Beyond business as usual

Technology has had a significant influence on commercial banking, says Ian Watkinson, head of e-invoicing, Royal Bank of Scotland. “The internet has changed the way we do business forever and there is a greater drive for automation and a genuine move away from paper,” he says.

In June, RBS entered into a multi-year electronic invoicing agreement with Accountis, a developer of secure financial document exchange and payment systems. The white label agreement will enable RBS to provide a VAT-compliant e-invoicing service to its corporate customers.

“For our customers we see e-invoicing as a fast-track to saving time and money. In addition to eliminating paper and automating manual processes, users of the service will quickly benefit from real-time document management, faster settlements and better working capital optimisation,” says Watkinson.

Transaction-based services such as e-invoicing are becoming more important as financial institutions seek to recoup revenues lost in other areas of banking such as investment banking and payments. E-invoicing is considered a first step in automating the financial supply chain – the flavour of the month in commercial banking. George Ravich, chief marketing officer at Accountis’ parent company Fundtech, says there are “many opportunities” for banks to extend their relationships with corporates to provide more fee-based services. Fundtech promotes the concept of “just in time cash”, where banks can service their corporate clients very well by knowing their cash needs at any moment in time. Electronic invoicing is fundamental in this, he says, as it provides the information that is needed throughout the supply chain.

Watkinson says e-invoicing is a strategic addition to RBS’ existing product portfolio. He agrees with Ravich on the significance of e-invoicing: “By offering additional transaction services such as e-invoice delivery, we will gain greater visibility of our customer’s end-to-end, financial supply chain transactions” he says. “This will help us to improve our understanding of their business and strengthen our long-term relationship. It also places us in a better position to offer additional services such as supplier finance provisions and other innovative finance arrangements.”

Along with working capital management, the financial supply chain is seen as an important area where banks can add value for corporate clients. Tom Buschman, founder, chairman and chief executive of corporate standards body Twist Process Innovations, told delegates at the International Payments Summit in London earlier this year that the supply chain was “all about collections”. Companies want predictability in collections processes, he added.

His views were endorsed by a number of other speakers. Ray Zabarte, global head of supply chain finance, transaction banking at Standard Chartered Bank said supply chain finance was about “getting information sooner” and the ideal would be to get information directly, in real time, from corporate customers.

Roger Ward, financial services EMEA consultant at CSC Computer Sciences, said that in optimising the use of cash, the company looked to its banks for solutions. However, the offerings are very fragmented, as were the needs of different corporates.

Chris Pickles, head of marketing, BT Global Financial Services, said one of the main problems regarding collections was that “inefficiency makes money”. He wants to know how banks can help speed up the collections process for a large corporate such as BT, which has a wide variety of customers using different payments methods. Top of BT’s wish list is clearing and finality of payments on a T+1 basis. However, there are significant stumbling blocks such as the cheque, which slow down collections considerably.

Electronic invoicing holds promise, he says, because the earlier an invoice is delivered, the earlier a payment could be made and this was applicable all the way through BT’s customer base, down to retail clients. Banks should also work on integrating bank account data to help with reconciliations. “Consolidation and reconciliation are key in the collections process, but we are amazed at the lack of standards in the banking industry. Banks told everyone they were using ISO standards but that is not the case.”

Despite the championing of e-invoicing at conferences and elsewhere, 20 years on from its inception, less than 5% of invoices are electronic, according to the Euro Banking Association. In a study by Cap Gemini, released to coincide with the launch of the single euro payments area, the European Commission identified potential savings of €238 billion through the use of e-invoicing. There are barriers, however, including the fragmented nature of the market (there are around 300 service providers and a wide variety of models) and legal and VAT issues, along with a lack of standards have also contrived to stymie significant growth.

Bo Harald, head of the executive advisors unit at TietoEnator, says one way of accelerating the adoption of e-invoicing would be to declare that “paper invoices have no future”. Harald is chairman of the European Commission’s Expert Group on E-invoicing, which is working to develop a single standard for e-invoicing.

Implementing a bank e-invoicing service within a corporate’s accounts receivable department will improve operational efficiencies, leading to faster payments and reduced days sales outstanding (DSO). This in turn will reduce a corporate’s working capital requirements. A bank can also provide invoice-based financing services such as factoring and reverse factoring. In accounts payable departments, e-invoicing provides an opportunity to implement early payment discounting schemes, reducing overall spend.

In developing its system, RBS wanted to make the service as easy as possible, says Watkinson. “We did not want to force change on our corporates in the way their accounting and ERP systems work. The service is designed to make it easier for corporates to exchange financial trade documents with their suppliers and customers.” While many of RBS’ large corporate clients are happy to make electronic payments, they continue to invoice in paper.

Watkinson says RBS will further develop the service and is investigating the possibility of more closely integrating payments and linking with supplier finance. “In approving invoices more efficiently, customers can get closer to the benefits of the supplier finance model.”

Dave Shilling, a corporate business analyst at software developer Misys, says a major issue in commercial banking is the shrinking of margins. Banks have to look beyond traditional services to improve revenues and they are turning to treasury and transaction banking.

Misys is focusing its attentions on cash pooling and will launch its Global Cash Pooling product at Sibos in Vienna in September. He says cash pooling has been a relatively underdeveloped space in cash management. “Corporates have cash and it is all over the place. They want it in the one place so they have greater visibility and control,” he says.

There are barriers to this, however. For example, regulations can prohibit the free movement of money across borders. There are also cultural barriers – local companies are not always happy for headquarters to centralise cash away from local managers. Banks also present barriers when it comes to cash pooling, says Shilling. “Corporates like the sound of cash pooling services but their banks are reluctant to offer them. Very few banks offer cash pooling as a service and if they do, it is generally expensive and sometimes a bank will insist the corporate moves all of its accounts to be with the providing bank.”

At present, corporates currently have very little overall visibility of the financial supply chain. E-invoicing services can provide detailed status information, such as proof of delivery, acceptance, query and approval status for all documents involved in a business transaction from purchase order to invoice.

Sarah Jones, chief executive of SCF Capital, a boutique merchant bank specialising in supply chain finance, says corporates do not realise they can gain financing much earlier if they invoice electronically. Underlying business models, including terms and conditions, need to be reviewed in order to improve supply chain financing, she said.

However, corporates have to be wary of pushing suppliers to pay too fast if they are financially weak – this would raise their cost of borrowing and reduce their ability to access working capital.

Source: Bankingtech