Catch Me If You Can

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Sunday, July 1, 2007 - 01:00

Catch me if you can: A new world of ever accelerating transactions

July/August edition, 2007: One word explains why accelerating remittance processing and payments is appealing for any business: cash. The faster the process, the more cash a company can call in on outstanding invoices. Apply that to a corporation with annual revenues of a few billion dollars, as some of Westpac’s Global Transactional banking clients generate, and it can boost a company’s working capital by literally billions. And what engine could power this? Not just technology and not just a bank, but a potent mix of the two, trained on achieving Straight Through Processing. Liam Tung takes a peek into a new benchmark for accelerated transactional banking.

Since 2003 Westpac’s Global Transactional Banking (GTB) division has been championing the concept of Straight Through Processing (STP). During this time it has proven to customers its method of wringing out efficiencies in the accounts receivable process can and does make a significant impact on financial performance. To achieve this, it has secured partnerships with best-of-breed technology providers, QM Technologies, and has utilized its own technology subsidiary, QValent. It has also taken a customer-approach that has caught the attention of competitors and major corporations alike.

The service being offered to Westpac’s transactional banking customers is both old and new. Large and small imaging bureaus have long offered outsourced mail-capture, workflow and document management technologies to streamline the accounts receivable process. The difference with Westpac’s “Locked Box and EFT Solution” is that it dovetails with the transactional banking services it already delivers. In conjunction with QValent’s Present and Pay solution and QM Technologies’ mail capture technologies, the service wraps itself around the entire accounts receivable process. The goal from a processing perspective is to achieve maximum automation; the fewer hands that touch physical documents, the better. From a financial perspective, Westpac’s Head of Global Transactional Banking Scott Southall says the prime goal is to accelerate the accounts receivable process to boost a customer’s working capital.

To its advantage, Westpac’s GTB client list is perhaps one of the most qualified in the country. It only services organisations generating over $400 million in annual revenue and the sheer scale of its customers’ lend themselves to sizeable efficiency gains where there is opportunity to tighten processes. For organizations looking to streamline the back office, the appeal of Westpac’s pre-fabricated infrastructure is high. And while the transition to such a model can be a huge and complex task, as was the case with Orica, the potential gains are too enticing to ignore.

Southall says, “For many businesses there are 60 days between sending out the invoice and receiving that remittance. What we do is help our customers receive it faster, which in turn impacts their working capital. For our customers that can be as much as a billion dollars in unprocessed remittances; reducing that by 30 days equates to a lot of money.”

The service aims to reduce a company’s DSO or “Days Sales Outstanding”, an accounting metric used to illustrate the impact outstanding invoices has on business performance. A low DSO means a company takes fewer days to collect its accounts receivable while a high DSO means a company is slow in collecting payments. The high DSO means the business is selling on credit, which for Westpac’s customers can mean a huge opportunity cost if that cash could be used to greater effect elsewhere in the business.

Taking content technology to new places

“Our goal is to take what’s been content technology and apply it to business problems to achieve results for our clients,” says Southall. “We change their cost structure by changing their capital structure.”

It’s interesting to listen to the New Yorker speak, not only for his accent, but because he is one of a few that are equally proficient at talking tech as he is finance. He makes a perfect ambassador for enterprise content management (ECM) technologies, particularly at a time when ECM vendors are seeking ways to express how content and technology should be deployed. That is, where it has the greatest impact on revenue. The 38 year old only recently moved to Australia from New York where spent the previous eight years as the managing director of BearingPoint, USA. With this experience and in his current role, few are so well positioned to talk first hand about the relationship between content, technology and revenue.

On the other hand, championing ECM technologies is not his job. Southall’s task is to assure his customers that the processes Westpac have engineered are, as he calls them, “bullet proof”. He openly admits a major challenge is that clients need to become comfortable with the notion of entrusting an external party to deliver its own revenue. Fortunately, these customers have often been Westpac’s customers for a number of years. The entrepreneurial approach taken by Westpac and its willingness to invest in creating the infrastructure to deliver such a service has won it new customers and industry accolades. At least this was the case with Orica when it recently put out a tender for a transactional banking partner.

Southall says, “In any outsourcing situation, there is always a concern and the closer that is to the revenue the greater the concern; that’s why testing is so crucial. We take the key issue, solve it, prove it and then the client understands the true implications. There’s always a sense of disbelief until they see it working.”

Besides making a difference to its customers, the service has become a major differentiator for the bank. It has become a benchmark case-study and industry accolades include Westpac’s three year reign in the Peter Lee Associates awards for “overall relationship strength” and “value added services”. While the awards are for the unique service, Southall believes the underlying factor is actually Westpac’s ‘different way of thinking’. Already further down this path in delivering such a service than its competitors, Southall has the luxury of challenging Westpac’s competitors to step up the plate. But can they catch up and if so will they be able to do it as well?

He believes that different way of thinking is actually the manifestation of Westpac’s customer-approach, work culture and knowledge of common challenges its customers face in various industries.

“In corporate institutional banking, customers are not looking to be told what to do,” says Southall. “We want to understand our customers’ business and build sustainable partnerships to make our customers’ business practices better.” Within Westpac itself, Southall says he has been impressed by the collaborative culture, which stood in stark contrast his experiences in the US. He says, “You know, coming from New York in financial services, it was a very mercenary place. I was surprised to find it very different at Westpac.”

Then there is the knowledge his division has acquired over the years of doing business with large corporations. Southall says, “We have the advantage of seeing across a wide variety of industries and bringing that knowledge to spaces such as Australia’s state governments. We’ve applied these concepts to five state government clients, including infringement bureaus. Now the system is automated, they’re achieving much higher collection rates.”

One customer that found Westpac’s approach appealing enough to justify moving its entire transactional banking function to it was ASX-listed mining-explosives, chemicals and industrial materials giant, Orica. The “Wholesale Lockbox and EFT” service Westpac was offering, and its approach to doing business – as a “partnership” – was, according to Orica’s Corporate Banking Manager, Hany Morcos, a critical factor behind Orica’s selection of Westpac’s transactional banking service.

Morcos says, “Westpac were wiling to invest in customisation and work with Orica to develop a new innovative banking solution to suit each business and their specific needs and deliver best practice STP.”

The shift to Westpac occurred after Orica completed a review of its transactional banking services across Australia and New Zealand. Morcos says it was a lengthy process to appoint a new banker and service provider to Orica and its subsidiaries across Australia and New Zealand. The scope of the service was for Orica’s payables and receivables and all other day to day banking requirements.

According to Morcos the partnership has worked due to the two organisations’ common approach to business. Morcos says, “During the tender process we found that each bank had its own unique strengths and weaknesses however, at that point, Westpac had the highest citation for its product development initiatives and their desire to invest into more innovative and automated processes was appealing. They had the technology at that time and were ahead of the other banks.

“On the other hand,” continues Morcos, “Westpac found Orica to be one of its more aggressive as corporate clients interested in moving towards a more economic solution and willing to play as a partner to jointly develop a solution.” Morcos was proud to point out that not only was an integration project of this scale a first, but it later came to be considered a market leader and an Australian benchmark. No other bank had achieved that full dimension and integration with a corporate.”

Orica’s management believed Westpac’s technology would assist in its quest for accelerated processing and reconciliation of banking data. Morcos says, “We have found Westpac’s technology would take Orica a further step to achieve the high potential of cost savings. As well, it would complete the goal of seamless automation and keep the company at the cutting edge.”

Turning up the dials

That seamless integration is Westpac’s Wholesale Locked Box and EFT solution, which relies on four key parties: Orica, Westpac Global Transactional Banking division, QM Technologies, and Westpac technology subsidiary, QValent.

Procurement, payment and presentment software vendor, QValent supplies Orica with the “Present and Pay” solution Orica uses to match and allocate remittances and payments to invoices. While Southall describes Westpac’s acquisition of QValent a “real strategic advantage”, Morcos describes it as “one of the best things Westpac has done; they bought the most up to date technology to the bank to deliver what they are now.” Part of that technology also includes Westpac’s Locked Box facility, which is managed by its technology partner, QM Technologies where all of Orica’s paper mail, email, faxes and general correspondence is redirected to.

Morcos says, “It is amazing when you think about the time and effort you could spend in a corporate the size of Orica that operates through multiple business platforms to manage mail, email and faxes received from customers.” Before outsourcing the function, the effort included opening envelopes, manually handling and sorting cheques, remittance advices and general correspondence and then allocating debtor payments to each invoice.

The role that QM Technologies plays cannot be underestimated either. While QM Technologies could not offer the service without being a partner to Westpac, it this is the engine room of the process. Morcos explains, “This is where they scan and capture all data and information from the documents using the OCR technology and the smarts to search and capture any critical information such as customer name, invoice number, PO number, delivery docket or amount. We use this information to match automatically against payments received through multi payment channels and are able to clear outstanding invoices and then create the entry in our general ledger.”

With mail being redirected to the locked box facility, everything from envelopes to loose documents, are scanned and stored in a content repository, which Orica’s employees are able to access remotely via a Web page. The content management system enables work groups and access rights to be established, but most importantly, it provides easy access to any supporting documentation required to resolve a customer query.

Morcos says, “We have access to all images online via a dedicated web browser that gives us visibility of all cheques, remittances, correspondence, even what’s written on the envelope and any piece of paper received from our customers. On top of this, all images are stored electronically and online for a number of years or as legally required. That has saved us a significant storage and archiving costs and all other activities associated with that process.”

The documents are also sorted and pass through a character recognition system which has been pre-populated with invoice templates to optimize recognition. This stage is crucial to capturing data which is be fed back into Orica’s SAP ERP system and then checked against the QValent-powered remittance and payment allocation system.

Morcos says, “This process takes into account a set of process rules defined by each business for correct matching. We give the smarts and Westpac our business rules on how to match payments as per information provided by our customers. Normally transactions can by identified automatically without relying on any additional data to be provided by our customers. And if there are any exceptions, then that will be left out for our credit officers to view them online and allocate them manually as appropriate.”

The ‘smarts’, in this case, is a Orica’s account information accessible via QValent, which enables Westpac and QM Technologies to process Orica’s payments. That which cannot be automated in this preliminary process moves to manual processing, conducted within Orica. The advantage it has now is that since all incoming documents have been captured, staff can search the images by customer name, invoice number, PO number, delivery docket or amount. Morcos says human intervention is now only required for 3 percent of the reconciliation process compared to the past when 80 percent of the process was paper-based.

Calibrating two giants

The implementation was completed in late 2006, including all Orica’s trans-Tasman platforms, but not without first overcoming huge hurdles. Morcos says, “At some points those hurdles might have ended the project so we had to break the project down to a number of stages that was spread over two years.” Orica also initially underestimated the scale and complexity of the project.

Morcos says the implementation was the first of its kind in Australia. Its successful execution has caused a stir in transactional banking circles and the case has risen to become a benchmark for other corporations seeking to achieve Straight Through Processing.

“No other bank had achieved that full dimension and integration with a corporate,” says Morcos. ”That was why it became a benchmark. It was talked about a lot at the Finance and Treasury Association Transactional Banking Conference in 2006 and we found there are a lot of banks and corporations very interested to know what we’ve done. We’ve been approached by many other corporations to understand what we’ve achieved.”

To see the project through, Westpac and Orica established their own project teams to complete the systems integration. Besides the core team of experts from each party, Orica also used sub-project teams and established a champion in each area – IT, SAP, Product development, reconciliations, collection area etcetera – who took the lead at the start. But says Morcos, “We found more staff were willing to be engaged during different stages of the project and became more interested in being part of the success. So the project team became bigger and bigger to include the end-user and the people who would be using the solution every day. This made it much easier for end-users to adapt to what they were a part of creating.”

By the end of the project, Morcos says Orica achieved full integration between the Westpac banking system and Orica’s SAP ERP system it uses to manage debtors’ accounts and the general ledger system. The key goal of achieving STP for Orica’s multiple receipt channels had been achieved and have since been made available to Orica’s customers.

Supporting Orica’s acquisitions

While some projects aim for quick returns, others are judged by their ability to deliver an adaptive infrastructure, robust enough to carry the extra burden as Orica merges its many acquisitions.

Morcos says, “As with any project, you must do a business case and cost analysis. We went through and came up with a figure but the dollar value was not our target. Our target was more about absorbing more companies and Straight Through Processing.”

In the last two years Orica has acquired several new businesses including Marblex Australia, the global tea-tree oil supplier Bronson & Jacobs and Aluminates Chemicals to name a few. Morcos says, “There’s more to come as well but these businesses were easy to integrate into our existing infrastructure.”

Moreover says Morcos, “The flexibility of the solution has allowed Orica to develop an integration process for new acquisitions to be migrated and integrated seamlessly to Orica’s existing platforms.”

Internally, Morcos says Orica has achieved “full integration between the Westpac banking system and our ERP SAP debtors account and general ledger system. That has lead to a highly automated STP for a wide range of receipt channels that were made available to our customers. The flexibility of the solution has allowed Orica to develop and integration process for new acquisitions to be migrated and integrated seamlessly to Orica’s existing platforms.

Overall Orica’s ability to take advantage of its improved cash flow has enabled greater opportunity to leverage its extra working capital.

As for the day to day processing of exceptions, Morcos says, “Managing only 10% of exceptions of entire process have allowed our credit officers to simply focus on providing better customer service, follow up on overdue payments and find solutions or other disputed issues rather than wasting time on more traditional allocation or reconciliation. So, through the scanning and imaging technology, we have true visibility of all data received through all received channels without physical movement from our desk and all you need is a keyboard and internet access.

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