E-Payment Portal: When Time is MoneyBy Doug Bartholomew | Posted 2007-03-13 Email Print
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Memorial Sloan-Kettering Cancer Center's shift to a hosted online payment service reaps $500,000 in annual early-payment discounts from suppliers who now get paid faster.
It's not every day that an organization can dir-ectly convert faster processing times into hard cash, but that's what Barbara Cassera is doing at Memorial Sloan-Kettering Cancer Center.
In 2003, Cassera, manager of financial systems at the $1.7 billion, New York-based nonprofit medical research and health-care institution, was looking for a better way to process the nearly half-million invoices it received annually from suppliers such as Staples and UPS. "Our accounts-payable department wanted more functionality and, at the same time, to collect some of the discounts that were available for guaranteeing our suppliers prompt payment," she says.
After checking around to see what the various e-payment software companies were offering, Cassera decided to go with Xign. The Pleasanton, Calif.-based hosted online payments service already had a base of about 15,000 suppliers of goods and services to large companies. Launched in June 2001, Xign provides a network that enables companies to issue purchase orders, receive invoices and make electronic payments to suppliers.
By moving to Xign, Sloan-Kettering boosted the percentage of invoices it processed electronically from roughly 60% in 2003 to about 85% in 2006. As a result, the organization is receiving $500,000 annually in supplier discounts.
In addition to the discounts, Sloan-Kettering has found that the time saved on the sheer volume of invoices processed electronically has enabled the accounts-payable department to reduce its full-time staff from six to four, saving about $120,000 annually. At the same time, the department is processing a higher total volume of invoices716,000 in the first 10 months of 2006 versus 472,000 for all of 2003, the year it began using Xign.
But in 2003, the idea of prodding hundreds of major suppliersfrom medical device manufacturers to aspirin distributors to law firmsto change the way they billed Sloan-Kettering for some $413 million worth of goods and services was anything but a gimme. "In 2003, we were not really sure that the suppliers would be willing to give up their banking information in an online environment," Cassera admits. "There was a cultural issue involved in that."
For instance, to participate in the Xign supplier network, suppliers must provide the payments service with the basic bank information needed to facilitate a standard bank automated clearinghouse (ACH) transaction. This includes their American Bankers Association (ABA) number, their bank account number, and which bank and location handles the account. This information is required for Xign to process electronic payments from Sloan-Kettering to its suppliers.
More large organizations are starting to use online payment vendors such as Xign, Ariba and Harbor Payments (recently acquired by American Express) to facilitate payment processing while enabling them to capture supplier-offered discounts. An online payment service acts as an intermediary between a company's accounts-payable department and the supplier, speeding the payment process while eliminating paper invoicing and most of the labor-intensive invoice-purchase order matching function.
In Sloan-Kettering's case, getting started with Xign took only 89 days, Cassera says. The organization didn't have to purchase any software or computers, but it did use its own technology staff to build interfaces so that Xign could connect with its enterprise resource planning system.
Sloan-Kettering was already a big user of electronic data interchange, a standard format for exchanging business information electronically, and elected to use standard EDI protocols for data transactions. In most cases, suppliers elect to sign onto Xign's payment network and simply "flip" the Sloan-Kettering purchase order, automatically converting the P.O. to an invoice and submitting it for approval by Sloan-Kettering.
On average, Sloan-Kettering's invoice approval cycle time is about six days. Payments are made through Xign's payment process, which uses a bank ACH to move funds from Sloan-Kettering's bank account to the supplier's account. Sloan-Kettering pays a per-transaction fee to Xign. According to Cassera, the cost per transaction is lower than what Sloan-Kettering was paying for its all-EDI-based transactions.
The information on Sloan-Kettering's purchase orders and invoices is stored by Xign as well as in the health-care institution's ERP system. Sloan-Kettering uses Infor's SmartStream financial application, an older system that years ago was part of the Dun & Bradstreet Software suite. Infor, headquartered in Atlanta, has recently acquired a number of mid-range ERP vendors.