Thinkronization Newsletter - April 2012
Many larger companies have adopted electronic processing for purchase orders, shipping notices and invoices but have stopped short of completing the process with the implementation of the electronic payment. Reasons may vary for not closing the loop on the electronic transaction cycle -- from not having an understanding of the return on investment, not knowing how the transactions work, or preferring the ease of cutting a check versus setting up the new process. In fact, nearly 80 percent of business-to-business payments are made by check for simplicity, convenience, or “that that is the way they have always done it”.
A study, “The Value of An Enterprise Integration Strategy”, by Forrester Consulting for IBM Sterling Commerce has found that STP or straight-through-processing is closer to reality than ever before for most businesses. STP can be achieved through business integration and will help your revenue stream grow, while reducing operating costs, connect and match events, and meeting customer service levels, while maintaining data and process security.
A new industry initiative, EPN STP 820, seeks to remove barriers to electronic payments by establishing a consistent format and information flow to be included with each electronic transaction. Standard data, to be included with each transaction, flows seamlessly through cash management, accounts payable and accounts receivable so that all information is included with the payment. This standard format for remittance information simplifies the process of sending and receiving electronic payments across all industries.
The ACH Network only passes data formatted according to the ACH rules of the National Automated Clearing House Association (NACHA). Virtually all financial institutions can accept and process ACH payments. ACH transactions are primarily intended to move dollars. X12 transactions are primarily intended to move data. In financial EDI, the ACH is used in conjunction with the X12 820 document.What does this mean for IT decision makers, technologists and recruitment professionals?
For The Decision Maker
Streamlining the process from purchase order to electronic payment enables fast payoffs and reconciliationFinancial services organizations have seen an increased demand to improve their straight-through-processing across all business levels. The previously referenced study, conducted by Forrester Consulting, also shows that nearly two thirds of companies surveyed rate their integration capabilities as only somewhat effective. The benefits of STP include increased margins, new revenue–generating opportunities, lower operating costs, and the ability to reallocate human resources to other revenue generating business areas.
The adoption of industry-wide standards in Financial EDI for the ACH and 820 has provided the opportunity for businesses to close the loop of the electronic transaction cycle more easily. Financial EDI transactions create a streamlined transfer of data through cash management, accounts payable and accounts receivable. All relevant data is sent at one time. As this standard becomes more widely adopted, a once-significant barrier to electronic payments is overcome.
Data from the Federal Reserve also supports the rising usage of electronic payments, breaking down the information further by noting that nearly 15 percent of all card payments under $15 are made with debit cards, while 41 percent of card payments over $25 are made with credit cards.
Among the regions surveyed, North America showed the lowest percentage of electronic orders processed and the highest cost reduction opportunity in terms of increasing electronic procurement across the supply chain.
Is your organization taking advantage of this cost savings potential? Are you ready to streamline the business process and get the remaining 68 percent of your customer base to move to electronic transactions? Do you have the capabilities to originate or receive ACH, X12 or both? The ACH Network employs a strict process and requirements portion that is bank-specific. What about the additional revenue available as you consider the value of STP and a streamlined payment cycle?
The start-up costs associated with electronic payments will offer long-term return on investment.
For The Technologist
A fully automated process removes the need to piece together disparate systems and incorporate manual options into the supply chainAcross North America, only about 34 percent of companies are utilizing electronic payments. The STP 820 Standard streamlines the flow of information and creates a simple, universal field of data to be included with each electronic payment. A study conducted by the Association for Financial Professionals (AFP) found that the lack of a standard format for remittance information was a significant barrier to utilizing electronic payments. With the STP standard this barrier is removed or significantly recuced.
When you are responsible for implementing a STP approach there are three main concerns to consider: data integrity, connectivity, and format standards. Data integrity ensures that the data is unchanged and has not been accidently or maliciously modified. Connectivity concerns need to be carefully examined to determine the reliability and visibility of data. Lastly, format standards, organizations should endorse industry standards and be able to handle various formats.
As electronic remittance specs vary by industry and company, technologists are further challenged, whether it entails writing code for middleware for custom integrations, converting manual processes into automated processes, or limping along on outdated applications and legacy systems.
Do you know how to set up ACH and X12 transactions? 820s and ACH files are not interchangeable, but they can be used together. In order for data and dollars to move together through the ACH Network, the X12 must be wrapped inside of an ACH transaction. Without the proper set up, your company may acquire additional fees for not meeting requirements of the financial institutions.
STP 820 will streamline the process and eliminate the need to learn and support antiquated systems. To date, STP 820 has been approved by the American National Standards Institute and is receiving support from software providers, Federal Reserve Banks, the AFP, NACHA (the electronic payments association) and Clearing House owner banks.
The STP 820 Standard is based on the EDI Transaction Set 820 regarding payment order/remittance advice and is interoperable with the full EDI 820 standard. It is a subset of approved segments used to define a payment. A maximum of four segments are used to define each invoice. The standard includes adjustment reason codes most often used to describe adjustments to the payment amount.
For more information about STP 820, standardizing remittance formats, or help with projects that get your organization closer to straight-through-processing, contact Remedi Electronic Commerce Group at 614-436-4040.
For The Talent Recruiter
Does your staff have the knowledge to transmit payments and remittance through the ACH Network or X12 or both?When monetary transactions are processed, the supporting data is sent at the same time. Talent managers need to provide quality resources that know and understand the standards (STP 820 and more) and can develop standards-based integrations. If you already have the process in place for one trading partner, the foundation is there to complete the process for others and increase your return on your investment.
Do you have programmers or IT staff with the knowledge to set up Electronic Payment transactions and implement a quality STP solution?
820s and ACH files are not interchangeable, but they can be used in cooperation. To send money through the ACH Network, you must use ACH, but the 820 you use, and who actually creates it (it can be created by the bank for a fee), can have an impact on the associated cost. Not all financial institutions can or will handle native X12 transactions, but those that do will usually charge a premium to reformat the incoming 820 into an ACH transaction (or vice-versa from ACH to outgoing 820).
Remedi Electronic Commerce Group can provide solutions, services, support, and personnel to meet your e-payments and STP needs. Remedi works with organizations and IT teams to develop systemic business strategies and training.Remedi provides top-notch IT integration professionals and experienced project managers for full time and contract positions across the US and Canada.
