Transaction Banking: Helping to Solve the Receivables Blues

by Cesar Bacani, 08 September 2011

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topics:
Cash and Liquidity Management Finance and Banking

tags:
artificial intelligence J.P.Morgan payables receivables Victor Penna virtual accounts

For companies, the receivables side has always been a bit of a problem even as new artificial intelligence products and other technologies are making a difference in payables .Processing receivables “still involves a lot of manual work,” says Victor Penna, Head of Regional Solutions & Advisory Team, Asia Pacific, at J.P.Morgan Treasury Services.

Banks like J.P.Morgan are turning their attention to the problem. “For example, we’ve been building technology that enables us to help automate the reconciliation process,” he explains. “Rather than have 30 people sitting there manually matching outstanding invoices to collections, we can now automate a big part of that process.”

In Part 2 of an interview he did with CFO Innovation’s Cesar Bacani, Penna discussed trends in bank automation products for receivables, payments and other processes. Excerpts:

Can the client company outsource cash management to the bank, so institutions like yours would pay the payables, collect the receivables and so on?

Most of the leading banks like us tend to provide the gateway for these services already. We’ll provide the host-to-host link so that the [customer’s] shared service centre can send one payment file to us covering multiple countries and payment types, and we’ll then break it up and send the payments out in each market.

Things like cheque outsourcing are now quite common. Rather than a shared service centre printing and mailing its own cheques, it would include all those cheque payments in a single file that it sends to J.P. Morgan. We would then route those files to each country, so we print a ringgit check in Malaysia and mail it out for the company; a rupiah cheque in Indonesia; an Australian dollar cheque in Australia and so on. The same with electronic payments.

Where we’re seeing more activity is on the receivables side, which still involves a lot of manual work. For example, we’ve been building technology that enables us to help automate the reconciliation process. Rather than have 30 people sitting there manually matching outstanding invoices to collections, we can now automate a big part of that process.

In a sense, the company is outsourcing part of that activity to the bank, and the bank is giving the client the technology to do that more efficiently. With some of the new technology we’re building, the payer doesn’t even need to provide a reference number anymore.

Really? How does that work?

We’re doing a lot of work around what we call ‘virtual reference’ solutions. Normally, if you were a customer, I’d send you an invoice and I’d ask you to pay to a bank account. I’d send an invoice to another customer, and he’d need to pay to the same bank account, and so on. Then I get all these credits into the bank account, and have to review each one individually to work out which payment belongs to which outstanding invoice.

So what we do now is automatically assign a reference number to each payment received. This reference number corresponds to specific customers within the company’s accounts receivable ledger. Bank account statements containing each payment received together with the reference number can now be uploaded into the company’s ERP system enabling automatic posting to the right customer without the need for manual reconciliation.

You can have as many accounts as you have customers?

We’re working with one client at the moment which has 700,000 reference numbers. Theoretically you could have millions. Unless the customer sends the payment to the wrong bank account, it provides 100% identification in terms of which customer made which payments

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