The first requirement in collecting bill payments from businesses is to provide an invoice (often legally required) that gives full and easy to understand information on what the bill is for, so that the invoice can be easily processed, approved and reconciled. The invoicing and payment systems depend on whether the customer is a high volume trading partner, regular customer or occasional customer, each requiring a different solution.
Types of Business Customers
Source: J&W Associates Copyright© 2011
High Volume Trading Partner Collection Solutions
Many large companies have a large proportion by value of their trade with a few trading partners and their regular large business customers, often as much as 80-90%, and only a small proportion by value with many occasional customers. In the companies with major long term trading partners, they have, wherever possible, developed fully integrated systems and processes, such as the integration of their SAP accounting systems, and Electronic Data Exchange between the companies covering the placing of the order, automated payment of the invoice - typically via an ACH - and reconciliation. Often netting is used to minimise the number of payments.
Regular Payment Collections from Business Customers
For collections from their regular large business customers companies use a wide variety of ways to invoice and collect payment.
The paper invoice will continue to dominate general billing, but for large companies doing regular business, particularly in the developed world, it is in decline. The main growth is expect from the e-invoicing platforms, also for e-billing but only for collection from SMEs, and possibly from order-to-cash platforms.
Electronic Bill Payment Options
The most costly method of collecting a bill payment is to use a paper invoice and accepting payment by cheque. The total cost can be $60 or more,but can be as low as US$9 when e-invoicing is combined with the payment being made direct from the ERP accounting system via an automated clearing house. E-invoicing not only cuts collection costs, it also provides a platform for exploiting dynamic discounting and other financing techniques. There are different ways the automation of invoicing can cut costs, some more effective than others.
The payment can be integrated with e-invoicing process - this is called Electronic Invoicing Presentment and Payment (EIPP). These services are now available from banks and other suppliers. There are several advantages of EIPP solutions for big billers, e.g. reduced costs, less paper, easier reconciliation and, at least theoretically, a reduction in DSO. The problem is that for a big biller's customers, there are only limited benefits, e.g. lower processing costs, but only related to invoices from one supplier, so the payer may need to use a different platform for each supplier. The other main disadvantage for payers using the biller centric EIPP platforms are that they are generally expected to pay the big biller faster, which is unattractive for their cash flow. Usually extended payment terms or distributor finance are not generally available. This lack of clear benefits for the big biller's customers' has hindered adoption of biller centric EIPP platforms.
E-billing - the delivery of e-invoices as PDF files via email, in some cases using digital signatures for added security - requires only a little change to the payer's systems, if any. In addition, they do not require the payer to join a network or platform. These document distribution solutions deliver significant control and cost cutting benefits to the biller, and are less ambitious than interactive EIPP exchanges involving both buyers and billers.
In contrast, Order-to-Cash (see link to WCM) platforms offer many and more overall benefits to both buyer and supplier, especially when combined with supply chain finance. In the long term, these platforms could dominate but it is unlikely as the e-invoicing platforms + payment by ACH offer a more cost-effective solution.
The payment systems used for bill collection varies between countries and regions. In Europe ACH dominates, while cheques are still important in North America. Payment cards are used in the US more than in other regions. At present there is a little use of direct debiting between large companies, but attitudes are changing and the use of direct debiting is growing slowly. (See Collecting Direct Debit Payments.)
Bill collection between businesses using mobile phones has started, but growth prospects are uncertain.
Collections from Occasional/Irregular Customers
Most companies have customers who occasionally or irregularly purchase goods and/or services. For this type of customer it is normally not cost-effective to set up an account and take the credit risk. These type of purchases are better treated as Collections at Point Of Sale transactions.