hub that: “Provides a single point of contact for all the participants in the EBPP supply chain to receive and pay bills, route payments and transfer funds between firms.”
Currently, the EBPP process has too many middlemen between the biller and the payer resulting in:
* A system without standards.
* High entry costs.
* Too many fees.
* Not enough services.
* No clear answers to biller’s needs.
* No compelling reason for payers to use any EBPP system.
There is not any one company, or group of companies that can address 100% of the biller’s needs, while providing the payers with the services they want, at a cost they are willing to pay.
The B2C Reality So Far
Consumer adoption to-date, unfortunately for those who have spent millions on EBPP, has been slow-only 7% of U.S. households paid any of their bills online in 2001; however, many consumers are beginning to embrace the idea of receiving and paying bills electronically. A recent Forrester Report predicted that 21 million U.S. households (approximately 33% of all online households) will sign up for EBPP by the end of 2004, and Jupiter Research reported that, “by 2005 over forty million U.S. households will be receiving and paying bills online, with EBPP growing faster than either online banking or online shopping over the next five years.”
Paying for Print and Mail
Billers, until recently, have absorbed the cost of print and mail. However, according to the New York Times (October 29, 2002, Technology Section), companies like State Farm Insurance, Primus, Metro PCS, American Express, AmeriTrade, and others are trying to offset their print and mail costs by charging payers $1.00 to $8.00 and more, per paper bill. Billers are attempting to push payers to EBPP. American Express is charging small merchants $10.00 for a mailed invoice. Primus is charging consumers $2.00 per mailed invoice. If other billers adopt this policy, it could cost the average consumer over $20.00 per month, just to receive and pay paper bills. Of course, if they don’t like the biller’s policy, they could switch to other providers.
An Indication that Change is on the Way
On February 6, 2003 the Federal Reserve System issued a press release titled, Federal Reserve Banks Announce Changes to Increase Efficiency In Check Services as Check Volumes Decline Nationwide. As noted in the release, “Even though check payments remain the most popular form of noncash retail payment; they make up only 60 percent of all noncash retail payments today compared to 85 percent in 1979. Recent Federal Reserve studies suggest that roughly 40 billion checks were written in the United States in 2002, down from about 50 billion in 1995. The Reserve Banks handle about 17 billion of these checks annually, and this volume is expected to decline as well.”
Even with this reduction in check processing and various forecasts by “the experts”, in most instances, customer adoption of EBPP in the business-to-consumer (B2C) market has not reached the point that companies are able to realize major cost savings from online billing. As a result, these companies are now looking for benefits in other areas and in particular are turning to their B2B relationships as a better investment.
The New Emphasis is on B2B
A Killen and Associates study contends that electronic invoice presentment and payment (EIPP) may already be the best eBusiness investment, even without adding the benefits of increased sales, because it provides billers and payers the ability to more easily track shipments and make payments. EIPP enables an enterprise to use the Internet and other computing advances to improve the complete invoice, payment, and collection cycle. According to Killen, “The Global 30,000 could cut costs by $250 billion and keep customers from defecting by investing in these new EIPP solutions”.
The biller can save a lot of money, but if the payer doesn’t adopt, the biller’s investment won’t bear fruit. The biller needs to convince the payer that in the B2B sphere their realized benefits are comparable to the biller’s. If they can do this, then it may be the payer that truly drives the system. Because, if they can’t benefit, why bother?
The November 2002 issue of CIO magazine in an article titled, To Bill Or Not To Bill (Online) stated “Digital invoicing is the next big step in e-business transactions.” . . . “it’s the purchasers of goods and services, rather than the suppliers that are driving adoption” . . .. “just seeing an invoice electronically versus on paper doesn’t save [customers’] money,” . . . . . “the real payoff comes when companies can use their supply chain management system”, and . . .. “didn’t survey payers using the software to receive invoices, because not enough of them were doing it to obtain adequate survey results.”
The Effect on the EBPP Market
Essentially, slow payer acceptance has necessitated a change in the scope of the EBPP market. It has had to expand. Consumers and business customers are not turned on by the web payment of bills, especially if it costs them something. As noted by Doculabs, “the whole scope of the EBPP market has expanded beyond simple web presentment of bills; it now includes other types of transaction documents (such as invoices that are often tied to a purchase order) and more advanced payment and settlement features. Thus we think a more accurate acronym for the market is BIPS- bill and invoice presentment and settlement.”
* Some Benefits to Business Billers of BIPS
It was once thought that the paper was going to go away, and that that would be the most significant benefit from BIPS. But business has had to rethink the process, and now sees BIPS as providing more value as a means to reach customers, build customer loyalty and deliver a value-added service. Some specific benefits to B2B billers are:
* Additional value for B2B customers
Bills and invoices in the B2B world tend to be much larger and more complex than those consumers receive. Invoices and bills containing hundreds of pages are not exceptional. Providing the ability to sort, filter and analyze the information on these documents as well as resolve disputes online would be invaluable to a business customer.
* Some critical B2B benefits
If a business payer is to receive the real benefit from BIPS, the biller’s solution must integrate with the payer’s existing ERP system, accounting system or supply chain management system and preferably with all of them. When this is possible, benefits from automation of enrollment, real-time credit evaluation, online dispute resolution, and payment automation to name just a few can be realized. Additionally, customers can be offered discounts and other incentives for paying off their balances immediately, thereby improving cash flow, reducing DSO, and the manual cost of collection efforts as well as offloading call center volume.
When the financial impact of these benefits is measured, a biller may be able to justify the cost of BIPS if only a few significant customers participate, as compared to a B2C application that requires a higher adoption rate for it to be cost-justified.
* BIPS and overall B2B web presence
BIPS should not be looked at as a stand-alone application, but as a powerful tool in the overall customer relationship. BIPS can provide value-added services incorporated into larger e-commerce applications including sales, account information, product information, and customer service and customer self-help. BIPS can also facilitate the use of CRM.
* Operational cost savings
If customers receive accurate online billing data, related account information and the ability to easily communicate with the biller, the volume of customer service calls will decline. If a customer accesses their bill via the web, they are more likely to use the web for customer service rather than a company’s call center.
In addition, significant cost reduction can be accomplished by online dispute resolution that is another major manual cost for many companies. A BIPS system that can electronically compare a biller’s invoice to a payer’s purchase order and receiving documents and automatically detail price and quantity differences and transmit these, at the line item level, to the biller can save both parties significant money in terms of time and personnel costs. The result of automating these functions provides a level of cost savings that makes BIPS very attractive for B2B applications, even if initial payer adoption is limited. On the other hand, in the B2C area, only when consumer adoption reaches the 10% to 15% range do B2C billers achieve noticeable print and postage savings.
Some Benefits to Business Payers of BIPS
Most of the discussion on BIPS has centered on the B2C sector, where consumers have not been flocking to their computers to pay to pay their bills. But on the B2B side, there are many advantages for business customers. Advantages that most observers feel, businesses will pay for, if the service meets their expectations. Some basic benefits for business payers are:
* Improved productivity for accounts payable processing
Paper-based bills and invoices require manual processing. With BIPS, paper is eliminated and the entire process can be managed electronically. BIPS solutions can utilize workflow automation to manage the bill paying process. Approval requirements, inventory receiving and verification, and the payment of bills and invoices when under system control, ensure that procedures are followed and financial systems are properly updated.
* Charge allocation
Many times a company requires that charges from a given bill or invoice be allocated to multiple areas or cost centers. BIPS allows a document to be analyzed at the item level, and individual charges categorized for allocation and approval.
* Who sees what
Online presentation allows a company to show users just the information they need to see and, thereby, provide a better level of intra-company security. Online bills and invoices give all operations access to the same data with the ability to restrict viewing and other uses to specific users.
* Analysis of Bills and Invoices
The receiving organization or the BIPS vendor can provide various types of analyses on the presented bills and invoices. Spending patterns can be identified and inefficiencies detected. A forecast of future spending can be easily developed to aid in cash management.
* Any Size Business Can Benefit
With BIPS, size is not a limitation. Billers can provide online presentation and payment capabilities to companies of any size. For billers, alternatives such as EDI are usually offered only to their larger customers, because EDI requires considerable customer involvement and may be beyond the capability of smaller companies.
The Players
Doculabs, in a recent study, provided the following outline of the entities that for various reasons, not the least of which is its market potential, want to participate in the BIPS process:
Billers-lnterested in using BIPS to reach customers, solidify customer relationships, keep up with competition, and save money.
Consolidators-Interested in aggregating the billing data from many billers, and thereby providing customers with a single location from which their bills can be paid. Consolidators must be able to present bills, route transactions to the appropriate financial party and deliver the funds to the biller.
Banks-Interested in processing payments more efficiently, and in providing value-added services to both billers and payers. Some banks want to be a consolidator or consumer service provider (CSP), i.e., the conduit through which customers access and pay their bills. Others want to provide lockbox and automated clearing house (ACH) services needed to clear payments.
Biller service providers (BSPs)-Interested in providing billers with services or infrastructure for BIPS. Some BSPs specialize in data conversion, while others host biller sites and handle enrollment, presentment and payment. There are also integrators and service firms that build and maintain solutions at the biller’s site.
Consumer service providers (CSPs)-Interested in being the customers primary interface to their bills. CSPs can include consumer portals (such as Yahoo and AOL), banks, personal financial management sites (such as Quicken), and financial content aggregators (such as Yodlee).
Software vendors-Interested in providing the underlying software needed by billers, consolidators, BSPs, and CSPs to implement and support BIPS.
Customers-Interested in paying their bills efficiently, additional analytics to improve operations and saving money. Customers can be individuals in a B2C relationship or business payers in a B2B relationship. The needs of each customer type are very different.
Implementing BIPS
There are two major approaches to implementing BIPS; purchase the software solution and install in in-house, or outsource it to an application service provider (ASP) or other BSP. If the software is purchased, the biller will usually provide a biller-direct solution, i.e., the biller makes the billing data available to customers over the Internet or through e-mail. Customers can go directly to the biller’s site and pay their bills. The biller-direct model provides a one-to-one direct link between biller and customer. Billers can host their own biller-direct sites or utilize the services of an ASP or BSP. Billers can also use the BSP to send billing data to consolidators, thereby extending the biller’s reach to multiple customer distribution points. Alternatively, the biller can use the services of a consolidator.
Under the consolidator model, payers can visit the consolidator’s site and view and pay bills from multiple vendors in one place. This offers an obvious advantage to payers that don’t relish visiting multiple sites with varying approaches to paying a bill, many of which require from five to nine clicks just to settle one invoice.
Problems with Current Solutions
According to Doculabs, the following problems exist with the two basic BIPS models:
Biller-Direct Model
* Costly – difficult to build and maintain. The biller must host the hardware, software and customer service capabilities.
* If an application service provider (“ASP”) is involved – the level of control may not meet the biller’s needs and there can be marketing issues.
* Customers may not want to go to multiple sites to pay their bills.
* Customer reach is limited to customers the biller’s web site can attract – limits new business potential.
* Potential for customer interaction is limited, unless new value-added services are continuously available.
Consolidator Model
* Billers have little control over the process.
* Billers may give up branding and marketing opportunities.
* Billers have no direct interaction with customers.
* No single consolidator or CSP has emerged as the leader – customers must visit multiple sites to pay their bills.
* Enrollment/registration function may lack flexibility – limited information may be captured.
* Consolidators’ input requirements can be different – billers may need to reformat data for different distribution points. Most consolidators provide only summary level information that may not be sufficient to pay a bill without going to the biller’s site or having a hard-copy to review the details.
Characteristics of the BIPS Solution
For BIPS to be widely accepted, the industry must make some radical changes. It is our feeling that an acceptable solution must have at least these basic characteristics:
1. A hosted ASP solution that provides billers and payers the same control over their bill and pay transactions as if the BIPS system was running on their own premises.
2. Interfaces to biller and payer’s application systems, integrated in such a manner that even the biller and payer’s employees do not realize that the application site is not running in-house. The tight integration guarantees that the results of financial transactions processed by the BIPS system will be properly reflected in the user’s internal systems, i.e., in user ERP, CRM and SCM systems for example.
3. The system should provide a single point of contact for all the participants in the BIPS supply chain to receive and pay bills, route payments and transfer funds between firms (Forrester Research requirement).
4. The BIPS system must meet industry standards for data exchange and enrollment (Fed Reserve Bank of Chicago requirement).
5. The BIPS system must contain the highest level of security and guarantee the privacy of financial information.
6. The BIPS system must be able to demonstrate real, tangible, value-added incentives for all participants.
Summary
These characteristics are not a pipe dream our company and we are sure several others are working towards a solution that contains at least the capabilities described above. The need for a BIPS system that meets the requirements of the B2B community is well documented. The potential savings for both billers and payers is very significant both in dollars and inherent in the additional information about system users that can be converted into either additional sales or cost savings. Companies not currently involved, in some way or other, with BIPS had better start getting involved or sometime during the next two to three years they may find themselves at a very considerable competitive disadvantage.
Albert Fensterstock is Chief Executive Officer of Consolidated Billing Solutions, Inc. (CBSI), a company whose mission is to provide business-to-business (B2B) and business-to-consumer (B2C) billers and payers with a bill and invoice presentment and settlement (BIPS) solution that offers a compelling reason for the parties to use BIPS in a consolidator model managed by CBSI, and its business partners. Previously, Mr. Fensterstock helped found CreditRiskMonitor.com, Inc., an Internet-based financial information, analysis and news service created specifically for the corporate credit function. He can be reached at 516-873-6900 or via e-mail at albie@clickandpaycentral.com.
Copyright Credit Research Foundation First Quarter 2003
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