With credit so hard to come by for so many businesses, they've turned to their receivables departments to start ratcheting up collections for added cash.
Unfortunately for a lot of firms, their partners and suppliers are under the same crunch, and are likely waiting longer to pay invoices in order to preserve their own funds. According to a recent Aite Group survey of major corporate treasurers, the average wait time is 44.5 days before unpaid invoices are settled, limiting the cash and credit facilities for these companies. The slow payments are not isolated to a small group: More than three-quarters have an average wait time of more than 30 days.
"The level of sensitivity on the part of our customers in terms of maximizing their working capital — there's a level of interest I haven't seen before," says Marlene Lieberman, vice president and receivables product line manager for commercial treasury management at Fifth Third Bank in Cincinnati.
These payments issues for the corporate treasurer are presenting an opportunity to the corporate banker to provide clients with the automated receivables and cash management systems needed to improve collection rates. Banks can do this by speeding up straight-through processing of payments or managing the various incentives companies offer for prompt payment to partners and suppliers.
Banks can also help firms manage supply-chain financing tools used to extend credit to other firms. Part of maximizing capital involves a better system of aggregating all the various payment schemes-cards, wires, lockbox, e-checks and even mobile-phone payments-through an integrated receivables hub as part of a corporate treasury/cash management system.
According to Aite, 60 percent of the survey respondents feel their company's receivables management can be improved, with 49 percent looking to banks to help with the integration into a single point of entry.
For these large corporates, 65 percent have interest in outsourcing their receivables through their institution — and 70 percent would switch to a bank that could provide the service.
Fifth Third has capitalized on integrated receivables demand, in part, by adding remote cash management for daily deposits — known as "virtual vaults" — to its corporate treasury offerings to mega-clients like Wendy's International and Burger King franchisee Heartland Food.
For banks, aggregating client receivables can help with their own processing efficiency, such as introducing more automated exceptions handling.
"The good news for large banks is that the payoff is commensurate with their volume," says Tom Bohn, president and chief executive of the International Accounts Receivable Professionals. "In some cases, the savings could easily run into the millions of dollars a year."
Those levels of cost savings may be reserved, though, for a select few with higher-than-average payment volumes.
Achieving a quick return on investment can be a challenge for many institutions, particularly small banks that don't have a lineup of high-revenue national clients.
But community banks should consider that if they don't make the investment, they may be at a competitive disadvantage as large banks gain scale and start to offer integrated receivables management to smaller clients, says Nancy Atkinson, senior analyst for Aite.
"The larger banks will be more inclined to offer such a solution first, but community banks will want to be prepared to respond if the larger banks are entering their markets and stealing their clients," she says.