From the March 2011 issue of Treasury & Risk magazine

Invoice Pile-Up

Southeastern Freight Lines finds that slowing down billing actually means getting paid faster.

Southeastern Freight Lines may be a modest $774 million company, but there's nothing midsize about the more than 500,000 paper invoices the Lexington, S.C.-based company sends out each month to its 68,000 customers. In 2007, the less-than-a-truckload (LTL) shipping company reviewed its invoicing process and decided that the way to collect faster, ironically, was to invoice slower. "We used to bill the day after a shipment was picked up, regardless of when it was delivered," explains Ron Pagoota, SEFL's director of revenue accounting. "The change was needed in order to provide our customers with one bill for all transportation-related services for that shipment."

A single SEFL truck might make 15 to 20 deliveries in a day. "It's not uncommon for us to attempt a delivery and have the receiver ask us to come back later, for which we charge a redelivery fee and issue a second invoice," Pagoota explains. "We might charge $140 for a primary delivery and then $57 for having to redeliver."

Waiting longer to send an invoice lets SEFL send a single bill for those separate charges. And while an additional two-day delay in invoicing sounds like a prescription for ballooning days sales outstanding (DSO) and higher working capital costs, for SEFL, the change has worked.

"We worried about DSO, but it turned out to have little effect," Pagoota says, adding that invoicing more slowly cut the company's exception handling. DSO inched up from 41.2 days in 2008 to 41.7 days through November 2010, a period when the troubled economy meant DSO was rising for most companies.

At the same time SEFL delayed invoicing its customers, it initiated a push to electronic invoicing to cut mail time and processing costs, Pagoota says. Now 42% of all invoices are zipped to customers electronically. Some are e-mailed, some go out as FTP files, and some customers are asked to visit an SEFL Web site to view their open invoices, choose the ones to pay, and click to authorize SEFL to debit their bank account for that amount.

"It gets us the money faster," Pagoota observes. "And there is no keying or manual processing on our end to clear that receivable. It's all automatic in our accounting system."

SEFL's strategy also involved outsourcing its paper invoice operation to Wachovia (now Wells Fargo). "We started to look at changes when the postal rates increased dramatically in May 2007," Pagoota recalls, estimating that the higher rates would have cost the company $250,000 a year. "And we had four people in our office tied up with generating and mailing invoices. So we started interviewing.

"We found that Wachovia had a mail distribution center in Charlotte that could handle sending out 300,000 invoices daily for us, along with the imaged documents that support the invoices," Pagoota says. Given the high volumes it sends through a presort mailing service used by Wachovia, SEFL pays just 30 cents per invoice, which includes envelope, postage, paper and rendering cost, he notes.

"Less-than-a-truckload shipping is a paper-intensive industry with fragmented automation," says Will Taylor, vice president and treasury management sale consultant at Wells Fargo. "Our presorting and packaging are better, and we can deliver the mail faster.

"SEFL sends us a raw but formatted billing file," Taylor says. "Over weeks of implementation, we learned how they invoice, developed a logic for formatting a file and worked with their IT to create a file we could read."

Pagoota says SEFL transmits two files to Wells Fargo each morning, one for invoices and the other containing images of related documents.

"It used to take four people seven hours each day to sort, stuff and send the invoices," he says. "Now it's all finished within an hour. If a file is rejected or corrupted for some reason, it is identified, the problem fixed and the file processed before I even get in to work in the morning." He estimates the outsourcing arrangement saves SEFL $225,000 a year.

"By improving our paper invoicing processes, we've eliminated the work of four full-time people in the past three years and reassigned them to positions that needed additional coverage," Pagoota concludes.

While 42% of invoices are delivered electronically, just 11% of payments come in that way. SEFL is still saddled with a monthly inflow of 32,000 paper checks, nearly all of them arriving in the mail room of its headquarters. The company investigated and rejected the use of a lockbox; instead, two high-speed scanners read the checks and transmit the images to Wells Fargo for deposit, while eight cash application specialists manually key in freight bill numbers for cash application. It's a semi-automatic, semi-manual factory, but it works. Remote deposit capture gets the money to the bank a day sooner than if checks were deposited physically.

That operation is slated for improvement this spring. SEFL will begin scanning the hodgepodge of remittance documents that come in with checks with Open Scan Technology software. The cash application specialists will view the document image on the screen, find the freight bill number and highlight it with a cursor, then the system will capture the numbers that are highlighted.

SEFL, like other less-than-a-truckload haulers, lives in a many-to-many-to-many world, with many customers that it ships to many times a week, generating many invoices that typically are settled with a single payment a month, explains Michael Starble, Open Scan's chief operating officer.

"These companies, due to the complexity of their business, historically have processed the payments themselves," he says.

While SEFL receives and scans its own paper remittance documents, other LTL carriers use a wholesale lockbox for the scanning, Starble notes. Both handle the image-to-posting process internally. Open Scan has the ability to apply optical character recognition to images of the remittance documents, then create simple templates that are used whenever another payment from the same company surfaces. The extracted data are intelligently matched to open receivables before posting to the ERP. The automated process works without user intervention between 90% and 95% of the time, Starble says. Business rules governing deductions and short pays, a common phenomenon in the trucking industry, help to automatically resolve many of those occurrences, he adds.

Pagoota expects SEFL will need only three cash application specialists going forward, down from eight. The investment should pay for itself in three years and after that save the company $115,000 a year, he estimates.

"They've done a fantastic job," Taylor says.

 

To read about how another company revamped its invoicing, see Paperless Pitch.

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