Consumer Brands and Retail Sector Receivables in the US: A Mixed and Changing Landscape

Consumer Brands and Retail (CBR) receivables management in the US currently presents some very diverse narratives. On the one hand, a substantial percentage of B2B receivables are now electronic and can therefore potentially be automatically reconciled. On the other, an appreciable number of B2B customers still use a mixture of cheques and cards for their remittances. In the C2B space, physical cash is still king in bricks and mortar retail, with cards in second place, but the inexorable rise in online shopping continues to tip the balance in favour of electronic methods. Additionally, receivables processing has taken centre stage as richer data has become more available and is seen as almost as valuable as the payment. Chris Hamilton, Regional Sector Head Consumer Brands, Retail and Healthcare in HBSC’s Global Liquidity and Cash Management Group examines some of the methods US CBR treasuries can use in this challenging environment to enhance their receivables processes.

Technological innovation and the rise of new payments methods are having a dramatic effect on CBR sector treasuries as they look to create efficiencies in their receivables processing. The industry is at a tipping point as “old” processes remain within the financial supply chain and new processes quickly gain traction.

B2B receivables: paper still present

Though electronic receivables are growing as a payment method, market data indicates a significant portion of B2B payments in the United States still are made via cheque.[1] As a result, companies continue to open and maintain lockbox sites around the country to handle cheque remittances. Additionally, some cheques come into company offices, rather than to the lockbox. To accommodate these cheques, Remote Deposit Capture (RDC) services – a scanner in the company office connected to the bank so deposits can be made ‘onsite’ – continue to be employed.

The banking industry’s response to this has been to continue to offer these services while facilitating the trend away from paper. The number of banks that offer their own lockbox services has declined: many banks outsource/white label this service to a small number of key industry providers who continue to specialise in and continue to make investment in processing paper. Banks, such as HSBC, offer integrated lockbox RDC services, which allow for cheques directed to the company location to be processed in the lockbox workflow.

C2B: cash remains king

A different challenge remains in the C2B space when it comes to “old” processes. In bricks and mortar stores, though card transactions are common, consumer brands and retail companies must still contend with relatively large amounts of physical cash [2]. The challenge is that cash is costly to process and presents security risks. Armoured courier collections and bank branch night deposit boxes are still utilised. To streamline the handling of physical cash, some retailers use a “smart safe”, which is linked directly to the bank. When cash is removed from tills and placed in the smart safe, the balance is automatically credited to the bank account on a same-day basis. This reduces the need for frequent (and costly) armoured courier collections, as well as improving the company’s working capital position.

As yet, mobile wallets have gained little traction in the US retail space. Some services are available, but usage levels are still modest. At present, the main payment transition continues to be from cash to cards. Any further progress in the mobile space is likely to be gradual, as it will be driven by market forces rather than government intervention. This is in distinct contrast to some other countries, such as India with its Unified Payments Interface (UPI) and its withdrawal from circulation of large denomination bank notes. UPI is a standalone instant payment system, whereas the mobile payment apps offered by some US retailers are ultimately backed by cards and diverse payment systems.

Due to high processing costs, CBR treasuries have a strong incentive in the C2B space to move from cash and cheques onto alternative electronic payment methods, while in the meantime maximising any possible efficiencies in the handling of cash and cheques. It remains to be seen however, which of the many competing mobile payment platforms/electronic methods will come to the fore and become a standard.

Among large consumer brand and retail companies, electronic remittances from B2B customers are now beginning to surpass paper-based payments [3]. This is particularly true of payments from large wholesalers and distributors. However, loss of remittance information in clearing, or insufficient free form text capacity in the clearing system for such information to be transmitted, remain barriers to automated reconciliation.

Integrated receivables solutions look to aggregate payments and related remittance details received from multiple payment sources – cheques, wire transfers and ACH – by consolidating reporting and accounts receivable feeds. The outcome is that cash application is accelerated and data is presented so as to provide timely and valuable information to a company’s treasury team.

Banks, and now also third-party vendors, (either solely or in partnership with banks) have approached this in different ways, but the common goal is to provide corporate clients with an integrated solution to support all payment types and channels on a single platform.

These various receivables management solutions, consolidate customers’ receivables information from various channels and provide them with information for collection and reconciliation purposes in an efficient and cost-effective way.

A valuable extension to receivables management solutions are the strides being made in developing enhanced virtual account solutions. These are attracting increasing attention from large CBR companies in the US. While the concept of a virtual account is not new, some banks have recently invested heavily in their virtual account technology to deliver solutions that enable a high degree of self-service for clients. Therefore, CBR treasuries that use virtual accounts for individual customer remittances can easily open and close these accounts on the fly, thus making reconciliation to the customer-level straightforward and efficient.

Furthermore, these treasuries can now use virtual accounts to facilitate their centralisation projects, by using them to build structures that represent a set of businesses. Treasury can then use these structures to manage receivables on behalf of these business (ROBO) units centrally. They can also provide the visibility needed at the business unit level, while still delivering a centralised operation for treasury. At the same time, they can also be more cost-efficient to operate than a physical account structure.

Conclusion

Collections and receivables processing for large US CBR treasuries currently includes some interesting challenges. Companies in this sector process receipts both directly from consumers and from their business partners. These receipts come into the companies in a variety of ways, both “old” and “new” and the challenges revolve around efficiently processing both. Additionally, the amount of information that flows with the payments is increasing and management of that information is crucial as well.