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CRE Digital Transformation webcast - B2B Accounts Receivable Automation

Hello and welcome to the first webinar in our Commercial Real Estate Digital Transformation series. My name is Dhiren Patel. And I'll be serving as your host.

I have the privilege of leading our commercial real estate deposit and payment solutions group, which is comprised of over 35 professionals across the country dedicated to working with our clients on optimizing working capital. For those of you that joined our Preparing for the Future Today's series last year, we heard from many commercial real estate treasury leaders on how their organizations adapted to change when there was simply no other option.

A lot has changed over the last 15 months. And we're seeing that continue with the economy reopening and restrictions being lifted. We have heard from so many of our clients about ways that they've went digital across AR and AP. Today, we'll be hearing from Boston Properties around their AR journey and how they have transformed their process.

So let's meet our speaker, Jeff Phaneuf. As VP of finance and planning at Boston Properties Jeff oversees budgeting and planning, corporate lease administration, accounts receivable, and collections. He's been with the company since 1996 and spent the majority of his career focusing on process improvements and the integration of technology within his department.

So Jeff, welcome to the hot seat. And let's jump right into it. I'll start off with an easy one just to get going. If you can maybe tell us a little bit about Boston Properties and specifically your role across those various departments.

Sure. Thanks for having me.

Boston Properties is a public REIT. As you mentioned, I joined in 1996. And we went public in 1997.

Our main focus is commercial office properties in five cities-- Boston, New York, DC, Los Angeles, and San Francisco. We do have some residential. We have some retail. We have some life sciences and lab, as well.

So we're expanding a little bit. But our bread and butter has always been commercial office. And we continue down that path.

Got you. All right. Well, you know, when I think about paper-intensive processes, I think about commercial real estate, but specifically the AR process in the B2B asset classes, historically. Can you maybe walk us through what your process looked like prior to any sort of automation, but also use of technology?

Sure. We were very paper-intensive. We actually had to put a sign up on the printer and say, no one can touch the printer today because today is statement day, for example, or today is invoice day. And we would get ready, make sure-- load it up with paper and start printing and printing and printing.

And we would go through there and get pieces of paper that we would mail out to all of our tenants. And that goes back a few years. We were converting a lot of our tenants on to an email distribution. So that was good. And that was pre- any real AR automation. But that was the first step into that, which turned out to be a big deal because we were gathering email addresses, which was very important as we moved forward.

But what we did, we ran our process through JD Edwards. We have a thing called Create Form, which helped create the invoices for us and our statements. We ran all of those and again, as I mentioned, printed them out on paper.

We also then stored them all in an internal AR invoice archive that we had. And then we took that paper, we stuffed envelopes, brought them to the mailroom, had them stamped, and got the mailed out. And then we had a separate place for our open balances to go to track what was open, what we called our collections database.

So that was sort of our pre-pandemic, our pre-AR journey to automation and AR. That's what everything looked like.

So you had paper-intensive processes blocking up the printers and all that stuff. But then you had, it sounded like a few disparate kind of maybe applications or systems that the staff had to access in order to kind of make it all work, right? And we're talking about invoices out to commercial types of tenants.

Correct. Exactly. Yeah. We rent, and we had two work order runs a month. So those were our big, big times.

We did a statement run, which had any open charges as well as the upcoming rent and operating that we're collecting from office tenants. And then twice a month we did what is called a work order run, which is all those individual charges that a tenant may be getting for extra trash removal, extra overtime HVAC, that go through another third-party system. We'd retrieve those charges and send those invoices out twice a month.

So there were really three big days we had a paper-intensive thing. And then we had to take the outputs of that and store them over so we had a digital copy of it for the future when someone requested-- a tenant who would say, I never got that mail. I didn't see that invoice.

So we'd be able to-- now we had them all scanned, stored in our internal AR archive, so that we have to go grab and send back out to them.

And then on the receipt side of the house, walk us through kind of before you started on the journey, what incoming rents looked like in terms of how they were received, electronic or check, and kind of how that process was managed on your team.

Yeah. So we had both. We have a lockbox reports. So we have most of our rents going either to that lockbox-- we did receive some checks in the office, which is always something we didn't want to do, but we had a way to either physically bring it over to the bank across the street or eventually we got to some remote scanning for some of our bank accounts.

But we had developed-- gee, this goes back probably 15 years ago-- an online auto post-process. So we'd get a file from the bank, and we'd set up an algorithm.

And we wanted it to be good, but not unbelievable, because we wanted the higher rate of that working. Our AR coordinators wanted-- when we did an auto post match, we wanted it to work. They didn't want-- if by chance, if we got our algorithm too aggressive to say, if this, this, and this happens, put it to this account.

The unraveling of that was too much of an effort. So we never got our algorithms all that high. We got up to about 55% from the bank file to auto-post automatically.

The rest goes in as a manual process of unapplied cash. And that's sort of the day in the life of an AR coordinator is trying to figure out what to do with that unapplied cash, looking for remittance, contacting a tenant, what is that, trying to just do their own sort of algorithms to say, how do I match this up? What's open here? Oh, it looks like they just left off one work order invoice. And there's a lot of manual work that goes into that.

Well, I think it's important to kind of reiterate, you know, I mean, a little bit of that where the algorithm is really meant to take that bank file, which is providing data that maybe is stripped off of all the checks that come into a lockbox and/or ACHs that are pushed into your account. And if you look at maybe kind of the check side of the house, I think that you made a great point in that you couldn't get too advanced or too specific on that algorithm because of that kind of false negative kind of scenario, and maybe being a little bit too restrictive to maybe having everything go into an exception.

And I think a lot of our clients have kind of felt that. It's like, you build things to automate, but there's always going to be kind of that flip side. And what's that balance?

I mean, ultimately, if everyone just paid you exactly what they owed you, and they gave you some sort of information to tell you what they're paying you for, those algorithms can probably be super tight. And you can get that 55% maybe up to 85% or 90%.

But when you're receiving a lot of checks or you're receiving a lot of ACHs, even, without a good amount of data and maybe not a great amount of visibility on the tenant [AUDIO OUT] front, you're going to have the mismatches. And I think that's what you used to experience and I think what a lot of our clients are still experiencing because a lot of that has not really changed too drastically in my mind up until maybe the last two to three years as we've kind of adopted technology a little bit more.

So back in the old state, what was the mix of incoming rent between a check and an ACH, if you have that?

Yeah. I would say give and take a month where anywhere between 2,300 to 2,600 receipts, of which I'd say about 1,400, 1,500 were electronic and maybe 1,200, 1,300 checks. And that went back and forth. So it was maybe a 60-40 split in terms of electronic checks back in the old state.

Right. Right. And I think if you're in the audience, a lot of folks would probably be a little bit envious of that, even, because I think we still see a lot of scenarios where even in this environment-- maybe not so much now, but you know, let's say 15 months ago as we went into the pandemic-- I mean, a lot of B2B asset classes were still kind of being 70%, 80% checks. And you know, it was just because when you started to receive more ACHs, it just kind of overcomplicated things a little bit more.

So 55% auto-post, let's say pre-pandemic. You talked a little bit about what obstacles maybe your team had to overcome. But kind of walk us through maybe that in a little bit more detail in terms of what they had to go through to manage that 45% of that equation, and kind of what that meant for your team on a daily basis.

Yeah. So I'm going to stay on the checks side for one second. And yes, a lot of our peers still had more checks. We've been working on getting rid of checks for many years now. And we use a lot of things. We will trade a late fee, if we charge someone a late fee because their check arrived in the mail too late, we'll say, hey, if you convert to ACH, we'll waive that late fee for you.

So we do a lot of-- and we put a lot of that power in our AR coordinator's hands to work that out because we know touching that piece of paper from a number of different places just takes more time and effort, and we really want to get away from that. So that's been a big thing of what they've done over the last five or six years to help get that percentage on the right side of more electronic than paper. And I know I've talked to some of our peers, and they're not willing to sort of give up some of those things. But that's how we transition that away.

We also moved it down in our lease form that the check is sort of the last way to pay. So if you're starting to grab your lease form, how do I do this, and you look quickly, OK. I can send an ACH via blah, blah, blah. Maybe that's the first thing they do. And they don't go down to the step 2 there above the checks. So we had done that.

But that 45% that isn't auto-posting, auto-matching, it's really just some legwork. It's good old fashioned, you know, OK. I have how much cash here? I have how much open?

Some of it's a no-brainer, right. It just, they have manual files-- and they still have that today, even with some automation. But they know that we have tenants that are in multiple buildings. And they pay one payment to pay across buildings. So you get it in, it goes into an unapplied cash.

And they look and say, yep. Tenant ABC. Oh, yeah. I know they're in LA and San Francisco. So I have to take $100 and move it to LA and another 150 and move it to San Francisco.

So those are the things that are simple because they sort of know they come in on a regular basis. They make those movements. Then there's just a lot of work of looking at it. Right? You have to see that, OK, I have these five open charges. And my amount is short by $72.50.

Sometimes it's as easy as seeing that one charge for 72.50. Oh, that must be what they're not trying to pay right now. Maybe they didn't think they actually used that service. Maybe it was a new charge they forgot to add on to their automatic payment. So there's a lot of just really getting in. They would print out an aging and see what open charges are, see what cash they have there and see how they can find that.

And then we have certain people go through that didn't land in even a tenant's account. So a lot of times even the 55% we're matching, we had some make it to the tenant's account. We knew what tenant it was.

But then we have a whole handful of things that really take some time just, what is this? It's just a random check coming in that no one told us about. It might be a third-party manager that they didn't tell us is managing for ABC Corp.

So we try to do that. And then maybe build our algorithm, just tighten it up a little bit, or at least build our file that the team has to say, when a check comes in from JLL for this amount, that is most likely here. So we had creating some manual cheat sheets for us.

Gotcha. So yeah. I think a lot of what you're talking about is, I mean, it's pretty simple if you break it down. You're just trying to figure out who's paying you, what are they paying you for, and what do they owe. And at the end of the day, is it going to clear? Or is there a short pay? Is there an overpayment? And then all the communication on it.

And so you went through the process of digitizing all of this. So can you quickly maybe walk us through what you did and why you did it? As well as how you sold it internally. I'm just going to wrap all of that into one question, if you can kind of follow me there, Jeff.

Sure. Sure. So simply, we went to a third-party application called Versapay. ARC. We internally-- one hat that I've been wearing over the last probably 15 years is sort of a link between our IT team and our business functions. As you mentioned at the beginning, there are three different business functions.

And I've always communicated very closely with our CIO. I've gone with him to Realcomm events, which are our real estate industry IT events and to understand what's going on. And our company has been on the forefront to try to automate things, try to see what technology is there.

And probably about five years ago, really, AR was behind on everything else. There were some AP platforms. There were a lot of other real estate technology coming into play. AR was a step behind what was going on.

But about five years ago we started seeing, hey, wait a second. There are some people getting more involved with this. What's going on here?

So we kept an eye on it. We ended up meeting with some bankers who were doing it internally. So some banks bought their own little AR platforms.

But we really liked what Versapay was doing with the real estate silo that they had. They had a direct link with real estate. They had manufacturing as well. But they were really getting focused on that avenue.

Going back to the company, selling to the company, we can get rid of some other technologies that describe the three different things we were using-- create form, and internal collections database, and an AR portal. We can get rid of those, bring them all under the same umbrella.

The biggest thing, though, was we have some-- the monotonous stuff that an AR coordinator needs to do that, hey, we're off by $100. We have to go figure that out and then call our tenant to say-- or email our tenant. We look at it that now with the automation, we can set up information to go right out to the tenant to say, hey, by the way, you didn't pay this $100. And here's what it is, and resend the invoice, what's open.

We were doing that all manually. So we thought we'd be able to save some time, make our-- the stuff we really to get our AR coordinators elevated, elevate their job, make it less monotonous, get rid of some of these little mundane tasks, elevate what they're doing, make their job more enjoyable, really. So we did that. We sold it to senior management. They were on board for technology.

And we thought we'd be able to save on-- as people moved on from their job, we weren't looking to remove any people at the time. But we thought we'd be able to save on some of our people. So we are down from 11 people to nine people now after a year and a half.

So that was a big journey. Actually, it's almost two years now. I lost track of time during the pandemic there. But now we've been live with the project for two years now.

Gotcha.

I don't know if I answered all your questions there. There were a few questions wrapped in, and I kind of went on the side. So.

You did. You did. You actually answered all of them. Right.

I think one of the big things that kind of stands out is that the use of technology has kind of always been embedded in the culture at Boston Properties. Right? And that's obviously extremely helpful just to kind of have that kind of a focus internally and really always looking at what's out there, but then being very mindful about what you choose to do and why.

And so this one platform got rid of maybe three platforms, created some more automation. Talk a little bit about-- you had it in place pre-COVID. And what did that mean when the pandemic kind of hit, and also folks started working from home? I mean, how did that kind of impact your team?

Well, it was-- we were lucky. It was-- I described the moment where we have to shut down the printers and everyone has to go and taking all that paper. So we went with Big Bang approach. So in July of '19, we said, we're getting rid of the paper. We're going live with Versapay. We're no longer sending any paper to anyone. Everything's going through electronically.

If we hadn't done that, we would have had to figure out a way to get that paper. No one was equipped at their home to do that paper. So we'd potentially have to come into the office, figure out a way to do that.

So we were lucky. Right. That was just luck that the timing worked out there. And it was great. We went Big Bang.

There were some hiccups. There were some bumps along the way. Some tenants like, wait, what is this?

The biggest thing we had to get over-- and we did a lot of legwork up front reaching out to our tenants to say, hey, this is coming. We need your email addresses. Here's why. You're going to be receiving these emails from us. And this is a good thing.

With so many cyber attacks, the last thing many of our tenants were thinking was, this thing coming from Boston Properties, click on this and put in my banking information. It's a big ask, right? It's the first thing you look at when you're doing cybersecurity. Don't just put in your banking information over here because someone's trying to steal from you.

So we did a lot of upfront work communicating with our tenants, communicating in-house to our property management staff so they could onboard our tenants and let them know this is coming. So the more friendly faces that they heard from that hey, this is coming, it made it smoother.

There were still people that didn't make it through when they were still questioning us. But then we got on the phone, talked them through. Yes, this is Jeff Phaneuf from Boston Properties. We are sending this through. This is our new platform. We'd love for you to pay through there.

If you're not ready to pay for that, that's OK. But this is our invoice that you'll be receiving. And if you still want to go through your old payment process, that's OK. But now you can interact with this platform.

The other big thing that we don't have to do-- I mentioned and AR invoice archive earlier. We'd get a lot of calls saying, I never got this invoice. I never-- I never did this.

Now we teach them. You know, you teach a man to fish, if you will. We teach them how to log on to their site, if they haven't done that. And at any point in time, any time of the day, they can go see what it is.

So no more do we get the, my invoice was lost in the mail. So they can self-serve them. And it saves us so much time that when we get this call in or this email in, we go looking for the invoice, reattach it, sending it back in there. And it just sort of delays the whole process.

So now we teach them to self-serve. Boom. They always have their invoices.

Yeah. I think you've brought up a lot of great points. As we kind of think about folks in the audience, it's not just the technology. Hey, the technology is great. You can do all these things with it. But it's that planning, that implementation, and that execution of the communication strategy.

I really love how you said, both internally across property management, accounts receivable, collections, all the different groups, you know, because I mean, a lot of calls might go to AR. But a lot of calls might go to property management as well. Right? And it's really important for all areas of the company to know what to expect and be able to at least speak intelligently about it, as well as kind of route those types of inquiries in the most efficient kind of a way, as well as externally with the tenants because many of your tenants are working with many other counter parties as well. Right? And they're having to learn a new way to do things. And if they haven't seen it yet, it's going to maybe raise a red flag. And I think that you've been able to handle that.

And hopefully over time, this kind of becomes the norm. But you mentioned something around if you're not ready to pay-- because we all know, you know, they're not just going to go from 2,500 or so incoming rents that happen one way to another way.

But that ability to view invoices at any time and to collaborate, to communicate, as well as just to have strong visibility into what you owe and why, I think is helpful. It probably helped the auto-match, you know, even if they aren't paying on the portal.

Talk us through a little bit about what the metrics look like now in terms of electronic payments, which would include Versapay, in my mind, compared to the checks.

So we have less payments now, unfortunately, from before pandemic to now. And a number of different factors in that. We used to have a lot of smaller retailers that are paying. We've done some abatements for them.

We got rid of our CART program. Our CART program was sort of the biggest check payers, and CART programs are at our malls, like, literally the small little things, selling t-shirts or spatulas or sportulas, or whatever it may be. So we've gotten rid of that.

But then also, we've combined some of their payments. So overall, we're down to probably about 1,700 electronic payments. I should say up to 1,700 electronic payments, so that's more. Of which, 375 to 400 a month are through Versapay.

So that's the real home run. If we can get to Versapay, it's a home run. Cause there's no reconciliation. In Versapay, if they owe $100, they click on a button and make a payment for 100.

We don't allow any type of short payment unless it comes with a description. And it has to come with an email to say, hey, I'm paying X now, and here's why. So for the most part, that's a straight-up match, which is terrific.

We're still getting about 500 checks. But we're down 700 checks, which has been huge. We anticipate getting more and more Versapay payments because as I mentioned-- we went out-- not only did we meet with property management, we met with our legal teams.

So myself and my AR manager went to each of our five regions prior to launching this not only to get our PMs on board-- we want them to know it and love it so then when they're communicating, they're our face to our tenants, usually, when they're communicating with the tenants. They're onboarding new tenants. They're talking about this Versapay platform.

We also met with legal, and we changed our form. Our base form now has Versapay as the top thing. So how do you pay your rent? Versapay. There's a description of how you go get set up there. And that's how you're going to be making your payments.

We were hoping to get rid of the check line totally. But legal and leasing weren't ready to give up on that totally because people still want-- people think they want that ability. And I agree with you over time, I don't think they will want that anymore. Most of us in our personal life don't-- when you need that one check for your niece's graduation, you know, you're looking for that checkbook someplace.

But even now, your niece is really going to want Venmo pretty soon, you know. So those things change over time. It gets a little bit tougher to get into our big businesses to change the way they were grinding through things.

But I think on both sides of it we will be changing more and more over time. And I think as leases are positive for Boston Properties, we have long-term leases. But as those roll and those new leases come out with a different way to pay, and if you're just starting with the Boston Properties building, I think we'll be able to get that-- it's probably about 18% to 20% of our tenants are paying through Versapay right now. But I think that'll just continue to grow.

Gotcha. Yeah. I mean, it would be really interesting to kind of look at start to finish. And I don't think there's really ever going to be a finish, right? I mean, it's going to take some time. You know, you talked a little bit about waiting for leases to roll while also being proactive in the meantime, right, and trying to-- it's really about that incremental gain that you're able to get. Right?

But you're definitely making the right progress and headed in the right direction there. As we kind of come to the end of our discussion, anything as far as, I think you talked a lot about lessons learned. But if you had any sort of lessons learned and/or just pieces of advice for the folks in the audience that maybe have not went down this path yet, maybe a couple of things that you'd want to share.

So I think email addresses is a huge thing. To do stuff electronically and online, you need email addresses. And that wasn't a standard part of the address form for leases in the past. We've now made that part of our standard form as well. So not only do they have to give their legal notice address, they need the AP-- the people who will be paying, we need their email address.

And sometimes it's APDepartment@BostonProperties. Sometimes it's Joe@BostonProperties. But we need an email address in there, and preferably a couple of different email addresses in there because that's the whole key to doing-- allowing you to connect electronically with these folks. So getting that and not have to dig for that is huge. And having that part of the lease form is great.

I think-- and I mentioned this, but I really want to stress this-- the internal partnership. By getting buy-in-- you talked about how did you get senior management to buy in, and I talked about that. We have a great partnership with our senior management team as well as our senior IT folks that want to do stuff for the business, not just for the sake of doing IT fun things.

But getting together with property managers, getting them fully comfortable because change to some of these folks were, wait a second. What's going on there? But once you've got them comfortable with what the product is, what it's going to do for them and for us, it was huge.

Getting legal on board, getting all of our property accountants on board to this is how I now go find an invoice if they got that contact there. This is how I go see open balances.

So internal buying and selling is very important before you take on a task like this.

That's great. I mean, I want to-- first and foremost, I want to congratulate you on getting to kind of where you are at this stage. You know, thank you for your time, all of your insights, and really, your willingness to be able to share your story as a leader in our industry.

As we were talking, it was definitely clear to me that your journey was just that. It's a journey. We often think around digital transformation as a one-time kind of event. And poof. You're digital.

But I think what we learned is that depending on the part of the business or the processes and the complexities involved that you're focusing on, it's going to come in a few different forms and maybe across a few different steps along the way. I look forward to hearing about where you go from here in the future.

To our audience, thanks for your time. And we really hope that Jeff's story resonates with you and gives you something to take back to your organization.

We'll be sending out an invite for our next discussion later in the summer. Please take a few minutes to respond to the survey that's going to pop up on your screen once this webcast ends. It's really important for us to get your feedback and to really tell us about the topics that are important to you and what you'd like to learn about.

Finally, we want to wish you and your families a healthy, happy, and safe upcoming 4th of July holiday. Thank you so much. Have a great rest of the week. 

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April, 2021

Digitizing receivables to transform B2B rent payments

Jeff Phaneuf of Boston Properties sits down with Dhiren Patel from U.S. Bank to tell the story of using technology to envision a new AR process.

Hear how their journey, and the results allows them to be proactive and provide a seamless tenant experience.

 

Learn more »

 

 

 

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