Emerging Trends in Receivables Management

Date: 24 April 2018

Minnesota Association for Financial Professionals

PUBLIC

1

Agenda

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Current Landscape

Business AR Challenges

Emerging Trends

Integrated Receivables

Virtual Accounts

Real Time Payments

Electronic Invoicing

Future Vision

Questions & Answers

2

Current Landscape

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Business to business (B2B) collections is often a complex process with multiple payment types and

remittance streams

Suppliers have to handle a myriad of payment and remittance types. Manual processes result in delays

in processing, input errors, increased costs and ultimately an increase in Days Sales Outstanding

(DSO)

Order to Cash Lifecycle

Customer Invoice

Generated

Supplier

Invoice Receipt &

Adjudication

Payment

Processed

Buyer

Payment

Received

Reconciliation and

Cash Application

Supplier

3

Current Landscape (cont’d)

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Paper to electronic migration is happening, but check remains a dominant payment method

Source: 2016 AFP Electronic Payments Survey

Percentage of B2B Payments Received via Check Payment Method Used to Pay Major Suppliers

75%

64%

54%50%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2004 2007 2010 2013 2016

Checks (41%)

ACH Credits (34%)

Wire Transfer (13%)

P Card (5%)

ACH Debit (3%)

Other Cards (2%)

Single Use (1%)

Other (1%)

4

Current Landscape (cont’d)

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Business Catalysts for Increasing Electronic Payments

Source: Institute of Finance and Management

Fraud Mitigation (10%)

Cash Flow (6%)

Error Reduction (3%)

Operational Efficiency (43%)

Cost Reduction (12%)

Increased STP (25%)

Strong desire and business rationale to move towards

electronic payments

Significant barriers to acceptance remain

5

Business AR Challenges

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Lack of straight through processing leads to increased expense & inefficient resource allocation

Electronic delivery ≠ straight through processing in all cases

Remittance information does not travel with the payment & requires manual re-association

Source: 2016 AFP Electronic Payments Survey

Methods of Receiving ACH Remittances

(Percent of Organizations)

3%

4%

5%

11%

15%

18%

18%

22%

55%

0% 10% 20% 30% 40% 50% 60%

ISO 20022

Other

Supplier Website

Third Party Website

Fax

EDI CTX/CCD

Customer Website

Mail

Email

6

Business AR Challenges (cont’d)

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Process automation and achieving straight-through processing can help deliver a number of business

objectives

Source: 2015 Celent Survey of AR Practitioners

Corporate Accounts Receivables Goals

11%

12%

12%

21%

30%

33%

35%

39%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Improve AR STP rates

Reduce unauthorized discounting

Increase same-day AR posting rates

Streamline handling of remittance info.

Reduce AR processing costs

Migrate payers to preferred e-pmt. Method

Increase electronic payment rates for AR

Reduce DSO

7

Integrated Receivables

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To address growing challenges along the financial supply chain, banks and Fintech providers have

started to develop integrated receivables solutions

Integrated receivables platforms vary widely in terms of functionality

Consolidated Receivables Reporting

Automated Remittance Capture and Payment Matching

Receivables Matching

Exception Management

Artificial Intelligence and Machine Learning

Data Analytics

8

Integrated Receivables (cont’d)

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Integrated Receivables

Acceleration of Cash and Information

Application

Payment & Remittance

Analytics

Match Payment

and Remittance

Details

Exception

Management &

Deduction

Management

Consolidated

Reporting, File

Output and

Alerting

Holistic Customer

and Payment

Analysis

Trend Analysis

and Cash Flow

Forecasting

Benefits

DSO Reduction

Operational Efficiency and Cost Reduction

Increased STP

Facilitates Paper to Electronic Conversion

Customer Behavior & Root Cause Analysis

Reduced IT Support

9

Virtual Accounts

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What are virtual accounts and how can they help with receivables management?

Virtual accounts are essentially non-physical accounts that can be used to help streamline cash application

Funds report at the VA level, but money posts to the physical account

Ongoing management of virtual accounts can be on a self service basis (open and close through online interface)

Can help facilitate treasury centralization or receivables on behalf of models

10

Virtual Accounts (cont’d)

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How it works

Stage 2Stage 1

Integrated

Receivables

Customer

AR or ERP

222-123456 XXX Co

40,000.00 40,000.00

222-654321 YYY Co

13,500.00 13,500.00

222-111111 ZZZ Co

4,500.00 4,500.00

Combined with our Integrated

receivables management solution the

Virtual Account first identifies the

payer and then matches the

amount/remittance details with open

AR file

Virtual Account 1

2 2 2 1 2 3 4 5 6

Payor 1: XXX Co

Amount: USD40,000.00

Virtual Account 2

2 2 2 6 5 4 3 2 1

Payor 2: YYY Co.

Amount: USD13,500.00

Virtual Account 3

2 2 2 1 1 1 1 1 1

Payor 3: ZZZ Co.

Amount: USD4,500.00

Customer can identify the payer

(remitter) by matching the Virtual

Account number (in red) - as found on

electronic statement or integrated

receivables file - with the payer to

which was originally assigned the

Virtual Account.

Customer Account

(Physical Account)

24 April 2018

CR VA 222-123456 40,000.00

CR VA 222-654321 13,500.00

CR VA 222-111111 4,500.00

11

Real Time Payments

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Real-time Payments (RTP) combines immediate funds availability, settlement finality, instant

confirmation, and integrated information flows

Contextual data needed to identify a payment and the reasons for exceptions can accompany a

payment

Two-way communication between trading partners within the secure system

Request for payment capability allows supplier to send payment request to customer along with invoice

information

12

Real Time Payments (cont’d)

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Seller/Payee

ShippingOrder Entry

System

Order Fulfillment (ASN)

Buyer/Payer

Accounts

Receivable

Accounts

Payable

Seller Issues Request for Payment

Exchange of Payment Messaging

Payment Initiated

Send and Receive Funds 24/7/365 in Seconds

13

Electronic Invoicing

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“An electronic invoice is one that has been issued by the seller, transmitted and received by the buyer in a

structured digital format which allows for automated processing.”1

Electronic invoicing (e-invoicing) enables straight-through-processing from “order-to-cash” and “procure-to-pay” for

business-to-business payment transactions

e-invoicing approaches are diverse and complex. Differing standards are used depending on the size of the company,

industry, and country

U.S. e-invoicing is estimated to be 24% of total bills/invoices generated (6.8 billion out of 30 billion total)2 and is growing

about 5% annually3

FRB Business Payments Coalition e-Invoicing work group

Sources:

1. FRB Payments Improvement Catalog of Electronic Invoice Technical Standards in the U.S.

2. E-invoicing/E-Billing: Entering a New Era Billentis

3. 2014 Global eInvoicing Report, PayStream Advisors, 2014

14

Electronic Invoicing (cont’d)

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Biller Benefits

Source:

1. Paystream Advisors 2014 Global eInvoicing Report

2. FRB Payments Improvement Catalog of Electronic Invoice Technical Standards in the U.S.

Cost ReductionOne estimate shows that businesses can save $4-$8 per invoice when

migrating from paper to electronic1

Improved Efficiency92% of invoices received electronically are approved and paid on time

versus only 45% of invoices received manually2

Cash Flow & Visibility More predictable cash flows and reduced DSO management.

15

Future Vision

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In 2017, there was $18.6bn in Americas Fintech Investment across 587 Deals

B2B Solutions attracted a significant amount of attention from US investors during 2017

Total US Fintech investment activity (VC, PE and M&A) in Fintech companies 2010 – Q4'17

Source: Pulse of Fintech Q4'17, KPMG Global Analysis of Investment in Fintech

0

50

100

150

200

250

0

2

4

6

8

10

12

14

16

18

20

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010 2011 2012 2013 2014 2015 2016 2017

Deal Value ($bn) # of Deals Closed

$

16

Future Vision (cont’d)

PUBLIC

Digital technologies are creating unprecedented opportunities to streamline processes, improve financial metrics, save

cost and gain valuable insights into your customer base

Recap of key trends in the AR space

Innovation in the AR space is alive and well!

Paper and electronic

remittance processing

Operational Efficiency

and Cost Reduction

Exception

Management

DSO Reduction

Integrated Receivables

Unique virtual account

for each payer

Flexibility in defining

structure and

accounts

Supports ROBO

structure

Self Service

Virtual Accounts

Available 24x7x365

Supports extensible

messaging (ISO

20022)

Supports two way

communication

Request for Payment

Real Time Payments

Native electronic

format

Strong cost reduction

benefits

Buyer-Supplier

Networks

Timely processing by

customers

Electronic Invoice

Question & Answer

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18

Speaker

PUBLIC

Robert Cleary

Regional Head of Domestic Payments

HSBC

robert.s.cleary@us.hsbc.com

Robert Cleary is responsible for the delivery of U.S. domestic payments

products (payables and receivables) for HSBC. Mr. Cleary has been

active in the financial services industry since 1993 and joined HSBC in

2009. He holds a BA from Old Dominion University and an MBA from

Rutgers University. He earned his Certified Treasury Professional

accreditation in 2002.

19

Important Notice

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