The Complexities of Business-to-Business EBPP

The Internet is quickly surpassing electronic data interchange (EDI) as the transaction medium of choice for business-to-business (B2B) invoice transactions. In a survey of 173 businesses, Gartner Group found that EDI accounts for 56 percent of all B2B electronic invoice volume, while the Internet accounts for just 8.6 percent. By 2002, these two transaction methods will be equally prevalent; EDI will account for 40 percent of the traffic and the Internet for 39 percent according to the survey.

Because there is little question that Internet applications will be the next-generation method for solidifying relationships with customers, CEOs of major billers are announcing that they are, indeed, “e-business” companies. It’s at this point that the CIOs turn pale (see “Who is the Final Decisionmaker for EBPP?” pg. 43).

Top executives often think that because of success with business to customer (B2C) projects, a logical next step is B2B. However, the transition is proving to be neither natural nor simple.

“We find that in B2B, the billers don’t have as clear an understanding of what business customers want to do with analytics, what consistent sets of analysis they want, what distribution, what value-adds are present,” says Ted Morgan, vice president of product marketing for edocs. “Most billers don’t conduct that research with customer. Very few billers have asked their business customers how they want to interact with their customers.”

Complexities of B2B

In B2B, the customer is far more complex—not only in how it is structured, but also in its expectations of what billers offer in terms of on-line service and customer care.

Like B2C customers, business customers want to review, analyze and pay invoices online. However, business customers also have additional expectations for myriads of other services, including call detail manipulation; network management; real-time trouble reporting; on-line ordering; shorter invoice delivery time; reduced printing, mailing and supply costs; faster payments; lower bank costs with multiple invoice payments through one remittance transaction; lower accounts receivable payment processing times; improved receivables, and less volume and call time for customer service calls.

Additionally, business customers often comprise huge numbers of employees in disparate locations, using numerous services and products—all with varying rate plans and discounts. These business customers usually fall into two categories: recurring billing, where the biller and buyer have an established relationship (as with utility, credit, lending, insurance and telephone services companies), or supply chain management businesses, where invoices are issued in response to purchase orders and buyers and sellers don’t necessarily know each other. Carriers send out invoices in both cases—one for regular services and other for ISP services.

Monthly invoices often consist of thousands of pages and involve complex tiered account hierarchies for approval by department and sub-department heads. As a result, B2B e-billing must support payer workflow and review processes. Billers must be able to present real-time data with static batch data simultaneously, which involves building real-time and batch interfaces to legacy systems.

“System interfaces must be customized to individual payer system demands, biller invoice files have to be structured so they can be interpreted by payers’ accounts payable systems, and payment files coming back to billers have to be structured so they can be automatically processed by accounts receivable systems,” notes Ron Sieve, senior product manager in Sprint’s business unit. Sprint is in its initial implementation of small-business EBPP, which will enable network management and on-line ordering by summer’s end. The organization will also build upscale, large-business EBPP applications by year’s end.

For Sprint, building interfaces to EBPP systems is one of its major initiatives. Sprint aims to synchronize back-up to accounts receivable systems, ensuring credit card payments and EFT are posted immediately and accurately. The company expects to roll out the payments piece some time this summer.

Scalability

Other than interfacing to legacy systems, scalability is a critical issue. Until recent months, there has been a dearth of commercial off-the-shelf (COTS) products and services (see “Vendor Solutions,” pg. 44), forcing billers - particularly large ones - to begin B2B e-billing rollout using internal resources. Smaller organizations have been more inclined to try software from vendors claiming to have B2B solutions, or to outsource to ASPs.

“The sheer size of business consumer bills alone invalidates many of the EBPP products on the market today,” says Tyler West, senior manager of electronic billing at MCI WorldComSM. “We elected to start with our own development of a B2B solution, since at this project’s inception there were few COTS products that existed in this application space.” MCI WorldComSM is developing Interact E-Billing, a value-add e-billing system designed to help MCI customers reduce the time and labor involved in reviewing, analyzing and paying invoices.

To support the prodigious amounts of data in B2B EBPP, MCI hosts its EBPP applications on large, mid-range server complexes running UNIX derivative operating systems. “The use of large, high-availability SMP [symmetrical multiprocessing] clusters allows us to achieve the availability and scalability targets that drive our business,” says West.

Key to MCI’s roll-out, thus far, has been the use of Java on the server side, which, along with concomitant middleware and database products, “is now mature enough for use in mission-critical applications,” says West. He is currently contemplating how to efficiently service a half-million customers with MCI’s Interact E-Billing offering. “Just one bill, especially in the case of recurring billing, can be as much as 70,000 pages long,” West says.

West concedes that the list of available products in this space has grown in the past year, and that MCI is in the process of evaluating 23 different COTS products for possible use in future additions to MCI’s E-Billing services.

Many vendors are focused on scalability. BlueGill, for example, claims to have a B2B system in place that processes 10 million statements in a day on a single server. edocs claims it has a system that handles half a terabyte of data for a customer’s mid-month billing cycle. One of the criticisms, however, is that these and other traditional billing solutions companies have simply modified existing B2C object models for B2B, and may not be able to handle the complex tiered architectures inherent in B2B invoices.

Vendor Solutions

Many existing billing vendors that have provided B2C models are now claiming to be true B2B providers. However, service providers are wary that modified B2C systems often will break down when applied to B2B applications.

“Many of the traditional players have object and data models that don’t support complex tiered accounts,” says Michael Lynch, co-founder and executive vice president of product management for Solant, Inc (formerly Novazen), which provides Internet customer care and EBPP suites composed of customer acquisition functionality, enrollment, registration, reporting and graphing, account management and trouble ticketing.

“In B2B, you also must have intelligent user options, like workflow interrupts,” says Lynch. “That way, if a user is about to download usage event information made up of 10,000 line items, the system needs to warn the user of the long duration of time required for such a download. Then the system should give the option to download according to certain parameters,” he says.

Other companies claiming to have B2B solutions include:

Princeton E-Com, a Bottomline partner with dispute, workflow and accounts payable modules, enables billers to send messages to payers to update general ledger without integration with accounts payable;

BlueGill I-series, which handles static batch processing and real-time transaction processing for rolling balance forward and credit adjustments. The company works with MCI and AT&T;

edocs BillDirect product, used by Sprint, GE Capital and Home Depot, and Amex; Your Accounts.com, a subsidiary of OTS, implemented a B2B solution for Fed Ex late last year;

Just In Time is building a B2B solution that will include a payment module; Perot Systems’ BillingZone.and InvoiceLink are expected to come out with interesting B2B products, according to some industry observers.

Standards

Vendor support and cooperation have been tenuous, due to the lack of standards. According to Sprint’s Sieve, the EBPP marketplace will shake out as standards emerge. “There has been a lot of hype surrounding B2B solutions, but the segment is now coming into its own as vendors find their niches,” he says. “Standardization is something everyone looks for; after all, you don’t want to develop applications that are limited in scope.”

Sieve says he is keeping an eye on developing standards such as OFX and IFX, which are being driven by different groups, including the National Automated Clearing House Association (NACHA) and the Banking Industry Technology Secretariat (BITS), as well as technology companies and banks. With renewed confidence in the marketplace, Sprint has purchased some edocs software for converting print files used for paper invoices into HTML formats, and recently partnered with Checkfree to develop a thin consolidator model for review and payment on both its B2B and B2C business.

Growing Pains

The lack of standardization can have a dramatic effect on a B2B strategy, as evidenced by MCI’s initial roll-out; the roll-out was heavily affected by the competition between Sun and Microsoft, which were jockeying to be the standard during the “browser wars.” The lack of full support for the Java 1.1 event model in the Microsoft IE browser provided challenges around which MCI had to engineer.

“Our initial strategy centered around the use of Java on the client,” says West. “But this ultimately led to a rather bloated client which contributed to some rather ugly customer impacts.” West, along with the rest of the industry, has since backed away from the use of client-side Java. MCI is now using a variety of tools, such as Active X, in an effort to keep the clients as slim as possible.

To avoid future pitfalls, West is working closely with what he terms “critical technology partners,” such Oracle and Informix, Sun Microsystems and Microsoft. West has also standardized a common reporting infrastructure layer, which is being built using the commercial Seagate Info 7 reporting software product. This common reporting infrastructure layer will establish a common set of capabilities on which all MCI’s Interact reporting applications can be based, notes West.

Adoption/Acceptance

In addition to following trends in EBPP, billers must gauge customer interest and willingness to cooperate. Companies cannot simply mandate the adoption of new e-billing processes to business customers.

Gartner Group’s 1999 Biller Survey found that across industries, an average of 13 percent of businesses engaged in B2B e-billing could mandate customer participation in e-billing projects. This percentage was highest in the credit-card industry, where 38 percent of the surveyed respondents said they could mandate customer participation. “Because billing touches on many different parts of a payer’s enterprise, B2B e-billing is much more about BPR than it is about system reengineering and integration,” says Avivah Litan, senior consultant with Gartner Group’s Advisory Services.

Says Sieve, “Different departments must agree to change bill management, and must be convinced that converting from paper to e-bill processing will be beneficial.” He is convinced that business customers will be increasingly willing to come to individual biller sites if given compelling reasons to do so. “Ultimately, billers will encourage business customers to pay early through special discounts rewarded for paying early over the Web,” says Sieve. “Both parties will save money, as the biller will reduce the float time between when the bill is sent out and when payment is made. And the faster billers can get money into bank accounts, the more considerable the interest they can earn. Consequent savings are passed on to customers.”

Cost Savings

According to a Gartner research note, “Inherent Complexities of Business-to-Business E-Billing,” the median cost to produce a business bill is $1 (seven cents more than the cost to produce a paper consumer bill). However, when delivering a bill over the Internet, businesses expect this cost to drop to 33 cents with B2B EBPP. “Similarly, e-payments cost businesses about one-third less than processing checks,” according to Litan, who authored the report.

She notes that on average, 5 percent of business invoices are disputed by the paying enterprise. “With direct goods, invoices on purchase orders have dispute rates as high as 40 percent.”

With e-billing, however, billers have the ability to automatically process disputes through structured coding that enables customers to explain the reason and disposition of a dispute. This saves time and manual intervention on the biller side, eliminating phone calls from billers to payers when billers try to determine why a full amount has not been paid.

Other than disputes, high costs are associated with postage and paper. “We spend approximately $40,000 per month on postage and $100,000 month on print and mail services—a small percentage of our budget,” says Pam Schaard, head of B2B e-billing for BTI ($250 million in revenue), an ISP and CLEC that caters to small and medium-sized business customers in the southeastern United States. The company also offers wholesale services, including switched, private line, special access and prepaid calling card services, to other telecommunications carriers and end-user customers.

“If we ultimately saw a 50 percent savings due to B2B EBPP, that would be great, but that is not the driver,” says Schaard. “We are focusing on attracting customers with our portal site, where there will be the functionality for self-service customer care.” The organization is planning a beta roll out for edocs BillDirect I-bill application in April.

According to Litan, the average B2B expenditure in the telecom industry will be approximately $491,000— attributable to the paper and postage and infrastructure necessary to shuffle paper around.

“The cost of delivering an invoice is a function of the volume of the bill and the information it contains,” notes Dave Bryden, general manager for AT&T’s business e-billing. “The median cost varies for us, but it can be as low as a dollar and as high as $100 per bill, or even hundreds of dollars for those bills that are thousands of pages.” AT&T is building a full suite of B2B EBPP tools within its portal site, Interactive Advantage. The site comprises 50 applications that run the full gamut of EBPP, from traditional order maintenance and billing functions to value-adds such as network management and rerouting of toll-free numbers.

Cost savings are not driving most companies’ moves to EBPP. Rather, they are motivated by the potential for delivering superior customer care and service—important differentiators in an increasingly competitive market.

“We want to create a ‘personal management center’ for business customers,” says Bryden. We want customers to have a view of the network, and have the capability to review and pay their bills anytime.” The company is in the process of developing its payment piece, to be announced soon.

Adoption Timeframes

More complex B2B e-billing applications take longer to develop than simpler B2C programs. On average, B2C e-billing projects can be completed in as little as three months; B2B projects take at least nine months, according to Gartner numbers. Implementing e-billing projects at business customer sites eat up the most time; the extensive BPR required translates into implementations that can easily last a year.

The next generation of online B-to-B e-purchasing systems must enable payments and supporting functions before customers can reap the full benefits of supply chain automation. But these functions are still external to online market site capabilities and are only available in a piecemeal fashion.

“We see most companies holding out on the payment piece,” says edocs’ Morgan. “They are beginning by building a customer platform, and waiting for the payment side to mature, as most billers have manual processes in place.” Morgan notes that edocs is building a customer management platform that hooks into payment mechanisms from companies like Bottomline and Princeton, which focus on the B2B payment space. “Where consumer payment has been easy, involving credit card or account debits,” Morgan notes, “EDI payment initiation makes a one-size-fits-all solution difficult with B2B.”

Litan predicts that in a year, carriers will be grappling with system integration on both the payer and billing sides of payments.

“It’s not necessarily more difficult than B2C billing, but the data transformation from legacy systems to the Web is difficult,” she says. “Carriers have to find knowledgeable players, and prepare for extensive BPR with payers.” She says it may take six months or so to be up and running with each payer. Litan adds, “Recent implementations have taken more than 18 months. When you multiply that by hundreds or thousands of business customers per biller, it is clear that B2B e-billing implementations can be lengthy and costly.

Younger companies, such as the aforementioned BTI, can often be up and running with B2B EBPP within a few months. “We have less complications as a small biller,” says Schaard. “We already have an AS/400-based convergent biller behind the scenes, so we don’t have to worry about synchronizing everything. We just pass all files to edocs.” Because the company has no legacy issues, she expects to be up and running with edocs within a few months.

Regardless of the size of the biller, all businesses embarking on B2B projects must be prepared to wait before they reap the benefits of streamlined processing and lower costs. Gartner puts the wait time at approximately two years. But, because B2B is seen as such a value, it can become a high-profit area that benefits from strategic B2B EBPP.

The possible benefits

According to MCI, one of the first big billers to realize significant results from B2B EBPP, the wait will be worth it.

“We expect to see decreased invoice delivery time through removal of the [U.S. Postal System], which will reduce DRO (digital read out) and decrease printing, mailing and supply costs,” says Tyler. “Additionally, we will decrease interest expenses with electronic funds transfer, which will improve cash flow management by allowing customers to schedule payments and eliminate the guesswork associated with check clearing. Also, we will reduce bank costs by having multiple invoice payments with one remittance transaction.” As a result of Interact E-Billing, West believes customers will be able to apply payments correctly without intervention of MCIWorldCom staff, and that accounts receivable payment processing time will be reduced, as customers can now provide information on how their payments should be applied.

“Ultimately, the system will offer analysis and sorting capabilities for the most frequently requested call detail information to help businesses gain a better understanding of their business,” says West. “And, view-and-pay hierarchies will enable them to define who is authorized to view and pay invoices.” He notes that invoices can be viewed simultaneously among different locations, account teams and MCI WorldCom customer service representatives, thus shortening resolution times and allowing concerns to be addressed quickly and efficiently.

“By establishing view-and-pay privileges, a company eliminates the need for an analyst to separate out, copy, and send that portion of the invoice to the responsible location,” he explains. “Using E-Billing, this same company would establish the location as having view access to its specific location only, and that location would be able to review its monthly usage by logging on to the MCIWorldCom Interact E-Billing site.” This, he notes, will enable billing personnel to focus on the company's billing needs rather than parsing, copying, and mailing. “In addition, the use of the wide variety of E-Billing analysis tools results in less time and effort spent in analysis of the invoice.”