With a renewed focus on accounts receivable among the corporate community, Rodney Gardner shares his thoughts and expertise on everything from straight through reconciliation to transitioning from paper to electronic payments.

Biography

Rodney Gardner is Managing Director and Head of Global Receivables for Bank of America Merrill Lynch. He joined the bank in September 2011. In this role, Gardner is responsible for managing the firm’s global receivables product including wholesale lockbox, cheque deposits, and cash vaults across four regions. His focus includes the leadership of an end-to-end product organisation, coupled with responsibility for product strategy, development, pricing and revenue growth within both the commercial and corporate client segments. He has a MBA in Finance from Long Island University and a BSc in Business Management from Florida A&M University.

Many multinational corporates have already established a payments factory. Is the same now happening in the receivables space?

Setting up a payments factory has made absolute sense for many companies to date. And the drivers are still very strong – ranging from reduced workload for operating companies, to lower transaction costs and the ability to concentrate foreign exchange (FX) transactions. Following the crisis, however, corporates have had a real catalyst to focus on being paid as efficiently as they are paying their counterparties. So, accounts receivable (AR) is firmly back in the spotlight.

Certain changes in the regulatory environment have also helped to re-energise the receivables space, namely relaxation in the laws and constraints around receive-on-behalf-of (ROBO). Establishing a ROBO structure has become much less burdensome in recent years and the concept is now beginning to gain some real traction.

What benefits can corporates gain by bringing their receivables onto the same factory floor as their payables?

It is indisputable that a company’s days sales outstanding (DSO) will go down if they centralise their receivables, since it allows them to focus on how they are getting paid, and by whom. There are FX benefits and operational opportunities too – such as rationalising bank accounts. Centralisation is also a great catalyst for identifying ways to improve the receivables process for all parties, notably through the use of electronic payments.

In turn, by cleaning up AR, and fostering straight through reconciliation (STR), shared service centre (SSC) staff can be redeployed to more value-added tasks, perhaps in a function that will enhance the company’s customer service experience, for example.

How can companies – both payers and payees – be encouraged to embrace the paper-to-electronic (P2E) shift?

The automation, efficiency and cost benefits of moving to electronic payments are very clear in theory, but in practice the transition can be hard to master. This is particularly true when accounts payable (AP) managers are comfortable with their current payment methods. In the US market, for instance, AP managers often want to use cheques because they still believe there is some float benefit – even though this actually disappeared over a decade ago.

So there is an education piece for payees to undertake around the benefits that their suppliers can garner from the P2E shift. For example, the cost of issuing a cheque can be as much as $4 (from disbursement through reconciliation), whereas a low-value payment will cost cents, rather than dollars. Payees can also make life easier for their customers’ AP managers by accepting ‘one-to-many’ payments – essentially encouraging them to roll their invoices into one and send a single ACH. This does require the receiver of this one-to-many payment to have the right accounts receivable tools to accept and apply the transaction on a STR basis.

For example, an AR manager receiving a single ACH payment that relates to 92 invoices – where the customer decided to make their own deductions without informing you first – does sound like a reconciliation nightmare. But the key is to think carefully about how to reconcile your electronic payments before demanding to be paid in that way. Also, if you take the time to show customers how to populate the information fields on an ACH, you will be surprised how many will agree to do it.

In essence, P2E is a two-step process. First is making sure you have the appropriate tools to reconcile the payments coming in. Second is encouraging your customers or clients to pay electronically. Together, these steps will allow companies to fully realise the automation, efficiency and cost benefits that P2E offers.

What kind of tools are appropriate to enable STR when rolling out a P2E strategy?

It depends on the market the corporate is operating in. If it is a market that is already mostly electronic, such as post-SEPA Europe, then virtual accounts are a good option. But if it is a paper-heavy market, like the US, then the problem statement differs. It’s more like – how do I transition from paper to electronic payments without negatively impacting and/or improving my current STR levels?

What is useful in both electronic and paper-intensive markets, though, is for clients to share with the bank when and what they expect to receive via their open accounts receivables (OAR) file. Armed with the information from the payment and from the OAR file, the bank can then triangulate, reconcile, and deliver exactly what the corporate is looking for in terms of an invoice match.

Can you offer corporates any tips or benchmarks around best-in-class STR?

It does take a commitment on behalf of the corporate and the bank to implement the solution efficiently – but the higher the STR rate, the higher the cost savings.

In terms of measuring ‘best-in class’, post-implementation, we want to be able to deliver an STR rate of around 80%. The real leg work comes after the initial implementation, to get that 80% figure closer to 90%. This means analysing and then addressing any ‘bad behaviours’ among your customers or clients by examining how they are paying and whether they are doing it efficiently (paying electronically, including complete invoice information, and customer numbers for instance).

Do new payment types represent an opportunity here or do they have the potential to negatively impact STR rates?

Corporates are increasingly considering commercial cards and new innovations like Apple Pay™ with the goal to improve the customer’s payment experience. While these opportunities are very exciting, as companies begin to accept new payment types, it will become increasingly important to engage accounts receivable and other partners in the company to test them and, ultimately, ensure a smooth journey from receipt of payment through to reconciliation, all on an STR basis of course.

Disclaimer

General disclaimer for Bank of America Merrill Lynch, visit bankofamerica.com/disclaimer
©2015 Bank of America Corporation