Modernizing AR Processing Survey Results
Craig Jeffery, Strategic Treasurer
Rick Scholz, Deluxe
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Episode Transcription - Episode 172: Modernizing AR Processing Survey Results
Welcome to The Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury, news, analysis, and insights in your car at the gym, or wherever you decide to tune in. On this episode of a podcast host Craig Jeffrey joins Rick Scholz, Managing Director of Payments Advisory Services at Deluxe Corporation to discuss practices and plans for modernizing and automating accounts receivable processing. They examine the influence of recent disruptions, the calibration of various pain points that drive change, and other motivators. Listen in for strategies that can help position your company for success.
Craig Jeffery 1:00
Hello, Rick, welcome to The Treasury Update Podcast. It’s so good to have you on.
Rick Scholz 1:05
Thanks for having me. I’ve been looking forward to it.
Craig Jeffery 1:08
We had a good time presenting the results of the 2021 Modernizing AR Processing survey results on a webinar recently and I’m really happy to dive into some of the details about the survey. You know, as people look at the show notes, you can see information to download the survey there you’ll see information firmographic information about who took the survey, how long it ran, some of the other key firmographic and responded demographic information that touches on a number of the disruptions and pain points that organizations are feeling. And so, you know, as we look at this, Rick, I wanted to start off with a discussion about a silo mentality. That’s one of the questions where there’s this mentality of looking in a particular area or particular functional part of a process. And then I want to move to what we can learn about intent, but maybe you could talk about, you know, what is the silo mentality? What does that mean? And there’s certainly dangerous to it. So maybe you could start us off there about this type of mindset.
Rick Scholz 2:22
Sure. And unfortunately, we run into this more often than I would like to admit, but basically, the silo mentalities, I’ll use it in the accounts receivable end to end process. So, if you think order to cash process, where each step in that process, someone is responsible for each of those steps, and really just focuses on providing benefits and improvements to their piece of the process without really considering the impact of that may have along the chain of that process, either upstream or downstream. And I guess I’ll stop there for a second and set everybody’s mind, when I talk to upstream and downstream to me downstream is the next person in the process. So, I look at pretty much like a flow of a river for example, if you think upstream, starts with billing and invoicing, and goes through then that process through application and things of that nature. But it’s not really considering what those impacts are on anybody else in either direction in that process and just focusing on I need to become more automated in the piece of it that I do. Because that’s what I get measured on and maybe compensated on and that’s what I’m going to focus on. And the danger of course is you may be fixing a problem that you have and creating a problem for someone else along the chain of that process. So, for example, we worked with a company just recently where the treasury folks wanted to improve the number of digital payments they got. They were trying to convert all their check payments to ACH payments without really thinking the impact that that had on the folks who were applying cash, because those payments were harder to…were more manual to process so you got the money faster. But applying those payments to the invoices into those customers took two to three times longer because of the reassociation requirement between the payment details and the remittance details.
Craig Jeffery 4:45
That’s the issue of what breaking apart the movement of the value transfer and data transfer breaking the process. One of the things you said earlier, which seemed to be a cause of the silo mentality is well, that’s what they’re measured on. Well, if management thinks you need to be measured on this efficiency or this type of activity, or a key performance indicator as opposed to a broader result it seems like it would naturally flow that you’d focus on those things because that’s what your measured on, which may be going against what they want to see happen on a broader scale.
Rick Scholz 5:23
That’s a great point, Craig, because that then shows that the silo mentality goes higher up in the organization. So, the folks who are responsible for the broader picture, aren’t even looking at it from an end-to-end process or from a corporate perspective, which just makes it that much worse.
Craig Jeffery 5:44
Yeah, and your example about breaking up speed of fund movements versus a separation of information that allows you to pose things–very interesting concept. There’s a one of the quotes from Anonymous is probably the most frequently attributed person to the quote, is that optimizing part of the process, suboptimize the whole and your example is just that like, “Hey, I got the money faster. But I can’t apply it.” Now. I’ve broken a process. I gotta go back and forth.
Rick Scholz 6:16
And unfortunately, that’s probably the one of the more prevalent breaks, if you will, that we see and working with companies is that I want the money faster, but I’m not thinking about how you know how quickly we can actually apply it, it is very common.
Craig Jeffery 6:36
Yeah, so that that’s an example. Are there are there any other dangers of a silo mentality? That’s a great example. I know that anything else is on the top of your mind for the upstream downstream impacts of this silo mentality?
Rick Scholz 6:53
Yeah, I mean, that’s a major one that we see, but there are, you know, breakages that occur even at the billing end. And once we kind of talk a little bit more about end-to-end I’ll get into more detail, but some we’ve seen companies that are working on improving their billing quote, unquote, because it’s easier for them to issue these electronic bills, but it doesn’t make it necessarily easier for your customer to pay you.
Craig Jeffery 7:20
That’s true. I had a goal of getting my invoices out more quickly, so I usually send electronically, maybe the people aren’t set up to receive them that way. That’s a great example. Yeah, maybe you can come back to silo, the silo mentality as you think. I gave some pejorative language to the silo mentality and the problems with it, but maybe we could start on maybe a better term like but expanding this end-to-end view within the company or something that’s more comprehensive rather than siloed off. How is that done effectively? And right now, just thinking about inside a company. How is it done effectively? How do you improve the efficiency and effectiveness within a company by taking this broader view?
Rick Scholz 8:09
So, we see the largest success comes in situations where there’s two things happening concurrently, a desire to do it, so the people involved in that review and that solving, have a desire to work collaboratively together, and there’s also they’re being given a direction to do so. So back to the you know, the comments earlier about, I get compensated for my piece of it. And it’s a danger at the corporate level. So, it’s a combination of a direction to do it, and a desire to do it that I think brings the greatest result. So, for example, the company realizes that there’s a process that’s not working, and they get the various responsible parties together, and they say, you need to fix this. And in most cases, people will do what they’re told to do, but when people realize the impact that they’re creating for others within their own company, leaves into that desire to do so. And I think it all boils down, and I make these generalizations so many in so many places, but communication. We find the biggest obstacle to these end-to-end reviews and solution is a breakdown of communication, just not talking to each other and not talking to the people who actually do the work, but it’s all about that communication. So, I find in many cases, when things don’t work out, it’s either a breakdown of communication or a semantic issue. So, either of those could be taking place here but once you get over those hurdles, you can be far more successful.
Craig Jeffery 10:10
To help get around this do you recommend just project-based communication saying or like some kind of schedule, quarterly, monthly, you get together with those that are upstream or downstream or you look at the entire process together? Or do you just talk and communicate when there’s issues and solve them on a one-off basis? What do you what do you find is most helpful for the majority organizations or there’s something different?
Rick Scholz 10:44
Yeah, kind of depends on the organizational structure, size of the company, things of that nature. I don’t think just dealing with things as they come up, provides a good solution because today it’s x situation tomorrow could be y situation and involve two different people and in fact. We’ve found that doing this as, I hate to use the word project because so many people have a negative connotation, but making it a you know, program, if you will, collaboratively working on where to focus in what sequence. In a lot of companies having as a project works really well because there used to that kind of mentality. But having an organized approach to look at the various pieces and in a sensible order maybe, we’re starting where the biggest issues have been uncovered. We find very often the biggest problem point is cash application caused by any number of process flow issues or handoff issues. So, we see a lot of companies focusing starting their focus there and figuring out ways to make that process more automated, more efficient, quicker, backing out, if you will, or backing up the chain to make sure that the handoffs can support those changes. But that’s not in every case but it’s probably the most prevalent piece that we see.
Craig Jeffery 12:19
In an earlier conversation before the podcast, they remember we talked in use terms like process owner, and then executives. So you think about end-to-end within a company is i….do just to go up the organization chart to the executive that oversees the entire process, which may be fairly high in the organization, especially a large one or do you see this idea of process owners who take ownership of the process end-to-end even though they may have everybody report to them, they’re responsible for making sure all the handoffs work and make sense. And any thoughts on that? I know I’m kind of springing that on you but…
Rick Scholz 13:08
Well you know, I have thoughts on everything. I actually like the idea and endorse the idea of having someone independent because especially somebody with experience and who’s got a background, if you will, in Process Flow Management, because they’re not seen as having, you know, if you don’t have direct skin in the game, sometimes it’s easier to take direction. So, it’s not you think you’re better than I am things of that nature or you’re just trying to fix your back into the silo mentality, right? You’re just trying to fix your piece. My piece is just as important as you are. So having a process flow czar, if you will, that can act independently and have very high-level sponsorship. We worked with a very large public company that found internally someone with those types of skills they were originally going to go outside but found someone within the ranks that had experience in those things, was very highly regarded by pretty much everybody in the company. And that worked out really well. Because the person had the expertise, had some personal relationships was viewed very positively by everybody involved in the project and that I mean that particular engineering review, they were probably 50 or 60 people, non-IT people, so it’s just operational folks involved in that process. And they really were able to improve straight through processing rates and greatly reduced their error rates. So, all of that leading to the improvement in efficiency. That’s probably one of the best things I’ve seen in the years that I’ve been working in this area. And I think it was largely because it was a great confluence of the company made sure everybody understood how important this was, people wanted to do the right thing, and they had somebody overseeing and directing it that was highly regarded and really was an expert. So now I know that’s not going to work in every situation, but the results that they were able to achieve are pretty, pretty great. They almost tripled their straight through processing rates in the cash application area.
Craig Jeffery 15:34
That certainly does mean they started at a pretty low number too, but that’s definitely moving the needle. Right, right. You can’t triple A 50% Right. But yeah, that’s great. Now, Rick, is we think about this and moving outside the company. So, it’s this broader view of end-to-end within your company to end to end in the other company. That’s a that’s an even different mindset. You know, in some of the statistics from the survey results, anywhere between a quarter and a fifth, somewhere in that range of companies, take an end-to-end view, that includes their training partners, so they’re looking not just within their company, but what’s happening on the other side. So that’s probably the most mature view that exists. And that’s obviously a minority, a minority of companies take that view. But how do we jump the gap from looking at what happens with inside our companies to going to others? That seems like it’s a lot harder. You know what hurdles are similar because you’re working in other areas, but maybe even a higher hurdle because it’s outside companies. What we learn from those companies that work on jumping the gap on this broader end-to-end view?
Rick Scholz 16:53
Yeah, first let me say I think the thing that causes that causes that look, is typically a customer calling and saying you need to work with us. So is very often driven by the customer, not by the organization. But that being said, there is value to be to be gained. And I know over the last year or so especially with the pandemic, it was a big view specifically to disaster recovery or business continuity planning and working with your customers and your vendors. And I think that’s continued now. It had started before, but I think it’s really picked up some steam in that business continuity planning in the last two years, is a lot harder in some regards, because at least when you’re in the company, you probably know the people you need to involve. When you want to expand that on the AR side and you’re dealing with customers, you very often are going through the salesperson who’s responsible for that relationship. Now I have to say part of this is because I kind of grew up in a sales organization, I think that there are a lot of benefits to that. We sometimes when we do AR and reviews with our customers we’ll start with when we look at billing, “What’s the feedback you’ve gotten from your customers and from your salespeople?” Because salespeople many people consider the enemy, but they can actually be very helpful in designing these from the start of the process. So, I mentioned earlier about I’m going to make my process more efficient by issuing electronic invoices, but my customers can can’t really deal with them or you know that it’s going to take them a while to adjust to that. The salespeople can be very helpful there. Or even the customer service folks getting the company for dealing with those customers can help to explain to them what the company is trying to accomplish. And rather than dictating, this is the change we’re going to make you just need to deal with it, can actually collaborate with the customers and come up with a process that works for both because you know, let’s not forget, there’s somebody in AP on the other side that’s probably got some issues that they’re trying to deal with as well. And if you start with your largest customers, the ones they have the strongest relationships with, I think you can jointly design something that works for everybody, and then ultimately expand that to other customers. But that’s where it really needs to start probably through the sales organization or customer service.
Craig Jeffery 19:45
So those issues could be you’re sending us invoices that are incorrect they have long information on them, it’s delayed. You’re calling us about how to apply things and we’ve sent you the information or whatever. There could be a whole range of issues. Yeah, I guess the other part of that Rick is you know, in terms of complexity, you know, let’s say you have a process in your company, and it goes from department to department to department and there’s four or five departments involved in a limited population, maybe of different geographies when you start to get to working with your customers, you might have 1000 customers or 400 really big ones that are important. Now you’ve got 400 processors you’ve got to work on. So, I mean to me that the scale is just, you know, it’s multiple orders of magnitude, harder in that you’re dealing with more areas, but part of what I hear you saying is if you’re working with some of your more complex customers, you may solve the issues for a large percentage of other customers. If it’s like, “Oh, I need I need the data to come in this format. Or that’s an option or something else.” Is that is that part of what you’re getting at with the working with your larger customers first?
Rick Scholz 21:07
Yeah, and I would say not necessarily solving each of those individually but having that dialogue to figure out what changes could be enacted to help both parties or at least not, you know, cause problems for the for the customer and designing your options, if you will, based on feedback from multiple customers. Just to avoid that having 400-600-8000 different solutions. But it will help you. We find a lot of companies now reevaluating their payment strategy, because of all those new payment types that are being introduced just about every other day. And we all know that the person making the payment is in charge. They’re going to pay you how they want to pay you. Unless you’re you know, big enough to mandate that, like some names that we all know, to mandate how to get how you’re going to get paid. So, I think the having the dialogue, not necessarily you know, in group if you will, but having the conversation with some of your most complex or important customers and coming up with something that’s more common so that you can solve for them and for you without having to maintain so many different options. We find that actually works out fairly well because the customer has a vested interest in helping you process their payments.
Craig Jeffery 22:47
What is that vested interest?
Rick Scholz 22:49
Well, again, here we got to think end-to-end, right? So, you go through the entire process and if I’ve made a mistake along the way, my next invoice is going to be wrong. Or as you mentioned, I’m going to be calling the customer saying I don’t have to apply this payment, even though they have all the information. So, coming to an agreement at the front end so everybody knows what to send, how to send it, I know how to read it. I’m going to improve the customer experience all the way through the chain and cut down on errors. I don’t want to send you a bad invoice. Not good for you and it’s not good for me. So, if I can clean all that stuff up through the entire process. And with your help, then we all we all win.
Craig Jeffery 23:40
Yeah, the reduction in errors, I guess. That’s the point about errors and defects are one of the most costly items on any handle. Whether it’s inside a company or external. Everyone loses with that.
Rick Scholz 23:55
Yeah. Well…when we kind of try and quantify the benefits of certain automation solution, one of the things we include in there is making better business decisions. Because that’s the other piece of the puzzle if I don’t apply your payment properly, not only is your next invoice going to be wrong, I may not be able to sell you anything because I think you’ve reached your credit limit. So, that’s not good for anything that’s not good for my company because I’m not my revenue is not going to be where it needs to be. And you’re going to be angry because you couldn’t buy the stuff you needed. Some of those things just get kind of forgotten unless that’s your focus. But all of those things bleed into a better customer experience, and especially in today’s day and age, no matter what industry you’re in, focusing on the customer experience is really important.
Craig Jeffery 24:55
Well, maybe I could direct it slightly away from that, not that you can’t cover that anymore. But you started talking about new payment types. And you mentioned how many and how frequently they’re being introduced. There’s new payment rails new payment types. There’s a lot of promise to the new payment types. But is that just another monkey wrench being thrown into the process and it’s going to create a lot of gear problems with? Oh no, you’re gonna create a new payment type.
Rick Scholz 25:28
Yeah, we do see it already creating complications I’ll call it. I think up until now they’ve been introduced in many cases there has been forewarning and things of that nature. I think that speed of introduction is accelerating now. It’s probably more creating more complications for folks who get B2C, C2B payments. That’s going to change now. And I think people are preparing for it. And so, if you have a combination of C2B and B2B payments, you’re probably in a better place because you’ve had to deal with things like Zell and Pay Pal and things of that nature. Because you can’t refuse to take payment in that way if you’re getting paid by consumers. Just you’ll lose too much business but now with all the expansion into being B2B by all these new players or existing players expanding their offering. You’re going to start getting those payments and you’re gonna have to figure out how to deal with them. I think those electronic payments are maybe easier to adjust to, depending on how the data comes in and where it comes from because at least they’ll be consistent. If I get paid through MasterCard, for example, you know, it’s always going to look the same when I get it. So, I only have to figure that out once versus I always think back to EDI as a standard what a joke that was because everybody had their own version of the standard and I had to adjust to each one of those. So, I think that’s improved. So at least, you know, if I started to get payments from multiple customers from that same rail, or on that same rail, I can process it because I know how to do it. So, it’s a one and done kind of thing. So, I’m not really overly worried about that. It’s just something that people need to be aware of and start preparing for.
Craig Jeffery 27:37
Some of that preparation would be either significant internal resources or moving more towards hybrid or outsourcing certain functions. There’s quite a bit of data on what people are doing in planning and in the survey.
Rick Scholz 27:53
I’ll be interested to see the impact that comes about from requests for payment, and real time payments. My eyes peeled for that one.
Craig Jeffery 28:06
Yeah, on the business side, certainly on the consumer side, we’re, we’ve already been trained for it. It’s okay. Pop it over when you’re making a sale.
Rick Scholz 28:14
But that’s almost like a reverse process that people need to be prepared for. So that’ll be interesting.
Craig Jeffery 28:20
So, Rick, we talked about the silo mentality, the dangers of it. We’ve talked about creating this end-to-end process and we use terms like straight through processing, to automate things as much as you can from one process to another, so there’s no physical handoffs, their more digital. And then we looked at the end-to-end part of the company new payment types. As we look at this, and what we’ve been talking about today about modernizing AR processing. What are some final thoughts or key points that we should be taking away from that? Anything you want to emphasize?
Rick Scholz 29:03
Yeah, thanks for me and again, one of my soapbox is trying to avoid even if it’s not a silo mentality that’s just inherent in the company, but where you see it happening and focusing on that end-to-end and trying to help each other is really going to benefit everybody. Modernizing AR, you have to adjust to these new payment rails. You have to figure out where your bumps in the road are, if you will, that are causing errors and making life more difficult for everybody. I think just continuing to look for ways to do internal automation and automate wherever possible with your customers and your vendors really. We were focused on the AR side, but I think it really expands full circle through both processes. Having each other’s backs to me is an expression we use a lot in our work with customers and looking for opportunities for everybody to gain some efficiency. And anything that reduces defects or errors, you have to do. You can’t be a modern AR shop and still have these manual handoffs, things falling between the cracks. You need to focus on that because it’s all about the customer.
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2021 Modernizing AP/AR Processing Survey Reports
This survey, underwritten by Deluxe, looked at various practices and plans for modernizing and automating AP and AR processes. The influence of recent disruptions, calibration of various pain points that drive change, and other motivators to upgrade AP and AR processes will be examined.
Modernizing AP Processing Survey Results
Host Craig Jeffery sits down with Chris Clausen, Executive Director of Product Management at Deluxe Corporation, to discuss practices and plans for modernizing and automating accounts payable processes. They examine the influence of recent disruptions, the calibration of various pain points that drive change, and other motivators.