Remittance Challenges in a Digital World

Gary Halleen, CEO, President, API Outsourcing Inc.Joel Goldberg, Senior Vice President, Project Leader, Rosenthal & Rosenthal

Introductions

Gary Halleen, CEO, President• Gary Halleen has 40 years of experience in information technology and back-office automation.

His time at 3M, founding of Com Squared Systems, Inc. in 1980, and founding of API Outsourcing Inc. in 1998 with the purpose to provide technology for the back-office, has provided deep knowledge of the industry. Gary received his BSEE from the University of Nebraska.

Joel Goldberg, Senior Vice President, Project Leader• Joel Goldberg joined Rosenthal in 2002. Founded in 1938, Rosenthal is a commercial finance

company specializing in factoring and asset based lending. As Senior Vice President and Operations Manager, Joel oversees the implementation and operation of Rosenthal’s software platforms, domestic and international technology vendor relationships, and the back-end systems associated with the firm’s banking services, including its lockbox. Prior to joining Rosenthal, Joel spent 20 years at CIT and Heller Financial. He is currently the President of the Factors Controllers Association. Joel received his BA from Brooklyn College.

Overview

• The Problem• Why is this happening?• Rosenthal’s Story• Solving the Problem

The Problem

The Wonderful World of Electronic Payments

• Electronic payments are wonderful • Provide cash faster• Simplifies cash application when payment comes with remittance embedded

• Electronic payments are wonderful• More difficult to apply cash when remittance comes separate from payments• More difficult to apply cash when remittance is on a website

The problem

The Wonderful World of Electronic Payments

• Payments information by ACH, Card and Wire come from multiple financial institution

• Typically receive payment for many invoices in single transaction• Typically no remittance with the payment

• Remittance • Payer sends remittance to financial institution making electronic payment to imbed

remittance (CTX)• Payer sends remittance by email, EDI or other means to seller• Payer indicates seller must log into their website for remittance

• Cash Application• How to match a single electronic payment to many invoices• How to match remittance information to a single payment• How to match payment and associated remittance with invoices being paid

The problem

• The transition to electronic billing and payment has created advantages and disadvantages for both buyers and sellers.

• ACH, Wire, and Card payments, remittances, and deductions are provided through disparate sources and processes.

• Remittances are provided by email with attachments, by EDI, or a website.

• This makes matching payments to remittance information and reconciliation of payments to invoices difficult.

Cash Application When Transitioning from a Paper/Imaged Based Lockbox to Electronic Payments

The problem

Why is this happening?

Traditional Lockbox vs Electronic Payments

Traditional Lockbox• Remittance with your check• MICR from check image• Remittance captured – seller or

bank• Match payment, remittance, and

invoice – seller

Electronic Payments• Remittance by separate email, EDI,

etc.• Payment information in file from

financial institution• Remittance captured – seller

and/or third party• Match payment and remittance –

seller or third party• Match payment, remittance, and

invoice – seller or third party

Why is this happening?

Check 21

• Over a decade ago on October 28, 2004 the Check 21 law which created a new piece of paper called the substitute check took effect. The law also paved the way for image exchange and electronic payments

Source: Association for Financial Professionals. 2013 AFP Electronic Payments Survey. 2013. Print.

Why is this happening?

Electronic Payments

Source: Association for Financial Professionals. 2013 AFP Electronic Payments Survey. 2013. Print.

Why is this happening?

+ Pay just in time, extend DPO

+ Reduce check & postage costs

+ Minimize opportunity for fraud

Why is this happening?

Advantages (+) for Buyer/PayerElectronic Payments and Remittance

- Capture of remittance information from email, EDI, and websites

- More costly processing to match remittances and payments

- Longer time period to complete cash application, increase DSO

Why is this happening?

Disadvantages (-) for Seller/ReceiverElectronic Payments and Remittance

Receiving Remittance

Source: Association for Financial Professionals. 2013 AFP Electronic Payments Survey. 2013. Print.

Why is this happening?

Advantages (+) and Disadvantages (-)Electronic Payments and Remittance

Buyer/Payer

+ Pay just in time, extend DPO

+ Reduce check & postage costs

+ Minimize opportunity for fraud

Seller/Receiver

- Capture of remittance information from email, EDI, and websites

- More costly processing to match remittances and payments

- Longer time period to complete cash application, increase DSO

Why is this happening?

Joel Goldberg, Senior Vice President, Project Leader

Problem - Missing Remittance Information

At Rosenthal & Rosenthal in 2015 we processed:• 5,732,408 in invoices• 478,300 payments

• 418,342 checks• 59,758 ACH/wires

• We closed 4,045,517 invoices by checks received and 1,706,691 by ACH/wires received

• Of the 59,758 ACH/wires• 11,762 were supported by CCD+ 820 and closed 1,147,855 invoices

Problem - Missing Remittance Information

That leaves 47,996 ACH/wires with no electronically usable remittance information that pays 558,836 invoices that will eventually be closed

Problem - Missing Remittance Information

How is information received:1. Imbedded CTX 820 2. Imbedded in wire information3. E-mail from sender

• On the e-mail• In a PDF• In Excel

4. None provided – go to WEB site5. None provided – NO DIRECTION

Problem - Missing Remittance Information

API has helped us cure the first three bullet points and is working on a solution on the fourth and fifth

1. Imbedded CTX 820 2. Imbedded in wire information3. E-mail from sender4. None provided – go to WEB site5. None provided – NO DIRECTION

Discussion

• Cash application is time sensitive• Peaks and valleys with receiving payments• Staffing difficulties• Burnout and overworking

Solving the Problem

Having an automated process only to have to manually match remittance is just a bottleneck

automated manual

Solving the Problem

Overview on solving the problem

• Considered in-house solution • Lack of IT resources (development, implementation, and support)

• Buy hardware and software licenses• Lack of knowledge for the application • Lack of time

• Chose a Software as a Service (SaaS) solution• Provided a solution without capital investment and minimal IT resources• Provided expertise in back-office processes (including remittance processing)

and technology• Provided rapid implementation of the solution

Solving the Problem

Solving the Problem

• Requirements and Definition• Current processes• Remediation and improvement design• Assess the potential benefits• Cost analysis and return on investment

• Implementation• Develop and test• Rollout• Monitor and control• Process improvement

Solving the Problem

ERP

ACH

Text

Wire

ACH

Card

EDI/CTX

Email

Attachments

InvoiceUser ID

Password

url Buyer’s Website

Web-BOT

Solving the Problem

Text

User IDPassword

url

Buyer’s Website

Web-BOTUser ID

Password

url

Solving the Problem

automated automated

Adding automation clears the road for an overall efficient process

Solving the Problem

Everything is going electronic

Are you ready?

Thank You