GET READY for ON LINE Billing & Payment.

The world of B2B e-commerce has exploded in the past two years, with approximately $433.3 billion in global transactions flowing through the Internet last year, according to the Gartner Group. But the Web isn't yet much of a payment vehicle: only a fraction of these transactions were invoiced and paid via the Internet.

"The [B2B] marketplace brings buyers and sellers together to procure," says Gregory Domaracki, assistant vice president and product design manager for treasury management at PNC Bank in Pittsburgh. "But once market participants source goods, they go offline to complete the transaction via traditional payment practices."

However, changes are in the works. Thanks to a proliferation of new electronic bill presentment and payment (EBPP) solutions, invoice and payment and settlement processes are coming on line. According to Gartner, the number of enterprises sending business customers invoices over the Web will quadruple in the next three to four years, from 9 percent today to 35 percent by year-end 2004. Ultimately, the new electronic billing and payment systems are expected to streamline the entire order-to-cash process in an electronic, Web-enabled environment. Eventually, users will be able to source goods, receive and approve invoices, resolve disputes, get financing and click a button to effect payment and settlement on line.

Driving the trend towards online invoice, payment and settlement processes are sellers who want to get paid faster. And no wonder -- the time to collection for the average Internet sale is about 41 days, Gartner says. Widespread adoption of EBPP is expected to significantly reduce this time frame.

Electronic invoice and payment solutions also have the potential to lower sellers' transaction costs dramatically. A Gartner survey indicated that sellers expect electronic billing and payment to lower their cost of producing an invoice to $1.65, from $5 for a paper invoice. Sellers also expect that EBPP will enable them to roughly halve the cost of resolving invoice disputes, to about $10 a dispute from $20. These savings will stem from sharp reductions in labor, postage, paper and equipment costs associated with the switch from manual to electronic processes.

Significant savings

Buyers also can expect to realize significant time and cost savings from the adoption of EBPP. Andy Eliopoulis, senior director of Internet bill presentment payment at iPlanet E-Commerce Solutions, notes that a reduction in sellers' costs of billing and collection should ultimately lower the price of their products. Buyers also stand to realize sizable savings from lower costs for manual payment, dispute resolution and reconciliation processes. "A key feature of emerging [electronic invoice and payment] systems is the ability for buyers and sellers to exchange and easily track documents related to the sale and for buyers to reconcile the document information before making a payment," says Gartner's Avivah Litan.

But don't count on seeing these benefits very soon. "This is a very embryonic space," says Francine Miltenberger, executive vice president and division executive for treasury management at PNC Bank. "A dizzying number of products are being offered," she says, noting that some solutions are very narrowly focused, while others are exceptionally broad. "Some are likely to become viable products, while others will evolve into different applications."

And no provider has yet developed a total solution. "Today's payment mechanisms do not fulfill the five fundamental requirements of B2B e-payments," notes Gartner's Litan. These requirements are: online funds guarantee, fast cash, payment finality, low transaction fees and remittance data integration. Vendors will eventually fill these gaps by further refining their products and by forming partnerships with other providers. But in the meantime, companies looking for an end-to-end solution "will have to string together a number of different technologies," says Jim Haggerty, vice president for financial services at AMR Research. In acquiring new EBPP technology, Litan cautions, "Enterprises should be cautious about adopting disparate applications that later must be patched together."

Among the first-generation of electronic bill presentment solution providers are BillingZone, Bottomline Technologies and iPlanet (see table, page 12). And Avolent, a leading EBPP player in the business-to-consumer marketplace, recently expanded its software offerings to support B2B e-commerce. Most of these solutions address what for the majority of B2B enterprises are the initial processes in the order-to-cash cycle: buyer/seller authentication, invoice presentment, dispute resolution and invoice approval. "Our billing and payment system engages at the point when the seller wants to initiate an invoice," says iPlanet's Eliopolis. The EBPP system receives information from the sellers' account receivable system, allowing it to capture all relevant details about the transaction as well as key information about the buyer and seller.

The system's next task is to authenticate the identities of both parties. As PNC's Miltenberger explains, "A key difference between the B2B market place and other venues for procuring goods is that buyers and sellers are unknown to each other. So, there's a need to verify that each party is a viable enterprise." Some EBPP providers authenticate both parties' identities by linking into Identrus, a company that uses digital certificate authentication technology to identify buyers and sellers, or another provider of business authentication services.

The system then generates an invoice and electronically presents it to the buyer. In the case of iPlanet's Biller Expert, the system guides the invoice through the buyer's organizational hierarchy for approval and dispute resolution at each level. "Our system uses XML [eXtensible Markup Language] technology to register the payor's hierarchy for distribution of the invoice within the enterprise," iPlanet's Eliopolis explains. The system electronically notifies the appropriate company officials when it's their turn to tap into the system and review and approve the invoice. At any point during the process, the officials representing buyers and sellers can access the system (which resides at the seller's location) through a Web browser to obtain status reports and to resolve disputes.

A key feature of the more sophisticated EBPP systems is the ability to investigate and resolve disputes at the line item level so buyers can approve a partial invoice, holding up payment only for items in dispute. Once the invoice has been approved for payment, all EBPP solutions connect to a bank or e-payment service provider, such as Clareon, Payment-Wave or Verisign, which handles the transfer of funds. Virtually all payment providers support multi-currency transactions and allow payers to select from a variety of payment methods, including automated clearinghouse (ACH), bank wire transfer, SWIFT (the international interbank facility) and credit card. "The payment service provider that the system connects to is decided by the customer," Eliopolis notes.

The most popular payment methods are ACH and wire transfers. Credit cards are not widely used because transactions tend to be quite large. Credit cards often have relatively low credit limits, and their high fees make them economically unfeasible for large transactions.

A remaining challenge in this marketplace is resolving different expectations: sellers want to get paid right away, while buyers want delayed payment terms. But a number of new entrants are offering solutions. Ac-trade, for example, is offering acceptance drafts, a form of trade credits that allow the seller to get paid right away while giving the buyer extended payment terms.

Banks' Evolving Role

As part of an effort to strengthen their cash management capabilities, banks are also developing solutions to facilitate B2B payment and settlement. These solutions come in two distinct forms. First, as previously noted, banks are serving as a payment link in EBPP systems offered by Bottomline Technologies, BillingZone, iPlanet and others. But a growing number of banks are taking a broader approach. Citibank, PNC Bank, Wells Fargo and Fleet Bank, for example, are building the infrastructure that will enable them to provide more complete bill presentment and payment services. PNC, for example, recently introduced its Digital Community Settlement Service (DCSS), which is designed to serve as a central electronic payment system for communities of buyers and sellers.

DCSS effectively functions as a payment clearinghouse. After a trade is negotiated, the system steps in to effect payment and settlement and act as a central repository of information about the transactions. Says Miltenberger, "Both parties can log into the system at any time to see the status of the transaction."

DCSS allows the buyer to initiate payment using one of several payment methods, including old-fashioned paper check, wire transfer and ACH credit. "Believe it or not, a lot of B2B market participants still want to pay by check," notes PNC's Domaracki.

Other banks on the cutting edge of providing invoice and payment services include Citibank and Wells Fargo, which have formed a joint venture -- Financial Settlement Matrix.com -- to provide a comprehensive B2B e-payments service. According to Gartner, Ariba and Fleet Bank are also offering similar services, and Clarus Settlement and Aceva are in the process of developing full-service offerings.

The Future of EBPP

As noted earlier, the world of EBPP is still emerging. One of the biggest challenges is the need to link existing EBPP systems into users' logistical systems, such as account payable, accounts receivable and shipping. "In evaluating a solution, it's critical for prospective buyers to carefully consider its ability to integrate with existing business processes," says Russ Schmalz, Research Director at the Aberdeen Group. Another major challenge is that sellers have more to gain from the adoption of EBPP than buyers. And, as Litan notes, "they will have an uphill battle convincing payers to review and pay bills electronically." Eventually, though, the ability to pare transaction costs will make EBPP the norm for most enterprises.

Laurie Kaplan Singh is a freelance business writer in Winnetka, III.

Who's Who in EBPP
COMPANY                  PRODUCT/SERVICE
BillingZone              Provides outsourcing services supporting
www.billingzone.com      EBPP processes from invoice generation
                         to payment authorization.
Bottomline Technologies  Provides both outsourcing services and
www.bottomline.com       software for bank- and
                         corporate-hosted EBPP systems.
iPlanet                  i-Plant Biller Expert, B2B Edition is
www.iplanet.com          a Java-based EBPP system that
                         supports all processes from invoice
                         initiation to payment authorization.
Messaging Direct         Provides software to facilitate
www.messagingdirect.com  the secure delivery and
                         e-processing of statements
                         and bills. Also offers bill
                         presentment solutions.
Checkfree                Provides EBPP services and software
www.checkfree.com        as well as services for payment
                         processing, bill consolidation,
                         safebox accounting and others.
Identrus                 Identity authentication
www.identrus.com
Aceva Technologies       Provides e-commerce financing
www.aceva.com            instruments including trade
                         credits, factoring, secured
                         credit lines and account
                         servicing.
Actrade Financial        Electronic Trade Acceptance
 Technologies            Draft--an electronic trade
vwww.actrade.com         credit
Note: These names represent a sampling companies in this arena. This
list is not designed to be comprehensive.