As trust and information replace risk in the global trade equation, U.S. companies are increasingly sourcing from overseas vendors on open account terms. At the same time, businesses continue to outsource key finance functions to reduce operating costs.
In a PricewaterhouseCoopers survey of CFOs and managing directors, 63 percent of companies indicated that they either outsource accounts payable, payroll or billing, or plan to do so in the next two years. For companies that import, the convergence of these two trends presents a strategic opportunity to maximize the efficiency gains and cost reductions associated with open account trade.
Automated processing, streamlined work flow
Although open account trade eliminates the processing and service fees incurred under traditional trade instruments, it presents an administrative burden. Companies must grapple with the documentary processing activities that were formerly handled by banks under letters of credit.
For many companies, this entails taking data from multiple sources, consolidating it and matching commercial invoices/bills of lading against purchase orders. This manual process is both time-consuming and subject to error.
Technology can enhance this process through automation and remove the documentary risk by ensuring that the invoice conforms to the purchase order. Consequently, businesses can be much more confident dealing in cross-border open account.
Moreover, the staff that formerly matched documents, handled inquiries and resolved disputes can be redeployed in more productive core business activities..
Companies can invest time, funds and resources to develop a platform that automates this process. A more cost-effective option is to outsource management of the purchase-to-pay cycle to a third party that already has the technology in place to link the buyer and supplier online. Companies will benefit the most from an end-to-end outsourcing solution that automates the entire process on both the buyer and seller sides of a transaction.
Ideally, this would cover electronic delivery of a purchase order for online supplier review and approval, submission of supplier documents, invoice comparison, electronic discrepancy reports, images of documents related to the transaction, all the way to reconciliation and payment.
The buyer’s company shouldn’t have to change its current processing, and the technology should be flexible enough to enable the choice of any or all the steps involved in the seamless electronic processing of a transaction. The value of the outsourcing solution lies in delivering greater efficiency to existing processes at lower costs.
Leading global trade banks are redefining their traditional role as trusted intermediary in cross-border trade. Through the use of the Internet and sophisticated technology, industry leaders are automating open account management and providing valuable management information online.
For some banks, a key advantage is an extensive on-the-ground presence, through which they are able to integrate suppliers and buyers online. This provides unprecedented transparency in the financial supply chain, no matter whether the supplier and buyer operate in disparate paper, Web-based or digital environments.
Not only do these solutions reduce accounts payable costs and improve efficiency on the buyer side, they also provide useful tools for working capital management.
Improved liquidity management
Provided the outsourcing solution has in-depth reporting, treasurers can now predict cash flows with much greater accuracy. With more precise information about their debt obligations, they can avoid overestimating liquidity requirements and excessive holdings of operational, day-to-day funds and cash reserves.
These funds can instead be redeployed in an array of flexible, short-term investments. As cash is released from inefficient processes, the company’s overall requirement for and cost of funding is reduced.
Managing supplier relationships
The robust functionality of these outsourcing solutions also enables importers to mine detailed information about their suppliers’ performance. For example, by tracking the timeliness of shipments, pricing history, frequency of errors and cost of discrepancies online, buyers can exercise more leverage in negotiating pricing concessions or more favorable terms from their vendors. This can be a powerful tool in this price-sensitive world.
Where age-old trade and modern technology meet, today’s global banking leaders are there to help you manage the process.
Peter Bradley is first vice president, international corporate banking, at LaSalle Bank. He oversees sales of the bank’s corporate outsourcing solutions for cross-border trade management in Ohio Reach him at (248) 822-5810.
