The Origins of the Quarterly Cycle
When annuity payment outsourcing began back in the early 70’s, nothing happened quickly. Reports were physically mailed to clients, decisions were manually captured from stakeholders and everything had to be mailed back to the vendor and then mailed to agents or PTOS.
Given the challenges and logistics behind collecting the decisions, it’s no surprise that clients preferred to do it as infrequently as possible. It’s also no surprise that the annuity vendors wanted a lot of time to deal with uncertainties, so the quarterly payment process was born (in reality, some clients made their decisions annually back in the old days, but those days are long gone).
New Technology, Same Old Timelines
IP Management Systems have come a long way since those early days. Today, web-based decision-making processes and increasingly connected systems make it relatively easy to transmit annuity decisions to vendors. Standing instructions and “Pay All” agreements can even eliminate the need to send instructions at all. Client instructions aren’t the only thing that have become more efficient. At the click of a button, annuity vendors can pay PTOs and instruct their agents.
With all of these advances, you would think that making annuity payments would be as quick and easy as paying your electric bill. Unfortunately for most clients, even with the advances in technology, the processes and timelines haven’t changed substantially. Decisions have to be finalized months in advance of their due date and indecision or second-guessing your decisions will result in additional fees.
Monthly Processing Arrives
It’s difficult to say which vendor introduced the concept of monthly payments to the industry, but we know that was Ipan’s preferred mode of operating (before begin acquired by CPA Global/Clarivate). As the annuity provider for many Lecorpio (now owned by Anaqua) and IPfolio (now owned by Clarivate) clients, as well as a number of large European annuity clients, they raised awareness of this alternative to the quarterly cycle. Today, most vendors can accommodate monthly payment schedules, but most still prefer the quarterly process and will generally default to that unless asked (more on that in a bit).
What's the Big Deal About Monthly Payments?
Vendors have different approaches to dealing with monthly payments, but there are some general similarities. As the name implies, with monthly payments, annuity payment processes happen on a monthly basis, rather than the traditional quarterly cycle.
Many clients recoil in fear at the thought of dealing with annuity processing twelve times a year versus the four times a year schedule that they deal with now, but in reality, there are quite a few benefits and it isn’t as difficult as it sounds.
One of the biggest benefits is that a monthly schedule can save you a substantial amount of money. When working with a quarterly schedule, annuity vendors provide you with invoices for payments that will be made several months after the invoice is generated. Frequently, they price in favorable exchange rates for themselves and the significant time difference between invoice and payment can make it difficult to monitor their foreign exchange rates. With monthly payments, the lag time is much smaller and it is easier to stay on top of and control what annuity vendors charge for currency.
Ad-hoc Fee Savings
Nearly all vendors charge fees when you change your mind and they are asked to do something outside the normal cycle. This puts the burden on you to make sure that everything is perfect several months before your payments are actually due. In reality, things are never perfect – new cases need to be added to your payment list, the business decides that it now wants to abandon a patent that is no longer valuable – life happens! If you are working with a quarterly cycle, there isn’t much you can do – you will just have to pay the fee for the change of instruction and move on.
With a monthly cycle, your payment window is much smaller and you have much more flexibility to get your last minute decisions into the normal process to save money. For example, with most monthly cycles, you are finalizing March payments in late January or early February (depending on vendor) versus finalizing them in November for most vendors’ Quarterly cycles. A lot can happen in a couple of months, and with a quarterly process, anything that happens costs you money.
Reduced Account Reconciliation Effort
Monthly processing benefits aren’t limited to costs, there are also benefits after the payment cycle is done and you have to reconcile all of your invoices and the inevitable debit and credit notes. When you are working a quarter at a time, each list can be long and time-consuming to research and reconcile. Monthly clients have less to reconcile since the number of payments is less, and the shorter payment time window eliminates many of the problems that lead to debit and credit notes in the first place. Monthly clients we work with report significantly reduced reconciliation timeframes.
Are Monthly Payments More Work?
Whenever we talk to clients about monthly payments, the reaction is typically negative at first. Depending upon the vendor, the annuity payment process can be painful, requiring a lot of emails and sometimes ftp. Getting decisions from the business can be equally painful – the thought of doing all of that twelve times a year versus four can be overwhelming.
Fortunately, technology is making the interaction with payment vendors easier, and many of the major vendors have integrated annuity/IPMS systems. A few have also decoupled the decision making process from the transmission process to the annuity vendor. This enables their clients to use their normal decision making processes and workflows and the system picks up the appropriate cases for payment at the right time. This approach simplifies monthly processing for clients substantially and eliminates many of the traditional headaches associated with monthly payments.
Quarterly annuity processing is the norm across the industry, but clients are increasingly warming up to monthly approaches to reduce costs and gain more flexibility in their decision making processes. The ease of implementing a monthly process is certainly influenced by your IP Management system and its integration with your annuity payment vendor, but we highly recommend discussing the option with your annuity provider when the time is right.
If you have questions or want to talk about the pros and cons of monthly processing, give us a shout at firstname.lastname@example.org.