The price of e-payment

Imagine that you have to find the fraudulent calls in a 100,000-page phone bill. Or that an invoice for employee health insurance offers little more than a guess as to who is covered in a given month. Or that four out of 10 checks you receive require human assistance to figure out what the customer bought. That's reality for many business-to-business transactions today, and that's why there's so much interest in electronic invoice presentment and payment (EIPP) systems.

EIPP involves automating everything from how the seller presents an invoice to how a customer pays the bill. The most obvious savings come in staff, paper and postage, but vendors say that as much as 85 percent of the benefits result from eliminating manual work such as negotiating billing disputes with customers and cutting refund checks.

Last year, Gartner estimated that an organization could realize a return on an investment in a system that sends business invoices over the Web in one year if just 2.3 percent of customers opted to view and pay invoices online. The average project costs between US$130,000 and $400,000, and savings average $5.7 million annually, or $7.25 per invoice, according to Gartner's research.

Gartner estimates that about 15 percent of the invoices sent by large businesses result in a dispute that costs between $20 and $40 per invoice to resolve. With EIPP, customers can view bill details, submit challenges and even make partial payments online.

Health Alliance Medical Plans expects to achieve a return on its investment in an EIPP system within two and a half years, says Lynn Carroll, director of finance at the managed health care provider. The savings will come from reductions in administrative expenses and a decrease in benefits paid to employees who left their jobs but whose employers didn't notify Health Alliance quickly enough.

To achieve such benefits, however, Health Alliance and other users must make their way through a thicket of products and services in a still-emerging market, link their EIPP systems to back-end systems and -- most difficult of all -- change their business processes to accommodate online billing, payments and problem-solving.

Software or Service?

Some vendors, such as Edocs and Avolent, offer packaged EIPP software. Others, such as Xign and Metavante, offer EIPP as a hosted service. Some vendors focus on billers; others focus on payers, based on the assumption that large customers can push their suppliers to adopt new online technologies.

Many billers tend to opt for packaged software, whereas payers tend to purchase EIPP as a service, says Brian Valente, vice president of marketing at Avolent. As a biller, Carroll decided against buying an EIPP service, fearing that it would be too hard to customize.

If customization isn't a prime requirement, however, an EIPP service can be much faster to implement than packaged software, says Penny Gillespie, an analyst at Giga Information Group. She advises payers to investigate whether the per-transaction pricing of an EIPP service might become more expensive than a software purchase as transaction levels rise.

According to Xign President and CEO Tom Glassanos, payers sign up for a certain volume of transactions at a specified per-transaction price. For a large customer with more than 100,000 transactions a year, Xign charges about $1.50 to $2 per invoice and 75 cents to $1 per payment. In contrast, he says, it usually costs $8 to $10 for a payer to process an invoice and issue a paper check. Billers use the service free of charge, he says, since the payers receive most of the cost benefits.

One large customer, Payless ShoeSource, chose Xign's service over software-based EIPP because it will work with the shoe retailer's PeopleSoft ERP system and be easy to link with other Web-based payment systems. It will also be easy to implement with limited IT resources, says Tim Devine, director of purchasing.

Payless plans to use Xign to distribute invoices to about 45,000 vendors, he says. Devine expects a payback within two years from cutting administrative costs and qualifying for early payment discounts with suppliers.

Getting the Data

After deciding whether to purchase EIPP as software or as a service, customers must choose how to link the EIPP system to their existing applications and data required for automated bill payment and dispute resolution. This includes records of past bills from the billing system and past payments from the accounts receivable system, as well as product return or credit data from an inventory control system.

Customers need access to corporate systems so they can, for example, tell a supplier that they are paying only part of a bill because they are returning damaged goods or that they are paying lower health insurance premiums because some employees have left their companies.

Vendors take different approaches to this data integration problem. For example, Edocs maps data from applications that produce reports such as an analysis of monthly sales or a list of overdue accounts. Avolent, in contrast, collects that information in a database, from which it can extract data to produce different kinds of bills for different customers or allow customers with billing questions to drill down into data.

Highmark, a health insurer, tried mapping data from reports into an XML-formatted data stream that fed into its initial implementation of Avolent's BillCast software. But that required too much work for the staff supporting those applications, says Al Dodson, manager of electronic bill presentment and payment. In order to map the data from reports the application had already produced, he says, "we needed to know exactly where the data is on the report." That meant understanding details such as how many spaces wide each data element was. The support staff's reply: " 'We don't have time to tell you . . . because there could be a million variations,' " says Dodson.

This summer, Highmark plans to take a different approach: modifying its legacy billing systems so they produce an XML data stream that's exported to Avolent's newer BizCast software as part of the bill-generation process.

That way, Highmark gets the raw data from the billing application without needing to know how that data might be presented on various reports or bills, says Dodson. Having the data in one database also makes it easier to produce a consolidated bill for any Highmark subsidiary.

Other vendors argue that embedding business rules is crucial to automating complex billing relationships. For example, different individuals within a customer organization have different levels of spending authority, says Noam Potter, eCare product manager at Amdocs, a provider of billing and CRM software. More-profitable customers may also be given more lenient terms in disputes. For example, they may receive an automatic credit for any dispute under $100, he says. Reflecting these differences requires flexible business logic, a workflow engine and an easy-to-manage user interface, says Potter.

"The biggest challenge in electronic bill presentment and payment is integration," says Giga's Gillespie, referring to the need to have EIPP systems work with back-office applications such as ERP and accounts payable. But most vendors and customers say business process issues are bigger hurdles.

Although Payless had a "minor challenge" linking the Xign service to its PeopleSoft system, Devine says he has had more trouble changing workflows, such as identifying a single contact person in each department who should receive electronic invoices and route them to the proper person.

Carroll says his biggest problem was "understanding who in the organization . . . really owns some of these transactions." For example, he didn't know whether the operations staff or the billing/financial staff was responsible for collecting and managing bills. That's important because Health Alliance needs to provide a single contact for employers that want to make changes such as dropping workers from their health plans.

It's just as well that it takes time to deploy EIPP systems, says Valente. "People can only accept a certain amount of changes before it overwhelms them," he says. His advice: "Understand your customers, and try to deliver value in bite-size pieces."

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