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Using Technology in Working Capital Management: Emagia Receivables Manager

November 19, 2001 - How can I leverage the Internet to enhance cash flow from customers and suppliers, cut down repetitive tasks, dig out from under paperwork, manage and resolve disputes more efficiently, accurately forecast collected revenues, better understand my overall cash flow situation, and collect more money more quickly?

-Good question.

Business-to-business purchasing has gone gangbusters. ERP systems and distributed databases help manage and track large-scale purchasing between customers and suppliers. The purchasing cycle integrates with back-office systems and efficiently interacts with CRM systems, marketing tools, shipping and inventory, tracking, all points of the supply chain cycle -

Except online billing. And that's where B2B purchasing hits the ropes. Financial executives find themselves struggling with:

• Paper-based invoicing procedures lagging behind Internet deals.
• Overloaded accounting and collection staffs.
• Inability to accurately forecast collected revenues.
• Inefficient and costly dispute processes.
• JTardy collections.
• Expensive accounts payable process.

The problem is an expensive one. According to consultant Killen & Associates, the typical company with $1 billion in sales spends $32 million a year for working capital that could be eliminated with faster collections. Killen estimates that better online billing and cash management could save the world's 30,000 largest companies two-thirds of their sell-side transaction costs, or $89 billion a year.

When enterprise cash flow nodes are disconnected, receivables lose a good third of their original value within six months, and a full 20% never deliver at all due to missing or partial documentation. In addition, handling paper documents is expensive - the Association of Record Management, figuring the average time to fetch a paper document at 8 minutes and $20, points out that handling a million paper documents adds up to $20 million dollars.

With many financial functions moving successfully online, why is the cash management process so slow to follow? An Association of Financial Professionals survey showed that gaps in the electronic flow of remittance information, both internally between systems and externally between payer and payee, represent thick barriers to increased use of electronic payments. The major culprit? Not integrating electronic payment and accounting systems. Other major causes - the inability to send and receive payment and remittance information, and weak links between payments, financing, and risk management providers - make up a Big Three of cash cycle woes.

And meanwhile, the CFO is in the hot seat Regardless of cash management challenges, the CFO must efficiently and effectively manage cash inflow, cash outflow, and enterprise cash flows - all in an atmosphere of delayed, awkward and inaccurate cash flow reporting procedures.

There are software tools for electronic invoicing. Some are modules in major ERP systems such as SAP, while others are third-party software. The problem is that electronic invoicing, while better than a paper-based system, does not address the cash management cycle that the CFO is responsible for. A cash management system must address:

• Inaccurate sales and promotional information, obsolete pricing configuration and data, and incomplete shipping data.
• Order entry delay and errors, multiple customer masters and sales feeds, inappropriate credit limits, and high volume of credit holds.
• Delayed and inaccurate invoicing, reactive credit and order assurance, and poor delivery performance.
• Complex billing information, invoice copy demands, high ratio of change orders, and delayed identification of customer disputes.
• High level of disputes and returns, excessive deductions, high degree of manual cash transactions, and high processing costs.
• Slow dispute resolution, no dispute escalation protocol, and excessive administrative rework.
• Reactive collections, no analysis of errors at root cause level, and poor customer service.
• Lost sales, impaired collections, increased bad debt and interest expense, and low customer retention.

All of which leads to higher costs, delayed cash flows, lower portability, and competitive disadvantage.

Here's a simple example: database vendor D-Zone cuts an invoice for giant networking customer Connect, which swallows it into its huge Accounts Payable maw. The invoice now begins its deliberate cycle through accounting, but 15, 25, and 35 days pass since D-Zone generated it, and no payment is yet in sight. Meanwhile there is nothing in D-Zone's ERP to track where the invoice is in the process. Now, D-Zone knows that Connect has an equally large Accounts Receivable department, and they are good for the money. But will Connect float the payment? Is there a customer dispute over pricing? Did the shipment arrive late? Is the invoice still sitting on the purchaser's desk or in an e-mail account? Is accounting backed up, or is the mainframe cranky? D-Zone's books say that payment should be in by 30 days. It isn't. So one of those 200 collection agents on D-Zone's staff goes to work, because D-Zone must manually intervene in the collections process. How else can it know where the invoice is, or if the check's really in the mail?

And every day, D-Zone's as-yet-uncollected dollar is shrinking. Every day, something increases the chances of no payment or partial payment, and every day the cost of those receivables goes up - cutting straight at its bottom line. For just as ERP and Internet commerce has slashed order-to-ship time, it has slowed down ship-to-cash time by its very speed and volume. This equals an unfortunate recipe for higher costs, less working capital, lower margins, and depressed profits. Altogether a depressing picture.

Enter Emagia
Enter Emagia, which offers highly evolved financial solutions to the back-end of the supply chain. Emagia's Collaborative Finance Suite brings the power of the Internet to manual, paper-based financial processes and practices. It presents a set of collaborative, process-oriented applications that allow finance executives to do their jobs - proactively managing external and internal cash flows and business working capital. And collaboration is the key: all finance department processes depend on collaborating and interacting with a variety of stakeholders, including customers, vendors, financing partners, employees, sales, customer service, purchasing and other departments.

The suite, an integrated applications platform for comprehensive financial flows management, provides centralized real-time information access for cash flow management and allows all involved parties to effectively collaborate with each other. It optimizes financial processes between suppliers, buyers and financial transaction partners, integrates and extends ERP systems into collaborative workflow environments, and incorporates finance, sales and customer service functions within the enterprise. It even goes further, extending and collaborating across multiple enterprises, to external banking and credit partners - and to the most important element of all, the customer.

Financial executives can now:

• Improve reconciliation and financial settlement with real-time access to critical information.
• Strategic cash flow management with powerful portfolio analyses.
• Increase cash inflow by modifying existing strategies.
• Effectively manage the entire process to reach set targets.

Receivables Management Suite: Cash inflow optimization applications. Emagia starts working the moment the invoices hit, to the moment when the money is collected. Its applications include Portfolio Management to centralize all relevant data, Process Management with goal setting and monitoring, Customer Management with detailed settlement information, Dispute Management offering policy-based workflow, and Forecast Management with its extensive reporting and analysis capabilities.

The Receivables Management Suite's cash forecasting abilities generate detailed, real-time cash forecasts based on variables including payment history and promises to pay, with both long-term and short-term forecasts instantly available. A web-based customer care module also presents electronic invoices and electronic statements. Customers can make payments via electronic funds transfer, make promises to pay or file a dispute online.

Also available are:

Payables Management Suite: Cash outflow optimization applications. Just as important as Receivables Management is Payables Management. Where is the money going, how much, and why? Which vendors offer better terms for what payment options? What amounts are in dispute, and what is the cause? The Payables Management Suite includes Expense and Time Management to track processes and procedures, Procurement Management for purchasing procedures, Online Invoice Management of incoming invoices and payment histories, and Online Financing Management for financing arrangements.

Cash Management Suite: Inventory optimizations applications. Inventory and treasury management offers cash-on-hand financial management, with the CFO's Working Capital Optimizer soon to come.

Receivables Management Suite

Let's come back to our example of D-Zone and Connect. What might happen with workable cash management? Using the Receivable Management suite from Emagia, D-Zone finds that Connect actually pays on the 42nd day of the invoice, never the 30th. Now D-Zone knows what to expect from Connect, and can make an intelligent decision to live with it or to try to negotiate with Connect. The two companies may agree that Connect will pay their invoices by the 30th day, or that Connect will instead pay a portion of the receivable by the 20th day. D-Zone uses its new tools to track noncompliance. Now assume that halfway through the month, the network industry is hit hard by a soft economy and overbuilding. Connect is not immune, and its payments begin arriving late again. D-Zone uses their cash management system to check with Experian, which reports that Connect is paying each supplier five days late. Once again D-Zone can let it go or negotiate with Connect - but D-Zone's CFO knows exactly there the receivables are, how much money they represent, and when D-Zone can really expect the cash to hit their books.

In an actual customer experience, SMART Modular Technologies needed to perform accurate cash forecasting on a rolling 12-week basis, streamline and automate their Accounts Receivable processes, and establish consistent global processes across all of its companies. The company selected Emagia's Collaborative Finance Suite for their global cash management needs. The suite helped them to combine accurate, real-time cash forecasting with real-time goal monitoring, centralize information access from multiple collection systems along with guided task management, and extend their back-office SAP system with Web-based end-to-end receivables management. By transforming its manual, paper-based receivables process into an automated business process, SMART increased collector efficiency, established proactive customer management, got a handle on dispute resolution, and achieved accurate cash forecasting.

What if there's a dispute? Emagia tracks disputed amounts and reasons by providing extremely detailed business intelligence in workflow applications. A collections officer can access the workflow screen and find out how much money is in dispute, how many days it's been going on, the facts of the matter on both sides, and suggested resolutions. Everything a collection officer needs is in one place: automatic reconciliation information, invoices, aging, promises and disputes, automatic task lists and collection notes, goal and progress-against-goal data.

Historically, collectors have spent most of their time trying to track down the problem from paper records, non-integrated information systems, and from sales and customer service staff. As a result, they spent more time chasing people and paper than they do working with customers to collect more money. An efficient cash management system changes all that, so the collections staff spends less time chasing paper, and more time collecting money.

A company can also cut down on disputes with excellent customer care, since inadequate communication often results in disputes, long resolution times and a damaged customer relationship. To help, Emagia provides a secure self-service website where customers can access key payment information and interact with finance staff. By bringing the customer into close collaboration, Emagia helps eliminates customer problems and grow better and more profitable customer relationships.

Emagia enables the customer to access any relevant account information, including monthly statements, invoices, sales and purchase orders, and proof of shipment and delivery. Information presentment can be customized to fit customers' unique needs. The website also results in faster problem resolution, since customers can raise issues online before making a short payment or triggering a dispute. Involving customers in the process and interacting with them online greatly reduces payment issues and dispute resolution time, which results in much better customer satisfaction.

There are also additional financing options through third-party banking and credit partners, as well as instant online posting of electronic invoices with alerts, online sharing of information, and the ability to capture dispute histories, documentation, and resolutions.

Emagia's unique architecture works with established ERP systems and distributed financial tools such as SAP, BaaN and Oracle. Working from the enterprise back-end infrastructure, it operates throughout the enterprise cash flow process, using a combination of Web-based collaboration technologies (EJB, XML, DHTML) and Electronic Invoice Presentment and Payment (EIPP) technologies.

• Its foundation is an Enterprise Adapters Layer, which operates over the LAN/WAN and lays out parameters for Databases, Financials, Credit, Shipping, and Reporting requirements. This layer integrates with back-office ERP systems, legacy financial systems, shipping systems, credit rating systems, factoring and other financial partner systems. Modular adapter kits provide nearly unlimited applications for existing systems.
• Next comes the Application Server Layer and Emagia Core Services. This layer includes generic business processes (Process Modeling, Workflow, Transaction Management, Persistence) and application-specific object layers (Receivables, Payables, Disputes, Accounts). This platform allows for easy integration of new applications as they become available.

Summary
The Emagia Receivables Solution enables the finance staff to work smarter, not harder, by better managing process and information, reducing customer time-to-pay and increasing cash inflow, cutting Accounts Receivable processing costs, and improving customer satisfaction through smoother and faster dispute resolution. Everyone in the process benefits:

• The CFO can effectively forecast cash inflow and achieve better visibility in the Receivables process.
• Accounts Receivable staff can keep reminders, forecast payments, and maintain notes and manage disputes, which leads to dramatically improved staff efficiency and job satisfaction.
• Sales and customer service can maintain better customer relationships through smooth collaborative dispute resolution.
• Customers and vendors find fewer obstacles, better information, and lower processing costs.

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Emagia.
E-businesses collaboration solutions that enable companies to improve their working capital. better than anyone else! Find out more at www.emagia.com or call toll free 866-EMAGIA-1.