That invoice-to-cash model may be very feasible for business-to-consumer transactions, which follow very standardized formats. But in the business-to-business world, a significant portion of transactions are non-standard by nature, and even routine transactions often involve highly complex processes. However, with expectations that B2B e-commerce will grow tenfold over the next few years, settlement issues are certain to attract more attention.

The B2B Settlement Process is Messy
The typical commercial credit grantor ends up dealing with some sort of a payment exception -- be it positive or negative -- on 5 to 15 percent of all transactions; recent studies have shown e-commerce transactions to be no different. These exceptions consume a disproportionate amount of most corporate credit departments’ time and also impact payables. As a result, transactions requiring resolution activities can cost 300 percent more to process than those not needing any post-sale remediation. Maybe even more costly is the impact on customer satisfaction, especially for dot-com ventures, that can be caused by settlement disputes and discrepancies.

The implication for the B2B electronic billing presentment and payment (EBPP) world is that additional complications in the settlement process cannot and will not be tolerated by corporate credit grantors. However, in this challenge also lies the opportunity to create electronic payment systems that better facilitate the bill settlement process.

Providing Value through EBPP
A major challenge will be getting companies to participate. While EBPP provides several advantages to the biller -- reduced invoice delivery costs, lower collection costs and more predictable cash flow -- the value to the customer is less clear. For one thing, "you can’t just assume that the payer will spontaneously go out and pull up his bills from a number of different sites," notes Richard Bort, a treasury consultant and president of Richard Bort & Associates, Panorama City, Calif. Independent consolidators or a national clearinghouse arrangements may provide the answer. Meanwhile, this is a brick wall that B2C-EBPP services have run into. Only two percent of consumers with the opportunity to pay their bills online presently do so.

Pushing the responsibility to acquire invoice details onto the buyer runs into more problems for larger companies with more sophisticated payable processes. Once invoice approval involves more than one person, bill presentment services require much more sophistication to ensure ease of use. In fact, some companies pay vendors based on purchase orders and receipt of goods, and do not bother matching that information to invoices. Large companies also tend to aggressively manage disbursements, so payment timing is also a critical issue.

As a result, Skip Kaiser, president of Accounts Receivable Processing Company in Omaha, Neb. and a developer of remittance posting software, suggests that, "depending on the customer mix that a company has, they should only expect anywhere from 5 to 30 percent of their customers to sign onto a bill presentment and payment mechanism."

The back end of the process will also face serious interface problems. A high degree of B2B payments are not for full invoice amounts for a variety of reasons such as billing errors, pricing disputes, shipping problems, promotional discounts, early payment discounts and so forth. Any effective electronic B2B payment system must be able to handle multiple invoice payments on the same remittance, the potential that some of those invoices will only be partially paid, and the reasons for any short payments. Having done that, moving all this information automatically into the biller’s A/R system becomes the next critical step. The capture of both remittance data and the deposit confirmation (they may not travel through the same channels) will require a software interface with the billing company’s A/R system so remittance processing does not have to be done manually.

Making It Work
Mellon Bank, headquartered in Pittsburgh, Pa., facilitates EBPP through TradeLinks, a document exchange service that can convert almost any type of electronic document to HTML format for posting on the vendor’s Web site. In registering the buyer, the vendor enters the buyer’s contact information in an enrollment file, so that when an invoice or statement is posted to the vendor’s Web site, an e-mail including the bill presentment URL is sent to the buyer. When the buyer is reviewing their payables account with the vendor, drop-down menus with adjustment codes provide a means for taking payment deductions, the vendor having set up rules to prevent unauthorized deductions such as prompt pay discounts taken beyond the grace period or freight adjustments made in excess of the amount of freight. The system is also capable of downloading invoice data into the buyer’s A/P system, and Mellon is looking to expand those offerings.

The vendor can also set up workflow rules in the enrollment file so that if the first contact’s job is to merely review the invoice, completion of that task prompts another e-mail to be sent to the next person, and so on until the payment is approved. At that point, via an automatic clearinghouse (ACH) mechanism, the buyer can choose to have automatic withdrawals from a checking or savings account immediately (next day), or schedule payment for a later date. Remittance details are ultimately transmitted to the vendor in the standard electronic data interchange (EDI) format for exchanging business data. If the remittance advice precedes the payment, Mellon can warehouse that data and then match it up with the received payment.

"Getting Mellon customers up and running requires a lot of detail work," explains Blaine Carnprobst, B2B receivables brand manager. "However, it is getting the payers to accept it [EBPP] that is the major challenge. The key issue is how do you provide value to the payer."

Moving Forward
Just as EDI has not met everybody’s needs, neither will EBPP. Another development that just may bring it all together, however, is the advent of extensible marke-up language (XML). "EDI hit a wall when it came time to penetrate into the small- or medium-sized enterprise. Now XML is a technology that you can use to get to these guys. You can send EDI and it can be translated to XML so it will show up on a browser," says Bort. XML, which uses tags to identify each data element, should also facilitate the front- and back-end interfaces so necessary to effective EBPP.

Using EBPP to Create Value for the Buyer
EBPP must...

• Handle payment adjustments and deductions cleanly
• Interface with accounts payable workflow processes
• Provide download compatibilities with A/P systems
• Facilitate payment timing options   
                                                                                                                  

So in the end, EDI should continue to predominate among large trading partners, and EBPP is likely to serve the small business community, with XML-based processes meeting the needs of everybody in between. However, that is a story yet to be written.