Avoid the A/R bottleneck

Johnstone Supply uses an electronic invoicing service to automate the accounts receivable process

by Rich Vurva

Employees in the accounts receivable department at Johnstone Supply in Fresno, Calif., always knew where they’d be on the first day of every month. That was the day set aside to prepare customer invoices for the Fresno and Salinas stores. Two A/R employees devoted the entire day and a third employee spent about half a day printing and folding invoices, stuffing them into corresponding envelopes, applying postage and taking them to the post office for delivery. The process was tedious, boring and slow.

In addition to sending invoices on the first of the month, the company also sent out bimonthly billings to customers who wanted to be invoiced more frequently. The office staff processed invoices for more than 400 customers in a typical month.

“It was fairly labor intensive with a good degree of room for error,” says branch co-owner Kathy Kalmbach.

Early this year, Kalmbach knew she had to make a change in the invoicing process. Kalmbach and her husband are members of Johnstone Supply’s nationwide wholesale cooperative for distributors serving the heating, ventilation, air conditioning and refrigeration (HVACR) industry. They opened two new stores in the Central Valley of California this year.

“I’m always looking for ways to improve productivity. We were highly motivated because we had two more stores coming on line. We had a goal of increasing sales without increasing our staff,” Kalmbach says.

After researching ways to speed the invoicing process, Kalmbach decided to outsource much of the work to Transcepta, an Alisa Viejo, Calif.-based company that provides electronic invoicing services for businesses.

While individual consumers are increasingly paying bills electronically and online, Transcepta says more than 80 percent of business-to-business invoices and payments still occur via paper and postal mail. Transcepta offers a solution by providing a simple, secure mechanism for businesses to send invoices and receive payments electronically.

Instead of printing invoices to a traditional printer, the A/R staff prints their invoices to a Transcepta printer, which transmits the invoices to a data center that converts them into e-mail messages. The payer receives the invoice information in the body of the e-mail, along with a PDF in case they want to print it out.

“Without this productivity improvement tool there would have been no question that I’d have to hire another person to do the billing,” Kalmbach says.

Fast and easy setup
When Kalmbach contacted Transcepta in early March, she learned the company promises to set up customers in less than a day with no upfront costs. It charges customers for each transaction processed, which typically amounts to less than the cost of a postage stamp. Distributors that process larger volumes of invoices earn a better rate.

The setup process included downloading a printer driver and submitting a current invoice form, which Transcepta duplicated so invoices it sends look the same as previous Johnstone Supply invoices. Transcepta offers what’s known as a hosted Software as a Service (SaaS) solution, so distributors don’t have to purchase or install software or hardware.

“Our goal is to enable more efficient delivery of invoices without changing the existing process or the existing invoice format,” says Transcepta’s director of product management, Shan Haq.

Multiple options
The first invoices Johnstone Supply processed in April were sent through the mail, with a letter explaining that customers now had the option of receiving invoices by mail, or electronically via fax or e-mail. Transcepta also contacted Johnstone Supply’s customers by phone to explain the benefits of electronic billing.

“They converted about 50 percent of our customers to electronic delivery in less than 30 days. If we had to do that step ourselves, it would have taken us at least four months to get to 50 percent,” Kalmbach estimates.

The invoice also has a link that takes the payer to a Web portal where the customer can view all outstanding invoices. The payer can check which ones they want paid and when. Once the payment is sent, Transcepta provides confirmation to both parties. Reconciling transactions electronically is simpler and faster than using a paper-based system.

“My customers now have 24/7 access to any invoice they received through Transcepta,” Kalmbach says. “If they’re working after hours and don’t have a copy of an invoice, they don’t have to wait until the next day to call us.”

Customers also have the option to make credit card or automated clearinghouse (ACH) payments.

Kalmbach doesn’t require customers to make any changes if they prefer to be billed on a monthly or bimonthly schedule. Otherwise, Johnstone Supply will send invoices on a daily basis, which improves cash flow.

“The sooner you can get the invoice in the customer’s hands, the sooner the payment cycle can start,” says Kalmbach.

Haq says hosted Electronic Invoice Presentment and Payment (EIPP) solutions are especially helpful to distributors that process hundreds, if not thousands, of invoices per month. Larger companies have adopted electronic data interchange (EDI) solutions, but these require information technology support that smaller companies often find difficult and expensive to implement.

“Our mission is to bring electronic invoicing capabilities to businesses of all sizes,” he says.

According to Haq, distributors that try EIPP solutions find that the majority of their customers move to receiving electronic invoices within 90 days. He adds that studies also show that almost two-thirds of U.S.-based companies would make electronic payments if available.

This article originally appeared in the July/August 2007 issue of Progressive Distributor. Copyright 2007.

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