Giving cash management a technology boost.

Technology has improved operational efficiency in many functions of the modern business, yet cash management and collections largely remains the same manual process that it was nearly 40 years ago.

In the 1960s, it was considered very efficient if you could process an order in 4-7 days, have the product delivered in 14-21 days, get your invoice within a week and pay within 45-60 days. Today, you're considered old school if your customers can't order today, have it shipped to their door tomorrow, get their invoice that same day ... and still pay within 45-60 days!

Why haven't receivable collections improved? Isn't it possible to shrink day sales outstanding (DSO) through technology?

Take a look at your own billing and collections processes. You may find that making it easy for your customers to receive a clear bill efficiently and pay you easily is an area you've been neglecting. You may still send paper invoices, which can often take weeks to print and mail.

You probably have a large staff of collections and payment processing personnel who go through incoming invoices and payments, trying to sort hand-written notes and voicemails from customers about why they aren't paying their bill. From there, disputed invoices get routed to multiple parties inside your company, requiring expensive reprints and holding up cash that is owed to you. How much cash? Well, that depends on that accounts receivable report, largely based on your A/R managers' "gut instinct."

If you're nodding your head, don't worry--you're not alone. Until recently, the software industry hasn't been able to help you that much. Unless all your customers were willing to make the same large investment in electronic data interchange (EDI), you pretty much had to stick to the tried-and-true (but expensive and slow) paper invoicing method. And even with EDI, there were plenty of issues that still couldn't be automated--balance forward adjustments, dispute management, underpays, reconciliation, credit management, auditing, etc.

Many companies tried outsourcing billing and collections, but quickly found out that even outsourcers suffer from the limitations of paper and manual processes. But now that over 92 percent of businesses are comfortable receiving and paying bills over the Internet, email and the Web have created a new communication channel that can address these issues in a cheaper, more efficient manner than calling customer support directly.

This has driven adoption of electronic invoice presentment and payment (EIPP) in many industries such as insurance, retail, oil and gas, financial services and more. The benefits of EIPP are the trifecta of operational improvement--customer satisfaction increases, support costs drop by 40 percent or more and cash is collected much faster. In addition, A/R and collection forecasting is accurate right down to the line-item level.

The best way to understand how EIPP can impact an organization is to go through a simple example. Let's say a customer orders 10 computers each from two different companies, OKOnline Computers (which has EIPP) and OldSchool Computers (which has no EIPP). Unfortunately, one computer from each of these companies was configured improperly and must be returned. Let's see how the return affects how cash is collected and the issue is resolved for each company:

For OldSchool, the customer sends back the invoice with a note saying it isn't paying until the computer is replaced. OldSchool then copies this invoice and forwards it to customer support, the account team, the computer build team, returns, etc., requiring the A/R and collections team to make multiple calls to ensure the issue is resolved. Then they try again to get payment weeks later. Often, the customer is continuously calling to get a status on the return, increasing support costs.

For OKOnline, on the other hand, the customer pulls up its online invoice and "disputes" the line item in question, starting an automated process that directs the request to the appropriate parties. The EIPP system then automatically adjusts the invoice to bill the customer for the nine good computers, which can be paid directly online.

As progress is made toward resolving the issue, status is sent directly to the customer via email. The customer experience is improved, support effort is minimized and cash is collected much faster. Best of all, your A/R manager knows exactly what is in dispute at any point in time, how soon it will be resolved and what causes most disputes to happen in the first place.

The finance and customer service departments are not the only fans of EIPP--the IT department can also use it to extend the life of existing billing systems. The hidden truth in most large companies is that there isn't just one billing system--there are often as many as 20. In fact, there's usually one for nearly every product or service. This creates a difficult IT challenge to consolidate it all onto one customer bill every month.

Any IT manager who has been through an acquisition or merger knows exactly what a problem this can be: converting one billing system into another is about as difficult a project you will tackle in your career. But with EIPP, you can consolidate bills at the "invoice level" by taking feeds from each billing system and creating a whole new consolidated invoice without modifying a single legacy system.

When payments are made, the EIPP system can also reconcile payments and adjustments back to the respective systems. Best of all, a consolidated EIPP solution can be up and running in as little as three months--far less than the two years or more required to consolidate billing systems.

If you haven't examined EIPP in the last couple of years, it's worth taking a new look. Companies like Dell Inc., Wells Fargo & Co., Office Depot Inc. and PacifiCare Health Systems have shown that one-year payback and a one-to five-day decrease in DSO are well within reach, and no existing systems need to be modified in order to start.

When you take a look at what you're spending on manual invoice and reprints and on the team of people you have taking customer calls, handling disputes and applying payments, the ROI becomes very straightforward. It's been a long time coming, but it looks like technology has finally caught up to cash management and collections.

Doug Roberts is the CEO of Avolent (www.avolent.com), a San Francisco-based provider of enterprise software for financial relationship management (FRM).