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Straight-Through-Reconciliation: aiming for the ultimate collection factory

In business-to-business direct debiting, probably the ultimate collection payment system, there are almost no reconciliation problems, unless the DD is returned. While in other B2B payment collections remittance reconciliation can be a major problem because the information field in most payment systems is far too short in many instances, e.g. even in the new SEPA payment standards where there are just 140 characters, to work out what the payment is exactly for when the payment is for only a part of the invoice. A common example is when a customer has queried part of the invoice, for some reason, and paid the balance which gives the payee accounts department a problem as to how to reconcile the payment received.

Delivering payment data outside the payment system

Linking payer and payee outside payment system to exchange additional data required which was the approach used in the Global Payment Information Exchange B2B payment service:

This the approach adopted in several of the procure-to-pay and order-to-cash platforms, the limitation of this approach is that both payer and payee have to be on the same platforms. 

Payment collection factories

When the payment is received with or without this additional, the collecting organisation still has to reconcile the payment. Payment factories are becoming increasingly common and deliver huge benefits, particularly when the company has been able to use Payment On Behalf Of.

There are far fewer payment collection factories than payment factories, and even fewer using Receipt On Behalf Of due to the far greater complexity of collections. Today companies use a wide variety of systems and services to automate payment collections and clearing of remittances (to the final target account in the ERP). This requires a complete platform to automate all the processes which include:

  • bank connectivity - collection of file via host-to-host and SWIFT 
  • digitization of remittance advices
  • deduction management
  • bank statement processing including conversion, routing and splitting of bank statements
  • lockbox /ACH
  • remittance advice integration and processing.

A leading provider of payment factory platforms is Hanse Orga with their Autobank - Collection Factory (ACF) platform, see figure.

Autobank - Collection Factory

Source & Copyright©2014 - Hanse Orga 

ACF, like all Hanse Orga modules, is a fully embedded SAP application. Some 5-10 global MNCs, use all the collection tools including direct debiting to manage their collections. Although as yet, none of these clients use COBO as part of their collections operation. While many more clients in Europe use a combination of the different modules, e.g. the direct debit module in combination with the bank connectivity and the reconciliation facility.

One user, PPG a major MNC in Europe with 100+ legal entities, installed Autobank and Finance Suite from Hans Orga. They achieved significantly improved automatic matching rates:

  • in France up from 29% to 91%
  • in Belgium up from 29% to 90%
  • in Netherlands up from 75% to 89%
  • other rates: UK 83%, Poland 89%, Germany 85%, CEE 81%.

The exceptions remaining include: double payments, payment of credit notes, customer deductions, new customers without any reference, and rejected drafts/cheques.

CTMfile take: Collection processing, the new frontier in payment factories, is much more complex that payment factory processing. The legal and business processing requirements are very different from payments. Nevertheless there are, as the above examples show, many ways to automate and get much closer to the ‘holy grail’ of truly Straight-Through Reconciliation.

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