Improving financial supply chain management with SAP Biller Direct

SAP Biller Direct is a mechanism to achieve streamlined cash collection and a means of improving customer satisfaction and retention.

All well managed enterprises, no matter their size or sector focus, are mindful of the old accounting adage ‘cashflow is king’.

In the last 18 months many businesses navigating the global financial crisis have lived or died by this maxim. By flipping traditional payment processes on their head SAP Biller Direct, a critical component of SAP’s wider suite of financial management modules, can help organisations avoid cash speed bumps.

It encourages improved billerpayer interaction and provides greater visibility of when cash comes in the door – in doing so it facilitates better integration of financial practices and drives business performance forward.

For most businesses cash collection is the end point of a convoluted ‘order to cash’ supply chain. Logistically, this involves taking an order, assembling and shipping the goods, and issuing a bill. Following that, the accounts receivable routines of chasing down the payment and depositing it against the customer account take place.

The issues that arise in this process are well known but endlessly repeated – hard copy invoices get lost in the mail, bill recipients enter invoices incorrectly into their system and disputes occur over invoice amounts and payment terms. Any and all of these slow down the receipt of cash into the business.

The advent of email and electronic banking has reduced some of the logistical issues. The pitfalls (and associated costs) of printing, posting and receiving a hard copy invoice, and the customer cheque actually arriving in the mail, have been largely surmounted.

But most businesses still suffer significant problems withthe financial aspects of the cash collection process and this is where SAP’s Biller Direct can help complete the virtuous circle of electronic bill presentment and payment (EBPP). It does so by providing online access to contextual billing information and giving the customer the power to undertake invoice-related tasks, such as initiating payments and logging billing queries.

The payment merry-go-round
One of the most common difficulties businesses face is the communication disconnect between the accounts receivable clerk tasked with chasing down a payment and the customer who originally ordered the item. Having had no contact with the customer and nothing to do with the original order the accounts receivable clerk can only act retrospectively, based on what is seen in an accounts receivable report.

A typical payment process, by way of example, may involve a customer being sent 10 invoices totalling $1 million. The customer decides to pay $900,000, directly into the biller’s bank account. The biller will recognise this payment via a bank statement and route it to the customer’s account. Sofar so good. But because the customer only paid $900,000 the accounts clerk has no idea which invoices were paid in full, and which ones were short paid and why.

There is very limited visibility as to what the customer was thinking at the biller’s end of the process.

Faced with this difficulty the clerk will attempt to solve the discrepancy, and this is where the business process breaks down. The task of identifying the parties to talk to, tracking them down and executing the corrective measures is manually intensive and time-consuming. And, it has cashflow implications – if that cash had been collected earlier, better working capital decisions could have been made by the business.

Advantages for the Biller
Billing

• Lower cost of billing with no printing and postal charges
• Use of open communication and data standards (HTTPS, XML)
• Customer participation in electronic business without EDI

Payment Processing

• Efficient processing of payments and exceptions
• More precise cash management and improved liquidity planning
• Faster invoice approval and payments by customers
• Better explanation of payment deductions

Integration

• Data integration with accounts receivable and cash management
• Integration with other business processes, e.g. dispute and collections management

Marketing

• Better customer retention (retaining a customer is five times cheaper than acquiring a new one)
• Competitive advantages through attractive service

Advantages for the Bill Recipient
Payments

• Simplified and secure processing of electronic payments using 365/24 access to the internet
• Control over the time of payment and management of the outgoing cashflow
• Favourable payment conditions can be better exploited
• Payment details can easily be analysed

Invoices

• Fewer accounting and settlement errors
• Comprehensive data analysis
• Immediate access to invoice copies (no archiving necessary)

Integration

• Upload of invoices into accounts payable (no reformatting of data necessary)
• No changes of existing business processes
• Easy change of master data

Providing the power to act
The implementation of SAP Biller Direct can help solve this issue. It provides a core environment for improved billing collaboration, and in conjunction with SAP Disputes Management and Collections Management modules, facilitates a more streamlined cash collection process.

SAP Biller Direct gives customers the ability to log into an online billing information centre, set up for them by the biller. There, the customer can see a range of billing information specific to them, such as outstanding invoices, statements, credits applied to their account and a history of previous payments.

Armed with this knowledge the customer can download bills into their accounts payable system and initiate payments. Furthermore, invoice recipients can dispute bills and collaborate with the biller online in real time. By providing this information and an avenue for communication the customer is empowered to make decisions and take actions. The biller can see these decisions and collaborate with the customer on any points of contention.

In our example above, the customer can see all 10 of the invoices and decide which ones to pay in full and which ones to dispute. Having decided to withhold $100,000 the customer can then explain the reasons for that decision. In essence the customer, through SAP Biller

Direct, is updating SAP’s Disputes Management module, but the key here is that the customer is providing the information, not the biller’s accounts receivable clerk. This negates the need for the clerk to chase the customer. The information is entered directly and the responsibility pushed back onto the customer to communicate effectively and in a timely fashion.

Show me the money
But perhaps the biggest innovation SAP Biller Direct introduces is a reversal of standard payment processing. It is a change that can help signifi cantly improve a business’s cashflow forecasting.

Traditionally, when a customer pays an invoice the biller only becomes aware of the payment when it arrives in the bank account, at which point the funds are cleared. With SAP Biller Direct the exact opposite occurs – the clearing of the funds occurs before the payment.

Having decided to pay an invoice the customer notifies the biller using SAP Biller Direct. Once the biller can see the notification and the cleared funds, a payment file is sent to the bank, and money is deposited into the biller’s account.

For the biller, it completely removes the problem of receiving money and wondering what it relates to – the customer, using SAP Biller Direct, has logged all relevant information and notified the biller that the money is available. This provides a more efficient means of processing payments and exceptions, resulting in more precise cash management and improved liquidity planning.

Data integration between accounts receivable and cash management is seamless. The customer also reaps benefi ts. They experience simplified and secure processing of electronic payments, fewer accounting and settlement errors and can upload invoices directly into their accounts payable system without reformatting data.

Why not get on board?
Working in conjunction with SAP Disputes Management and Collections Management, SAP Biller Direct can simplify cash collection procedures, making it an attractive proposition for high volume organisations – either those with many customers or a large volume of transactions with just a few customers. The modules form part of SAP’s mature supply chain management solution which now includes contract accounting, and collections and disbursements as core functionality.

For customers running the latest version of SAP it is a straightforward implementation. For those running an older version of SAP, Biller Direct can be deployed using SAP Netweaver – negating the need to upgrade to the latest version of the software. Any software that provides business benefits to both biller and recipient is a strong starting point for the creation of a compelling business case.

On one hand SAP Biller Direct can be used to improve customer retention, while on the other it provides productivity gains for A/R and A/P departments. In a period of market uncertainty any improvement in cashfl ow forecasting warrants investigation, especially when quicker cash inflow can reduce the need to borrow and open up opportunities for short-term investment plays.

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