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March to savings Featured

1:03pm EDT June 27, 2005

You might not think of a utility bill, a lease or an invoice as a data goldmine. For Cadence Network Inc., a Cincinnati company that processes invoices for its clients, however, such documents reveal information that can save a business hundreds or, in some cases, thousands of dollars.

Cadence Networks doesn't just pay the bills; rather, it collects historical data from the invoices and uses it to make recommendations to its clients regarding their utility purchases and to spot changes in usage that may indicate a problem or the need for a change in the way it procures services.

For large businesses with multiple locations, handling hundreds or even thousands of bills and invoices, let alone catching errors, can be a daunting task. Problems can go undetected and cost plenty if they aren't caught, says says Jeffrey Hart, president and CEO of the 45-employee company.

For instance, one of Cadence Network's clients, a retailer, had a spike in its electric bill, a variance that was spotted by Cadence Network's software. An initial examination by the utility turned up no reason for the increase, and the retailer couldn't account for the extra power draw, either.

Cadence Network sent one of its experts to the site and found that the meter was defective, and for months had been ticking off more usage than the true amount the store was consuming. With the help of data collected by Cadence Network's software and its analysts, the retailer secured a $246,000 credit from the electric utility..

Cadence Network was formed in 1997 by three electric utilities as a result of a request-for-proposal issued by a large energy user with multiple locations and vendors that was struggling with managing its costs. Since then, it has attracted investment from InSight Capital Partners and Michael Dell's MSD Capital.

With energy costs rising and businesses looking for ways to curb expenses, interest in Cadence Network's service is brisk.

Says Hart: "I'll tell you, our sales pipeline has doubled since Jan. 1, and it was good before that."

Hart spoke with Smart Business about outsourcing payment functions, the challenges of growth and the importance of choosing the right customers.

Why should a business consider outsourcing its payment function?

If you think about a company, it has a core competency. You're selling telephone service, your competency is putting phones in peoples' hands and selling minutes.

If you're a retailer, you're selling product off the shelf. If you're industrial, you're producing some commodity for sale. What we do is say, that's not your core business, but it is ours, we have the technology, we have the people with the expertise to drive substantial value, just like in any outsourcing (arrangement).

If you think back when people started thinking about outsourcing accounts payable, why did they do that? One, they were trying to keep up with all of the regulatory issues, two, they were trying to keep up with the technology advances and three, they were trying to run their core businesses.

When you and I get a bill at home for a utility, we see the dollar amount and we pay it. There's an awful lot of information there that can be leveraged by organizations to more effectively manage their portfolios and have better control over that expense. In some sense, we take that fixed expense, we try to make it variable and then predictive.

The bottom line, we'll take this raw data, we try to convert that into information that can be interpreted into some level of intelligence that then allows people to take action or drive better business decisions.

Our smallest customer has 24 sites, our largest customer has 23,000 sites.

We have a bank do the processing and payment of the invoices for us. Then we do the analytics, invoice auditing, rate analysis, lease auditing and a whole host of services to help these large, multisite organizations get better control of their utility, telecom and lease expenses.

Where are the potential savings beyond the processing of invoices?

If all of a sudden I can create and drive value through the processing, payment, auditing, (offering) all these services significantly cheaper than they can just pay their bills -- the average as reported in various publications is about $12 to pay a bill -- I can do all of these services for less than half that and provide savings, one, I'm going to provide hard dollars back to them, but two, if you think of the soft savings they get just from outsourcing, the processing and payment of these invoices, it's huge.

If you think about the energy side, where do you place your HVAC units and how do you come to that determination? I find a lot of folks go out there and form a relationship with someone in the Southeast, where they might be getting a good return on investment, but is it the best ROI?

What technology do you use to service your customers?

We have spent over $20 million investing in a technology platform that allows us to do the deep analytics of invoice data, and I'm not just talking about payment data, I'm talking about the kilowatt-hours used, the off-peak hours, all of the different variables that are in a utility invoice, and if you think about all of the information on a telecom invoice, all of the detail there, we've leveraged technology to make sure we can audit very efficiently, that we can benchmark, that we can do budget forecasting for our clients, etc., ultimately so that we can drive better control over their expenses.

What is the challenge to growth for Cadence Network?

I think the real challenge is getting people to understand that this is something very similar to the outsourcing of accounts payable. Secondly, there's a lot of fragmentation.

We're the only shop that offers this comprehensive solution. So it becomes very confusing to somebody that doesn't understand utilities or telecom or leases. Ours is a fairly complicated offering and it's fairly new, considering the industry really started forming in 1996.

Where are the opportunities for Cadence Network in the future?

I think there are a lot of opportunities in the commercial sector. Government, in my opinion, has barely been tapped. You do hear of some government initiatives, but they're doing it in an old-fashioned paper way, so they're not leveraging technology to their advantage and maximizing the return that they can provide to taxpayers.

When you think about it, analyzing a paper bill -- and you can imagine that a government agency gets hundreds of paper bills -- that's not real efficient.

Why is the analytics portion of the process so important?

I'll give you an example of what happened with one of our clients in early 2000. Their water usage went up substantially (at one of its sites) and we called them up and said, there's a water problem out there. They said there's no problem there.

We took the initiative to send a plumber there. They said there's nothing wrong at the site. They couldn't find any physical problem. Ultimately, what happened was that after about six months, they were able to determine there was an underground leak.

We were able to get them a $56,000 credit on their sewage bill. Had they responded as quickly as we suggested, they could have saved their parking lot.

How do you choose what companies you take on as clients?

We have an opportunity investment meeting on every proposal that comes in here. One of the officers is always a sponsor of the proposal. We work with the sales team and our operations team, and we look at every one and ask if this is an opportunity for us and can we drive value for the client.

If it is there, then we can move forward. If we can't, we'll walk away. I walked away from a very large deal last year because there was no way enough value could be driven to the client. It doesn't do us any good to take an opportunity if we can't drive value for them.

We go through the customer profile, we go through a list of services they're asked for. We go through how it plays to our strengths, how efficient it will be for us.

What are your goals for Cadence Network?

We're growing at over 25 percent a year, so we want to continue that growth. We also want to drive more into managed services, and we also believe that there's huge opportunity for consolidation in the area of lease, telecom and utility expense management, because there are a number of different firms that have some level of expertise but they don't have the broad service sweep that we do. We have a comprehensive package, and we believe there are other offerings that we can bolt onto us to deliver substantially more value to our clients.

How to reach: Cadence Network Inc., www.cadencenetwork.com