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That’ll ‘e’ the day.

You have lovely new offices, have invested millions in state-of-the-art IT and communications equipment, and you use a PR company where everyone has a double-barrelled surname and drives an Audi. But your credit control is handled by a lady called Mavis, who joined the company in 1971 and only works two days a week. What’s wrong with this picture?

Up until recently, not a lot. “People quite like to stick a cheque they need to pay in the bottom drawer for a few days longer,” says Adrian Stafford-Jones, founder and managing director of Albany Software, a UK firm that specialises in this area.

But the days where payments and receivables – the process of billing, collecting and paying invoices – could remain cheerfully amateurish are rapidly coming to an end. The reasons are external business drivers that no one can ignore. At the macro level there’s the rather surprising fact that most big companies in the US still pay each other by physical cheque. The cheque-clearing system set up in 1918 means that a large fleet of airplanes and trucks move an awful lot of paper round to regional Federal Reserve banks; any delay in processing that paper can lead to lost income.

This was brought home with dreadful force by the tragedy of September 11. “Facing first the shutdown of the entire domestic air traffic system ordered by the US government in the aftermath, and then anthrax-laced letters wreaking havoc with mail delivery, US corporations suddenly had to face the possibility that they would not be able to pay their bills or get paid on time,” says Robert Guttman in his recent book, Cybercash.

There’s also the new pressure of legislation that is obliging suppliers to meet their payment requirements. Last August, the European Union directive on late payments came into effect, which offers customers the right to charge interest at 8% over base rate for every day past the due date, and to receive compensation.

Surely one would ask, isn’t all this covered by all that expensive accountancy software and ERP suites your company has been buying for the past 20 years? The answer, surprisingly, is not necessarily.

WS Atkins agrees. The services and consultancy company stunned investors and the market when it had to announce just hours before its AGM last October that faults with a new billing and accounting system had led to somewhere between £20m-£30m worth of invoices not being issued. The result?

A profit warning that slashed the share price by 72%, a cut in profits and an increase in debt.

The company is in good company, at least. Similar issues were blamed for bad results at US health-management firm Oxford Health, when it had problems with its accounts for the second quarter of 1997. The problems raised issues with the US Securities and Exchange Commission and lawyers for disgruntled investors, leading to its former auditor, KPMG, paying out $200m in final settlement just last month.

Given that Gartner estimates there are about 25 billion invoices exchanged in Western Europe alone per year, it’s perhaps not surprising that a few do go astray. But any money lost this way is almost certainly lost for good.

The message – don’t always trust your software. “The billing function is built-in with ERP, but it can still go wrong due to faulty implementation,” warns John Salek, national practice director of the receivable cycle management practice in US consulting firm Parson. “We’ve had engagements with clients, where new ERP systems couldn’t produce or mail accounts invoices for weeks.”

The lesson, clearly, is that a core business function – actually getting paid for what you’ve done – is not being implemented as efficiently as it could be. And there’s no excuse, really. As Salek says, “With receivables you’re never sure if you’ll get paid or when, but with invoices it’s a rock-solid certainty that if you don’t issue one you won’t get paid.”

But, of course, two other solutions are already available, at least to UK companies: EDI and BACS. However, as powerful as EDI is, it’s a standard that requires a certain amount of buy-in from participants that doesn’t suit everyone and can be expensive. And as for BACS, “We’re fairly unique in the UK in having that facility, and it’s a nice system that can handle a lot of collections,” says Stafford-Jones. Any company trading beyond the UK won’t automatically have that option.

And don’t forget that, in the words of Andrei Arkhipov, research analyst with Aberdeen Group in Boston, “Existing systems don’t do enough to make you act on your receivables. There’s too much simple printing and filing of invoices, and not enough acting and optimising on the entire process.” Hence, the interest in either point solutions packages that just do this one thing really well, or a look to how the internet can offer some assistance.

But don’t feel badly if you’re only just waking up to this problem. Mavis has done a fine job for you. What has changed is both increased interest in what Arkhipov calls “financial value-chain management” – a term covering both credit and risk management as well as payments and receivables – and the fact that in a recession no one can afford to be sloppy about when they get paid for goods or services.

This has led to the creation of a niche software market in applications specifically designed to handle and better automate the payments and receivables function. But it’s not a new sector. GETPAID, one of the more established players, with 6,000 desktops at companies including Cadbury Schweppes, Dell and Sony, has been in existence for 18 years, according to its president and chief operating officer, Dianna Piumelli. GETPAID claims 20 UK companies as users. “Our software helps the CFO or FD understand what the situation truly is in terms of their receivables,” says Piumelli. “We tell you what is collectable and what isn’t being collected.”

GETPAID application functionality centres around what is currently open and ageing, and a common deployment is for her company’s software to operate alongside big financial suites such as SAP and Oracle. Piumelli claims her company was first in this space, but she’s no longer alone. Also competing in this space are firms such as Bottomline Technologies, another US outfit, and UK specialist Albany.

Slightly complicating the picture, according to Arkhipov, is not only the emergence of recent interest in this part of the finance chain from the ERP incumbents but the way new players, such as XRT, and BillingZone, are starting to introduce a more web-based approach to the problem.

The idea is also being pushed by organisations such as the Open Business Exchange, an internet-based network for buyers and sellers that acts as a software middleman translating back and forth the formats of member companies’ accounting systems. The idea is to streamline the payments process as far as possible, without creating any virtual payments. “It’s very difficult, still, for businesses to transmit and work on purely electronic documents,” says the company’s CEO, Alain Falys. Regulatory and tax requirements oblige the continued production of paper. But “while we wait for the technology to come along”, he suggests, solutions to the problem include everything from outsourcing invoice processing to countries such as India, to the first steps in using the internet to speed up the process.

Piumelli isn’t that convinced. “We’re still at the early stages of electronic invoicing,” she says, claiming not to see that much interest in it from her corporate accounts.

But at least one UK customer of Falys’, Paul Parker, general manager of ecommerce at RS Components, would disagree. Given that his company is one of the few proven UK internet success stories, we might feel he would say that. The firm, part of a bigger group called Electrocomponents, sells mechanical parts and components, such as screws and washers. Not glamorous, but its use of internet technology to aid buyers has meant 14% of its £350m annual sales now come from online sales.

Now the company is trying to use the Web to strip out more cost from the supply chain and transaction processing. “Processing invoices can cost as much as 30-40% of the purchase cost of one of our items, which individually isn’t very much but it would be nice to cut that down, especially if you have 160,000 customers to deal with,” Parker says.

RS Components is using the OBE system to help its SAP system speed up payments and receivables from suppliers. “Electronic invoicing is the natural place to go next,” he claims.

But don’t hold your breath, warns Stafford-Jones. “The market still has a long way to go because there aren’t yet enough companies able to bill each other electronically, at least online. Everyone would like to get to this nirvana of electronic trading, but we’ll still be doing a lot of manual payments processing in 10 years’ time.”

Will we soon have computers seamlessly zipping invoices around with no need for human intervention, ensuring a smoothly geared financial value chain working at optimal gearing? Probably a week after we get to the paperless office, one suspects.

In the meantime, there’s still no excuse, especially in the current downturn, not to put as much science as you can into the charmingly quaint world of payments and receivables. At least buy Mavis a new computer.

One company that says it has achieved bottom-line cost savings and greater efficiencies through payments-handling packages, in combination with EDI and BACS, is Greene King. “I’m sure a lot of money is still lost, even today, with everything the technology companies have at their disposal through poor management,” says the Suffolk-based plc’s financial director, Marc Lombardo. He looks after the managed pub division of the group – some 600 pubs – mainly in the South of England.

Problems with all payments systems, says Lombardo, can include paying needlessly for goods twice or for things that never arrive, to duplicate payments and billing problems. He thinks most of these issues have been blocked with this software. “Our old system was quite labour-intensive: an employee had to find the files, check them, initiate processing, and make sure everything went through smoothly,” says colleague Peter Hawkins, finance manager responsible for management accounts and business intelligence.

“By automating that, we’ve saved ourselves around three-quarters of a full-time person.” The firm has used EDI and BACS-handling products from Albany and achieved significant return on investment, says Hawkins, by being able to reduce headcount in his purchase ledger team and by cutting costs in a variety of areas, including postage through the switch. The leisure group now processes 85% of its purchase orders with key suppliers through EDI and all of its £250m payroll payments through BACS. This translates to as many as 24,000 invoice lines per day.

The switch to BACS has translated to major simplification of the payments process, says Lombardo, and with 1,500 suppliers on the books and cheque runs most weeks, the process of producing, verifying and signing all that paper was labour-intensive. Printing cheques on all that custom-made stationery cost money too, as did the associated postage costs. Those overheads are now eliminated.

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