IT'S SIMPLE: PAY FAST, PAY LESS

Companies on the cutting edge are finding surprising benefits from the next stage of automated payables processing, known as dynamic discounting. "Dynamic discounting revolves around starting a collaborative relationship with your suppliers, principally around payments," says Henry Ijams, managing director at finance IT consultants Paystream Advisors Inc. "There's something here for both suppliers and payers."

Discounting for early payment, of course, has been a basic part of supplier contracts for years. The problem has been that the traditional, slow and unpredictable A/P process hasn't allowed many companies to cash in on them effectively. Because there is a lack of predictability, with some companies agreeing to pay early and not delivering, suppliers are often loath to extend terms, or in some cases, enter into discounting relationships at all. But imagine a Web-based system that gives suppliers a clear view into how far along a payment request is at a company and an automated A/P system that includes automatic invoicing to eliminate manual errors and human delays. Payables automation providers such as Xign Corp., Prime Revenue Inc. and Ariba Corp. are also helping customers create dynamic communications processes with their suppliers, so that payment terms can be adjusted anytime in the process, even on a case-by-case basis. The savings, under such a system, can add up and unlike purchasing card programs, where suppliers have little incentive to take a haircut, they have several with dynamic payables. "For our customers, the real value lies not in invoice automation, but in what you can do once you process invoices faster and more clearly," says George Fan, vice president of marketing at Xign, which also has a distribution partnership with JPMorgan Chase Treasury Services.

Take Casey Otley, treasurer at T-Mobile USA Inc., the wireless communications subsidiary of Germany's Deutsche Telekom SA. For the last three years, he has seen the benefits of its Xign-based automated payments system, including much better control over the timing of his company's cash flow. Now, he's eager to add a discounting module–perhaps even this year–especially since some of his biggest suppliers have expressed interest in the program. "They want the transparency and like knowing where their invoice is in our approval cycle," says Otley. "In some cases, they're willing to give up a funding cost in order to get paid quicker."

When Xign starts a relationship with a customer to automate its payables processes, the vendor will typically target the customer's key suppliers to have them join its electronic billing network and gauge their interest in participating in a discounting program. Fan says about 30% of the suppliers accept discount terms, including some who had not offered discounts in the past. Xign has also pioneered a program it calls pro-rated discount, in which suppliers extend steadily declining discounts leading up to the end of the payment term.

Despite dynamic discounting's advantages, it remains a tough sell. "The challenge here is we are talking to clients who are buying in silos for A/P and procurement," says Paul Simons, JPMorgan's senior manager for supplier/payer payment channels. "When the working capital dimension of this is better understood, CFOs and controllers will be saying, 'Why don't we have one of these?'"

FORECASTING WITHOUT TEARS

For Craig Erickson, vice president of financial planning and analysis at Erickson Retirement Communities LLC, the traditional spreadsheet-based methods of gathering data from the field for forecasts were not only slow and error prone, but the forecasts were not all that accurate. Data would often come in late and errors were common. The privately held company with annual revenues in the range of $500 million collects cost and expense metrics from business managers at its 12 community centers scattered on the East Coast and Midwest. Much of that information, once errors were corrected, was collected and stored in an ERP system, but it was difficult to draw on and analyze in depth.

Erickson and company CFO Jeffrey Jacobson led an overhaul of the forecasting processes, including setting up a Web-based financial management system from Hyperion Solutions Corp. "By having simplified the process, we really created one Web form that 85% of the people doing budgeting use and [that has] only 15 account line items," says Erickson. The managers now input budget details directly into the Web-based system and calculations are updated by the central system every hour. The move has cut in half the amount of time field managers spend on budgetary reporting and greatly improved forecasting accuracy. "There's less to input and less work, so there's more time for the managers to focus on the live management of their operations," says Erickson. The improved forecasting gave lenders more confidence in the company: Despite a rising interest rate environment, a debt issue this year managed to snag an interest rate 3% lower than a similarly sized issue two years ago.

Many companies continue to struggle with the fine points of managing their forecasts, and as a result, working capital management processes are lacking. Improvements in technology, however, including better integration between ERP systems, treasury workstations and financial planning tools by Hyperion, Cognos and others, are making a difference. "Working capital management is imperfect, that's where businesses have lots of cash tied up," says Jeanne Capachin, director of research at consultants Financial Insights, a subsidiary of IDC Corp. "You have to understand what's going on with outgoing and incoming cash requirements. What it requires are accounting systems that are integrated throughout the organization."

Supporting the integration are powerful new platforms containing reams of information that in the past have been difficult to extract quickly enough for a timely forecast. "We see a shift in forecasting," says Thomas Bergqvist, chief marketing officer at Trema Group, the London-based treasury solutions provider. "Now people are trying to do it on a global basis and trying to reach deeper into the business units."

AROUND-THE-CLOCK WATCHDOGS

The drive toward better Sarbanes-Oxley compliance controls has been a primary selling point for continuous controls monitoring solutions. The tools either work alongside or within a company's ERP system and run tests on transactions or users to create a control that enforces segregation of duty rules and essentially blocks employees from writing illicit checks or altering financial records. While ERP systems typically contain built-in checks, most experts do not consider them robust enough to satisfy SarbOx internal control requirements. The savings in cost and time come from the continuous controls monitoring systems' ability to ferret out costly wrongdoings, catch simple mistakes and just make the job of compliance testing and validation far easier.

Within the category there are degrees of specialization. Vancouver-based ACL Services Ltd. has built predefined analytics based on its core auditing best practices knowledgebase into its continuous controls products. ACL scours transactional data across multiple types of systems, including ERP, back office and customer relations systems. Other providers, such as Approva Inc. and Virsa Systems Inc., focus on more preventive aspects of continuous controls management within ERP systems, setting off warnings if they determine that a proposed change could lead to problems.

The ability of an Approva application to predict and prevent future problems impressed Rob Paradise, SAP security manager at $7.4 billion Air Products & Chemicals Inc. Paradise oversees the 12,000 users who interact with the Allentown, Pa.-based company's multiple SAP systems. He recalls how earlier this year, one of the company's purchasing employees requested an upgrade in purchasing authority that was outside of his role. The change did not appear to create any problems, until Paradise ran a few tests in Approva, which showed that the change would have given some 600 other company purchasing employees unlimited spending authority, trumping other purchasing rules. "We never would have known that without Approva," says Paradise. "It prevented a potential issue from going into the SAP system."

Virsa's technology is located within an ERP system. It monitors and tests transactions as they hit the system, blocking them if an inconsistency is found and sending out an alert. The ability to warn users of potentially costly problems and even prevent others from being made shows how some of the latest technologies keep costs down.