Sustainable Treasury Management is Easier Than You Think

Treasury operations have traditionally been paper-intensive environments. And over the course of a fiscal year, paper-based processes for sending bills and receiving payments can have a significant impact on the environment – and on treasury cost structure. But today, several powerful trends are leading treasury operations to rethink their processes and embrace a paperless environment:

Economic pressures are forcing many companies to tighten their belts, find new ways to lower operational costs and fund more projects internally rather than through the credit markets.

Growing transaction volume, expanding global networks, the accelerating speed of business, limited resources, expanded responsibilities and increased collaboration with other internal departments all open the door to electronic solutions.

Payments fraud and business continuity are emerging as critical business risks that require careful management.

A variety of stakeholders – from customers and business partners to investors – are re-examining their own environmental performance and are viewing paper reduction as one way to reduce their environmental footprint. Studies show that the value chain of producing, transporting, printing on and disposing of paper is a carbon-intensive process.

JP Morgan provides a valuable perspective on the paperless treasury environment. To support its corporate-wide sustainability strategy, JP Morgan Treasury Services launched a ‘Go Green’ campaign in 2007. A staff of dedicated professionals reached out to more than 25,000 clients, offering support and services to help them transition to a paperless treasury environment. Together, we are adopting new processes, supported by technology, that meet all their requirements for accuracy, secure transactions and regulatory compliance. And in the process, we are creating best practices that result in leaner treasury operations.

Calculating the Cost of Paper

JP Morgan has created a variety of tools to help treasury managers review current operations, develop a strategy to migrate to a paperless environment and eliminate redundancy by turning off the paper. At www.jpmorgan.com/eco, companies can find worksheets that show the potential savings they can achieve by removing paper from the receivables, disbursement and reporting processes. These eco analysis worksheets help companies identify how much money paper-based processes cost their businesses. It includes not just bank costs but also such ‘off-the-books’ costs as labour, transfer costs to buy new technologies, and storage fees. The worksheets can also be customised to account for industry-specific differences.

Consolidating Receivables Management and Collections

Treasury managers are often surprised to learn how much their paper-based receivables processes cost their companies in workflow management, research, and document storage and destruction costs. What’s more, many companies unknowingly operate redundant processes that generate additional fees and costs. For example, some insist on paper back-up copies of imaged cheques – and pay the extra processing and courier costs to receive them. Others have not adapted their technology infrastructures and workflows to take full advantage of an image-based process, and they may still manually input receivables data that has already been captured electronically.

An electronic receivables process mitigates most of these costs. The environmental benefit of eliminating paper helps compensate for the added energy required to run electronic hardware, operate data centres and dispose of electronic waste. The following best practices for re-engineering receivables will provide greater control over receivables processing and enhance operational productivity and environmental performance:

  • Take paper out of the invoice delivery and receipt process by using an online bill presentment and payment solution. Customers can phone in payments or use a convenient web portal to pay invoices and manage payment and account information online.
  • Employ a desktop remote capture solution for payments received at company offices. This technology saves time and money by providing quicker access to funds and by eliminating trips to the local bank branch and/or overnight courier costs.
  • Consider an onsite ‘smart safe’ solution, which provides same-day provisional credit, and is ideal for cash payments received at retail or office locations. Smart safes help protect against theft and provide added security for both employees and cash. This solution reduces both the costs and the environmental impact of transportation.
  • Encourage customers to submit payments via automated clearing house (ACH), wire transfers, credit card or financial electronic data interchange (EDI). These payments are electronic and provide faster funds availability. To support compliance, send them a simple remittance form they can attach to their payments.
  • Take advantage of the image capture and retention tools that banks typically use to automate and improve every kind of receivable. This technology enables them to capture receivables information on-site at the bank – and in the process, provide faster access to documentation and eliminate the transportation costs to return this paper.
  • Review the process for routing receivables information to such other departments as credit, accounts receivable (A/R) and customer service. Use an online repository for all receivables-related transactions and image information.
  • Automate the process of sharing internal reporting by circulating them electronically.

Case Study: Electronics Distributor

Challenge

A mid-market electronics distributor’s receivables workflow spanned a base of more than 250,000 customers in 170 countries. The company’s operations, service and treasury teams faced daily challenges from customer inquiries, account reconciliation and warehousing of the receivables data (e.g. cheque copies, invoices, client correspondence. etc). The company wanted to upgrade its manually intensive receivables workflow by accelerating cash application. The client also recognised the need to decrease both the infrastructure cost of its current paper-based model and its overall reliance on paper.

Solution

The company selected a paperless payment processing strategy that combined its lockbox with an internet-based receivables solution. The new system’s features and functionality included same-day decision-making and provided accelerated funds availability, advanced image and data capture technology, and the ability to consolidate all remittance transactions, whether paper or electronic.

Results

  • Accelerated the cash application process by 24 hours.
  • Decreased information float by 12 hours.
  • Reduced bank fees by US$70,000 annually by moving to an electronic environment.
  • Redeployed full-time employees.
  • Saved 10,000 pounds of paper and preserved 120 trees annually.

Eco-friendly Disbursements Processing

The monthly disbursement process creates a paper trail that goes far beyond cheques. Even companies that predominantly make payments via cards or ACH transactions often receive boxes of paper statements and advices each month, which they must pay to either store or securely destroy. In addition, the monthly disbursement process generates ancillary paper reconciliation reports, stop payment advices, ACH notifications of changes (NOCs), US dollar clearing advices, etc – even though most of this information is already provided via electronic channels.

Electronic solutions exist across the entire disbursement workflow that can eliminate virtually all of this paper. These solutions can also make the treasury operations of both payers and payees more efficient, more secure and more environmentally sustainable. They also reduce the significant costs of cheque delivery, administrative security and fraud. The following best practices can help companies eliminate paper generated in the disbursement process:

  • Analyse the current disbursement process to identify all the paper it generates and the extra manual steps required to manage this paper, and calculate the annual cost of it.
  • Audit current suppliers and partners to identify additional candidates for electronic payment. Then, explain to suppliers how direct debits or bank-initiated credits offer a more efficient and user-friendly alternative to paper payments.
  • Examine opportunities to use bank-provided reconciliation services, which match the account numbers, serial numbers and dollar amounts of payments against cheques issued and provide electronic reconciliation data that can be fed into a treasury or enterprise resource planning (ERP) system.
  • Adopt an online disbursement platform, which significantly reduces the resources and hours required to initiate payments, research payment status and reconcile accounts.
  • Use commercial cards to eliminate or reduce the paper associated with purchase orders and petty cash. Such environmentally friendly solutions as payroll cards, purchasing cards and single-use accounts also eliminate paper cheques, envelopes and tax coupons.
  • Streamline the business-to-business (B2B) accounts payable (A/P) processes – including purchasing, order management and shipping – by automating purchase order delivery, invoice and payment processing, and discount management.
  • Use electronic reporting or web-delivered reports instead of paper reporting. This practice lowers costs, speeds up reconciliation, reduces treasury workload and improves business continuity.
  • Authorise banks to stop returning cheques and cheque enclosures at the end of every month, since these paper copies typically duplicate information that is already provided electronically via the web.

Case Study: Government Agency

Challenge

A government agency was spending US$2.3m each year on a paper-based process used to disburse 21 million cheques. Faced with budget constraints, it considered whether transforming its payables process to rely more heavily on ACH could reduce overheads while boosting service levels and reducing payment fraud risk. Before it could act, the agency needed to understand the cost implications of automated disbursement and develop a targeted implementation strategy.

Solution

The agency already used its bank’s ACH portal for other transactions, so it worked with the bank to evaluate the cost benefits of making the disbursements in question via ACH. The bank’s product team also analysed existing data and identified the best and most immediate opportunities to convert paper cheques to ACH transactions. The bank also made available its IT resources to test the new system so it could affect a smooth transition.

Results

  • Migrated 2.7 million cheque payments to ACH, or 13% of its entire volume.
  • Leveraged the existing ACH relationship to streamline the transition.
  • Eliminated consumption of 42 tonnes of paper, saving more than 1,000 trees.

Bringing Paper Reports and DDA Statements Online

For global organisations, managing financial data can be a 24×7 activity. Cash and liquidity management is also growing increasingly complex, as data flows between accounts in different countries and between different financial institutions. It’s easy to become deluged with paper reports of all kinds – from lockbox detail reports, to account analysis and demand deposit account (DDA) balance reports, to transaction summary reports, to cheques-paid and controlled disbursement funding reports.

Electronic treasury solutions can put an end to these cumbersome paper reports. With online access to information via a portal, treasury staff can find such reports as DDA statements, account reconciliation statements and other notices and information about balance and account activity in real time. This easy access benefits operations in a number of ways:

  • Increases productivity, flexibility and control by accessing daily reports online any time and from anywhere.
  • Reduces the time and cost of researching transactions by using the search feature to locate specific transactions by cheque number.
  • Improves security by designating specific users who can gain access with unique ID numbers and passwords.
  • Eliminates boxes of paper statements and the storage fees associated with them by archiving and storing reports electronically.

Case Study: Food Products Company

Challenge

A major diversified company specialising in food products was committed to replacing its current paper workflow with more efficient, yet cost-effective processes. Its treasury staff observed that the company was receiving a large volume of paper EDI advices from its operations in more than 70 countries. They partnered with their lead bank’s treasury services team to convert the operation to an electronic environment.

Solution

Working together, a team from the bank and the company discovered that the company was not fully leveraging its EDI transmissions for the information they could provide. During a quick informational session, the team also decided that they could discontinue the paper copies of EDI credit and debit advices altogether.

Results

  • Reduced nonbank fees by US$20,000 annually by eliminating the costs of storing unopened advices.
  • Better leveraged the EDI information it was already receiving from its bank.
  • Eliminated more than 100,000 paper EDI advices that the company was receiving annually.

Turn Treasury Operations Green

Treasury operations are experiencing the many cost, performance and environmental benefits of a zero-return treasury operation. To read more examples of JP Morgan clients who are enjoying the benefits of green treasury operations, please click here to access the whitepaper that this article is based on.

To read more from JP Morgan, please visit the company’s microsite.

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