digital cash flow (980849.htm)

THE "PAPERLESS OFFICE" MAY BE closer than your think, at least for your accounting department. That's because major players in the software and banking industries are putting the finishing touches on technology for electronic bill presentation and payment (EBPP) services.

While the technology is currently most useful for large businesses with wide customer bases or companies with periodic billing cycles (such as utilities or services paid by subscription), over the next few years small businesses will be able to take advantage of pilot tests and full versions of EBPP service programs.

For a small organization, EBPP can cut paper costs associated with invoicing and billing because it let companies bill electronically. Since EBPP lets customers pay electronically, it can improve cash flow: EBPI essentialy cuts the lag time associated with check clearance and can post money almost immediately from a customer's bank account into the company's.

EBPP starts by transferring a company's billing information from an in-house accounting software to a bank or third-party service provider; the provider can then send data back to company computers to notify a company that a customer has made a deposit or payment. At this time, the technology will not let payment data import directly into in-house accounting software, so it must be entered manually. However, the EBPP service provider handles several other crucial steps in the payment process.

EBPP at Work

"This is a way for a small business to lower their cost and increase their funds availability," says James Wells, Senior Vice President of Strategic AIliances at Electronic Funds & Data Corp., an EBPP service provider in Southampton, N.Y. "Assuming they have a good local bank that offers electronic banking, it is a good idea to start now for the future because small businesses can save money."

Here's how EBPP works: A company using EBPP enters invoices into their accounting system which are then transferred to the EBPP service provider. The provider then sends either a paper or digital bill to the customer through an association between the EBPP service provider and the customer's bank. The customer can then decide how to pay the bill - by mail or through their online banking service.

Mailed checks are received at the EBPP provider's "lockbox," which allows the EBPP provider to deposit payment into a company account. Once cleared, the payment is transferred to the company's bank account and the company is notified electronically that new funds are available.

Electronic payments can post quickly to a company's bank account if the company is capable of receiving electronic payment directly (which depends on the company's bank). If the company can't receive payment electronically, the EBPP provider sends a paper check through its lockbox system and can then process it quickly.

Regardless of a company's current billing costs, EBPP will allow it to think in terms of pennies per invoice, rather than dollars. MSFDC, a joint venture between Microsoft Corp. and First Data Corp. (FDC), estimates that handling the billing and remittance process in-house can cost anywhere from $1 to $10 per invoice, depending on when final payment is received. (MSFDC is an Internet-based EBPP provider that works with customers of pilot banks including Wells Fargo, Key Bank, Norwest, and Banc One.)

Electronic Funds' Wells, however, notes that the banking industry assumes Intemet transactions cost only a penny, a major plus for businesses that plan to let customers pay for goods and services over the Internet, even if those goods and services weren't bought over the Internet.

Right now, "business to business" companies are better candidates for EBPP than those that cater to consumers, since business clients have a higher likelihood of owning the technology that will let them receive and pay bills electronically.

EBPP vs. EFT Technology

A slightly different approach to EBPP transactions are those conducted as Electronic Funds Transfers (EFT). The EFT process is similar to EBPP, but with minor variations. First, prior to transmitting billing information to an EFT service provider, a company must obtain written authorization from clients to process bills electronically. Once billing information is transferred to the EFT service provider, all further transactions are accomplished electronically.

The request for electronic payment is sent through the Automatic Clearing House (ACH), a secure governmental organization that processes electronic transfer of funds, to the customer's bank. That bank then takes the money from the customer's account, sends it through ACH to the EFT service provider's bank. Once received, the funds get transferred to the company's bank and deposited like a cash wire transfer into the account.

EBPP CUTS THE CHECK CLEARANCE LAG TIME AND CAN POST MONEY ALMOST IMMEDIATELY FROM A CUSTOMER'S BANK ACCOUNT INTO THE COMPANY'S.

The practice is common at health clubs and other organizations that charge monthly fees easily deducted from a customer's account. It is also available on a case-by-case basis at some credit card companies and loan institutions in situations where a customer would rather pay immediately via EFT than risk mailing a check that might count as a late payment.

The Future of EBPP

"The number of people using electronic bill payment is too low," for it to be a one-stop billing solution according to Wells. He assumes only 10 percent of all U S. banks offer electronic banking services, and only five percent of the bank's retail customers use them. He advises businesses that want to use EBPP to continue offering the paper option as well.

Widespread use of EBPP won't likely proliferate until utilities start offering electronic billing and banks start presenting credit card and mortgage statements along with bank statements. Once consumers start to know these bills are available, more people than just the current 5 percent will embrace EBPP.

One of MSFDC's strategies to put EBPP into the hands of consumers is to offer EBPP services over the Internet. Banks that offer interactive banking will eventually bring more of the customers online, too.

Another stumbling block is that most banks do not offer eleclronic payment receipt services to small businesses. Wells suggests that once businesses start to adopt electronic bill presentment, it will open those businesses up to receiving electronic payments in the future. "One reason we work with banks first to solicit their business customers is so that they can have mechanisms in place to provide an electronic payment receipt process to offer to those business customers in the future."

Wells states that critical success factors include the willingness of the business to explore a new way of billing and receiving payments. Banks also have to be willing to offer electronic lockbox services to all of their clients, which is not the case now. Banks are waiting to see what happens in the marketplace, but bank executives are increasingly interested in a service that ties their commercial accounts to their retail accounts. Community banks, rather than large national banks, are in a better position to pioneer this type of transaction. They are ideally positioned because they are closer to their customers, both business and consumer. SBCC

Ellen DePasquale specializes in covering accouning and finance technology and runs Small Office Success, a New York firm that advises small businesses.

Getting Started

EBPP is still in its infancy, but if you're interested, get in touch with the organizations below and investigate options through local banks. MSFDC and other EBPP providers say businesses need to ask the following questions of potential providers before they begin working together:

The following companies offer EBPP or electronic banking services and can likely tell you about area banks piloting electronic billing programs with small businesses.