Stefan Foryszewski is co-founder & senior vice president at OB10.
The banking industry is rarely out of the headlines at the moment. Every aspect of how banks conduct their affairs is coming under scrutiny as a result of the credit crunch and the ensuing global recession.
Some of this activity is right and proper – and more attention of this kind in the past might have helped to alleviate some of the problems we now face. Some of it will equally be unnecessary nit-picking – and once again, we must expect a certain element of over caution to follow the ‘NICE’ decade which we have all just lived through.
As ever in business, the right approach will fall somewhere between these two extremes. We can certainly expect increased risk management processes from the banks (and increased scrutiny of those processes by governments and regulators). We should also prepare for a period of cost-cutting by all financial services providers (not least the banks), in order to support the process of realising efficiencies in order to restore margins and battered balance sheets to somewhere closer to their pre-crunch levels. When it comes to corporate banking, however, it might be argued that the most important challenge may be more difficult than risk management or cost-control – because it entails winning back the trust of disillusioned enterprise customers.
Banks are once again competing for corporate customers’ business and are looking for ways to add value to those customers. Brand, trust and historical relationships will be important, as always – but those banks that can really differentiate their offering by showing a real focus on the core needs of the corporate customer will be a step ahead of the game. As invoices are so closely linked to payment, a crucial element of the customer service proposition must be the ability to process invoices electronically.
e-Invoicing is not a new concept, Electronic Data Interchange (EDI) has been in use for decades. e-Invoicing networks however, are more advanced. They enable suppliers to submit their invoices in any electronic format, making the submission process virtually painless. For example an e-Invoicing network can take electronic input from SAP systems of major corporations to simple QuickBooks-generated invoices from the smaller companies. An e-Invoicing network does all the data mapping from the supplier-submitted invoices and delivers the final invoice data into the customers accounting system, in their specified format. e-Invoicing benefits both the sender and receiver of invoices, streamlining the whole process to offer guaranteed delivery and reduced processing times. On average, electronic invoice delivery cuts 14 days from processing times; reduced processing times means improved payment cycles.
The e-Invoicing movement has been gathering pace in recent months. It may come as a surprise to some Banking Technology readers that the European Commission has turned its attention to the issue of processing invoices electronically, and has calculated that – were all business in the Eurozone to make the switch to e-Invoicing, up to €18bn could be saved.
There is always resistance when something new is suggested – like the total eradication of paper invoices. However, for those of us who’ve been working towards this goal for some years now, even the nominal backing of the EU suggests that a step-change is underway, and that the banks really can offer something that gives the corporate a much more efficient way of working (and chalks up some strong CSR credentials into the bargain).
Equally, it is not just the banking sector that is looking to reduce its costs. Whether in recession or boom, corporate customers will always be attracted by solutions that help them to find new ways of retaining customers and reducing costs. e-Invoicing is one such solution – and, even better – it rarely requires significant upfront cap-ex to implement.
So, while e-Invoicing looks attractive to banking services providers, who view it as a channel through which to offer advanced business services, adding value to the customer proposition, it should also facilitate communication between corporates and their SME suppliers for instance, leading to direct bottom-line cost savings.
But the most important collaboration – at least for the banks – will be between bank and enterprise customer. e-Invoicing in this sense gives the bank or financial services provider the opportunity to collaborate with its corporate customers, to forge links with existing services (online banking, payment services, and so on). As such, it represents a potential win-win for corporate customers, giving them process improvements combined with risk and cost reduction and working capital benefits.
So, how can banks start to take advantage of the commercial benefits that e-Invoicing can offer them and their corporate customers? Well, one example can be seen in Abbey UK Corporate Banking – part of the Santander Group, the largest financial institution in the Eurozone. Abbey UK Corporate Banking has worked with us to deliver an innovative supply chain and working capital solution for its corporate customers. The ‘Supplier Payments’ solution, enables corporate customers to pay their suppliers early, but retain funds to make payment within their standard payment terms.
The basic proposition of Supplier Payments is very straightforward. In a typical supply chain, the supplier pays to finance the period from the point at which goods are ordered until payment from the buyer is received. However, typically the supplier is the party in the supply chain for whom finance will cost the most. As a result, the supplier inevitably factors this cost into the price of the goods or services purchased by the buyer.
By contrast, Supplier Payments leverages the bank’s relationship with the buying organisation to reduce the cost of finance for the whole supply chain. Supplier Payments allows suppliers to be paid early ahead of their normal trade terms at a lower cost of finance than traditional financing techniques, for example bank loans, overdrafts and factoring or invoice discounting. e-Invoicing maximises the benefit available to the corporate and their suppliers as invoices can be received and processed more quickly.
Here’s how it works. Corporates receive correct, tax compliant invoices from their suppliers directly into their accounting system. Once the invoices have been matched and approved for payment, the corporate sends details of the invoices to be paid to Abbey. The bank then makes immediate cash payment to the supplier of 100% of the invoice value less a discount. However with Supplier Payments, the discount amount is calculated using the corporates cost of finance, rather than the suppliers. The buyer then reimburses the bank with 100% of the invoice amount on the original invoice due date using its normal banking relationship. By sending the invoice electronically, the supplier not only benefits from improved process efficiency, but a reduction in costs, associated reduction in credit insurance costs and risk.
This is just one small example of how banks can add value to their relationships with their corporate customers. The scope of advantage which e-Invoicing can offer is vast – now it remains to be seen what is the catalyst that drives adoption across Europe and globally.
www.ob10.com
Source: www.bankingtech.com
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