For over a year, it seems COVID-19 is all that anybody talks about. While news topics and phone conversations have grown stale because of this, the payments industry has been anything but stagnant. The quick and unexpected digitization of the bill pay market took industry professionals by surprise, forcing them to work overtime to adapt to the needs of their clients and those clients’ respective customers.
To further discuss the digitization of financial operations systems and the benefits of an order-to-cash cycle, PaymentsJournal sat down with Rick Scholz, Director of Payment Advisory at Deluxe®, Beth Bourgoin, Receivables Product Manager at Deluxe, and Steve Murphy, Director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
What is an order-to-cash cycle?
COVID-19 certainly made it clear that the commercial enterprise payments space would need to continue to make progress in the digitization of solutions that impact the cash cycle. In late 2019 and into 2020, however, it was clear that the existing capabilities weren’t going to cut it. “In other words, it seemed that companies were not necessarily taking advantage of the rapidly advancing technology improvements that we’ve had,” explained Murphy.
Once the pandemic hit, the companies that had never addressed the technological shortcomings of their financial operations went into a low-grade crisis mode. Over a year later, more of these organizations are proving that financial operation systems and processes—end-to-end, order-to-cash, and receivables management—have become vital to the assessment process.
“That whole [order-to-cash] process from ordering, selling, invoicing, accepting payments, posting the cash to the general ledger, and then completing that entire cycle over and over again, is really an interconnected thing,” added Murphy. It’s how a business receives, processes, manages, and completes the orders their customers.
Since the global pandemic, the importance of managing this process has undoubtedly made its way back to the forefront of the minds of financial professionals.
Digitizing financial operations systems
Deluxe’s clients are always looking to further digitize their payments . According to Beth Bourgoin, “Speaking most broadly in what we’re seeing is, anywhere you’re hearing the word mail, like printing and mailing being used, especially in a billing process today, businesses want to change that to click.”
What exactly does this entail? Instead of having to rely on physical things—envelopes and other office supplies and mailing service providers—clients want the ability to send bills and other invoices virtually: Click, send, and now it’s done. Cutting out manual printing, mailings, and office materials is also a cost efficient and time saving approach. Digital correspondence is also more trackable compared to traditional post and can provide more options to pay.
By sharing ACH payment information through electronic invoices, businesses are setting the precedent of digital payments: I’ve sent your invoice digitally, so please send payment to us in the same manner. “That really is what makes the collection process that much easier,” said Bourgoin. “It’s easier for the buyer or the payer to go in and click on a web page. It gets [the funds] to the company who’s collecting the payment [faster]. And really it brings more benefit to the application part.” Application is a crucial step in the process. It’s where the client can see which invoice data is available and subsequently offer a new website for its customers to make digital payments.
Another benefit of digitizing is the accessibility of this invoice data. However, remittance data itself also needs digitization. To use electronic payment data effectively, businesses need to be incorporating technology. If the technology isn’t there, FIs and other businesses will undoubtedly run into struggles with the growing number of people who are working remotely and finding ways to apply faster payments. Electronic bill payment sites (EBPP) can really help to support digitization.
“It really depends on [the client’s] industry, [and] it depends on the industry vertical, whether an EBPP site is even a viable option. So no matter what the payment source, there’s then all different potential pathways a payment can take,” concluded Bourgoin.
Moving in the right direction: an ‘end-to-end’ view of the order-to-cash approach
There are a number of scenarios that demonstrate the difficulties companies perceive when considering an ‘end-to-end’ view of the order-to-cash approach. The more difficulties that arise, the harder it becomes to standardize the process.
“But that doesn’t mean you can’t do anything about it…and the opportunities really are in controlling that apply link in the chain,” said Bourgoin. She believes the easiest opportunity for the client to gain some control over the process is by understanding the internal processes across that entire chain. For example, what are the people who are operating on that chain doing when it comes to billing, collecting, applying, and managing revenue and liquidity? This understanding is crucial when considering one’s own pain points, as well as comprehending how a particular link is impacting other areas during application and vice versa.
There is also concern about the handling of exceptions. If a cash application team member decides to apply a payment to reach their goal, even though they know it cannot be handled, what happens to the funds afterward? Can the funds be used, or do they sit in a suspended account? Are there then false collections happening because of improper application? These are all valid concerns contributing to the difficulties that lead to hesitance in adoption for many companies.
What it comes down to is businesses having an understanding of their current end-to-end processes. An awareness of gaps and risk factors will allow these businesses to then seek out solutions and vendors that are so particular that they can choose to fix one problem area, such as collections or invoicing.
“The biggest reason that it’s difficult to do an end-to-end review is organizational,” added Scholz. “We find way too often that the different pieces of the chain are all managed by different parts of the organization.” The solution is to pull together people from each different area of the chain and create a dialogue that centers on the financial well-being of the company as a whole.
New technologies that impact the effectiveness of accounts receivables automation
New technologies are hitting the payments market all the time, creating opportunities for businesses to implement these technologies today, regardless of their strategy or what they offer as payment options. The technologies that these businesses choose will depend on the types of payments they accept and their industry vertical.
Fortunately, there are accounts receivables automation opportunities available, regardless of payment type or vertical. This is where mapping technology comes into the picture. “It’s that technology that aggregates the data [and] creates the normalized views for the data,” explained Bourgoin. “And it’s not just the payment data, but it has the remittance data available and images. It’s really a one-stop shop for all of your information.”
This same technology can also be easily leveraged to automatically update ERP systems. It can eliminate most manual functions, such as employee keying and manipulating reports. There are many differences between digital and paper, but this is not something to be intimidated by. Rather, Bourgoin suggests business owners ask themselves this question: how much technology do I need? The answer to this is both flexible and scalable, and it depends entirely on the specific corporate and industry needs of the client.
New technologies are beneficial in a digitized world, and they can even positively impact some older technologies. Within the payments industry, customers are expecting seamless transactions and access to their bill pay documents and other data, while businesses are looking to provide a faster, more on-demand experience. Deluxe’s main goal is to help their clients maintain a streamlined order-to-cash cycle so that the company is able to both preserve and enhance profitability, as well as grow its business.