The document discusses various technologies used for automating trade settlement processes, including invoice creation, delivery, and payment. It describes electronic invoicing and payment solutions from Citi, SWIFT, IATA, and others. It also discusses electronic funds transfer, ACH payments, electronic bill presentment and payment, and services like PayPal that allow online money transfers as alternatives to paper-based payments. The automation of these processes brings benefits like improved cash flow visibility, faster payment times, and lower costs compared to traditional paper-based methods.

1. Automation of Trade Settlement<br />[Invoice, Payment and Analysis]<br />Submitted by<br />Sashidharan.S<br />PGDMB10/043<br />E-Invoicing<br />In recent years, companies have sought to reduce costs by implementing new procure-to-pay technology, reengineering key processes and building shared services organizations. Many of these strategies have been reasonably successful. However, finance executives are now being challenged to focus on value creation—beyond Enterprise Resource Planning (ERP) implementations and reengineered finance functions.<br />Fortunately, new opportunities now exist to extend traditional order-to-cash and requisition-to-pay solutions. The key is Electronic Invoicing & Settlement (EIS).<br />Most finance executives understand the basics of electronic invoicing and settlement. But they may not be aware of just how lucrative EIS can be for buyers and sellers—how it furthers their quest for high performance by generating real value for both sides. What's more, EIS doesn't emphasize common cost reductions like limiting process redundancy or leveraging economies of scale. This is good, because no matter how successful finance departments have been in reducing process costs, EIS can help them reap significant benefits outside these typical areas of focus. The following figure shows the buyer-seller benefits associated with EIS.<br /> <br />Buyer BenefitsSeller BenefitsGreater discount captureSelf serviceCompliance/enforcementGet paid fasterReduced accounts payableRemove uncertaintyFaster invoice approvalReduce collections costsStronger trading relationsImprove cash forecastingLower IT costsGreater access to capital<br />The following are different technologies used in Invoice Creation, Delivery and Presentment offered by different companies.<br />Electronic Invoice Presentment and Payment <br />Citi’s Electronic Invoice Presentment and Payment (EIPP) solution allows billers and payers to manage the entire invoice and payment cycle online, shortening days sales outstanding and eliminating costs traditionally associated with paper-based systems.<br />With EIPP, invoices are available for review on the same day they are issued. All steps and procedures typically associated with a paper-based system are eliminated. From a single invoice menu, the company’s customers can view unpaid invoices, perform invoice inquiries, authorize invoices for payment and view payment history. The two main advantages of the EIPP solution are improved cash-flow visibility as the status of each invoice can be viewed online and easy integration with existing systems like Oracle, SAP, etc.<br />In September 2009, Citi’s Global Transaction Services (GTS) and GT Nexus, signed a strategic partnership to deliver an EIPP solution to the ocean logistics industry. The partnership will leverage Citi’s existing electronic invoice settlement services, currently offered to the air logistics industry, with the connectivity and standardization technology of the GT Nexus trade and logistics portal. The solution will provide ocean carriers and their freight forwarder customers a fully electronic means to present and pay ocean freight invoices. By automating these processes and leveraging GT Nexus’ technology Citi clients will benefit from a fully electronic option to present, approve, adjudicate, pay and reconcile ocean freight invoices that will result in improved cash-flow visibility, accelerated payment settlement and lower costs.<br />SWIFT Trade Services Utility (TSU)<br />TSU is a collaborative centralized matching utility that is designed to help banks meet the supply chain needs of their customers. At its heart lies a Bank Payment Obligation as a trade finance instrument which complements more traditional instruments such as the Letter of Credit. Banks are building individually on the core functionality of the TSU to offer services such as financing, payables/receivables management, and logistics and risk mitigation. <br />International Air Transport Association <br />IATA has set up an invoice system called IATA InvoiceWorks, which provides an e-invoicing service aimed at the air transport industry. Over 230 airlines (out of an approximate 5,500) and 5,550 industry suppliers are linked through IATA InvoiceWorks, covering 93% of scheduled international air traffic.<br />Joint Automotive Industry Forum<br />The JAIF is the forum for automotive associations. The objective of JAIF is to address global supply chain issues, which span from the raw material supplier to the final customer for vehicles, parts and services, and includes e-invoicing.<br />RosettaNet<br />RosettaNet allows trading partners of all sizes to connect electronically to process transactions and move information within their extended supply chains. The community is comprised of experts that work together to develop standards that simplify increasingly complex supply chains.<br />Bolero, Tradocs, TradeCard, are a few other such service providers which give a global trading system that enables businesses to trade electronically by quickly exchanging documents, such as purchase orders and invoices, securely over the Internet.<br />Payment<br />Highly fragmented manual processes for posting and reconciling payments generate significant administrative costs and fees for providers. Transitioning these paper-based processes to electronic ones has the potential to save as much as $35 billion and 2.5 billion pieces of paper annually by some estimates. To realize such benefits, providers are searching for new opportunities to eliminate paper from the revenue cycle, especially in payment and reconciliation.<br />Electronic Funds Transfer (EFT)<br />EFT is safe, secure, efficient, and less expensive than paper check payments and collections. While it costs the U.S. government $1.03 to issue each check payment, it costs only 10.5 cents to issue an EFT payment.<br />Automated Clearing House (ACH) is an electronic network for financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit payroll and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills. Debit transfers also include new applications such as the Point-of-Purchase (POP) check conversion pilot program sponsored by NACHA-The Electronic Payments Association [formerly the National Automated Clearing House Association]. Both the government and the commercial sectors use ACH payments. Businesses are also increasingly using ACH to collect from customers online, rather than accepting credit or debit cards.<br />Uses of the ACH payment system<br />Direct deposit of payroll, Social Security (United States) and other government payments, and tax refunds<br />Direct debit payment of consumer bills such as mortgages, loans, utilities, insurance premiums, rents, and any other regular payment<br />Business-to-business payments<br />E-commerce payments<br />Federal, state, and local tax payments<br />Bank Treasury management departments sell this service to business and government customers<br />Electronic bill presentment and payment (EBPP) is a fairly new technique that allows consumers to view and pay bills electronically. There are a significant number of bills that consumers pay on a regular basis, which include: power bills, water, oil, internet, phone service, mortgages, car payments etc. EBPP systems send bills from service providers to individual consumers via the internet. The systems also enable payments to be made by consumers, given that the amount appearing on the e-bill is correct.<br />Three broad models of EBPP have emerged. These are:<br />Consolidation: numerous bills for any one recipient are made available at one Web site, most commonly the recipient's bank. In some countries, such as Australia, New Zealand and Canada, the postal service also operates a consolidation service. The actual task of consolidation is sometimes performed by a third party and fed to the Web sites where consumers receive the bills. The principal attraction of consolidation is that consumers can receive and pay numerous bills at the one location, thus minimizing the number of login IDs and passwords they must remember and maintain.<br />Biller Direct: the bills produced by an organization are made available through that organization's Web site. This model works well if the recipient has reasons to visit the biller's Web site other than to receive their bills. In the freight industry, for example, customers will visit a carrier's Web site to track items in transit, so it is reasonably convenient to receive and pay freight bills at the same site.<br />Direct email delivery: the bills are emailed to the customer's inbox. This model most closely imitates the analog postal service. It is convenient, because almost everyone has email and the customer has to do nothing except use email in order to receive a bill. Email delivery is proving especially popular in the B2B market in many countries.<br />PayPal<br />PayPal is an e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to traditional paper methods such as checks and money orders. A PayPal account can be funded with an electronic debit from a bank account or by a credit card. The recipient of a PayPal transfer can request a check from PayPal, establish their own PayPal deposit account or request a transfer to their bank account. PayPal performs payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. It may also charge a fee for receiving money, proportional to the amount received. The fees depend on the currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the recipient's account type. In October 2002, PayPal was acquired by eBay for $1.5 billion<br />There are some issues with e-money such as exchange rate instabilities and shortage of money supplies (total amount of electronic money versus the total amount of real money available, basically the possibility that digital cash could exceed the real cash available). Another issue is related to computer crime, in which computer criminals may actually alter computer databases to steal electronic money or by reducing an account's amount of electronic money. One way to resolve these issues is by implementing cyberspace regulations or laws that regulate the transactions and watch for signs of fraud or deceit.<br />Analysis<br />The use of flexible cash flow forecasting tools in combination with appropriate policies and processes can allow cash managers to address these issues, receive more accurate information from subsidiaries, enhance inter-departmental communication and improve the financial performance of the group.<br />In order to produce an accurate cash flow forecast, the cash manager has to rely on local subsidiary or business unit employees, who can be both physically and structurally remote from central operations. A wide range of software offerings are available to assist cash managers with the compilation and consolidation of data, and adding the actual cash flows when they materialize. These tools typically use a centralized database with the possibility to enter or upload data remotely. Such technology should enable firms to refine the cash flow forecast, while also detailing how a cash flow forecast has evolved over time. Additionally, they should be capable of comparing different versions of the same cash flow forecast.<br />Generating reports should be quick, easy and efficient on both a business unit and an aggregated level. Producing comparison reports between different cash flow forecasts from different times as well as between a cash flow forecast and actual cash flows should also be a straightforward process. Tools for use by the subsidiaries must also be easy to roll out. Ideally there should be no need for these to be installed on local PCs. Instead, they will either be web-based, or will use automatically downloadable Java applets or something similar.<br />Finally, the chosen technology must be able to support workflow, which will help to ensure that all subsidiaries have submitted their cash flow forecasts in time. Local workflow needs to take place at the subsidiary level, so that the cash flow forecasts are not just entered but also approved by a second and potentially more senior person. After this authorization, they can then be submitted to the head office to attain the highest level of cash flow forecast quality.<br />Flexibility is essential<br />It is vital that the cash flow forecasting software used can accept input in a variety of ways, either manually or electronically, such as the ability to upload Excel files. Naturally, the cash flow forecasting software should be easy and intuitive to use, but more importantly, the solution must be flexible enough to adjust to the individual business unit’s characteristics.<br /> <br />Aggregation of data<br />The aggregation of data should take place within the cash flow forecasting tool. It is much easier to do it there than to ask local subsidiaries to convert their data to fit the cash flow forecasting template. Not only should this improve the quality of the data received, but it will also reduce the burden on the subsidiaries by making it easier for them to deliver the data.<br />Some companies that offer Forecasting software are PROPHIX, Granville Software, Centage, etc.<br />