JANUARY TAKE CHARGE: How to Successfully Plan and Deliver a Strategic E-payment and Commercial Card Implementation

Transcription

1 JANUARY 2015 TAKE CHARGE: How to Successfully Plan and Deliver a Strategic E-payment and Commercial Card Implementation

2 E-PAYMENTS & COMMERCIAL CARDs white paper 2 When it comes to launching an e-payments and cards program, many companies hesitate to commit. They may fear the unknown or think they don t have sufficient resources to manage implementation. Or priorities shift and migrating to e-payments is put on hold for another quarter. The resulting lack of spending insight, control and efficiency can put them at a disadvantage against more nimble competitors. More and more, card payments are getting the attention of finance teams because they open a wide range of strategic payment options. Migrating to e-payments, including commercial cards, may not be a simple process for everyone, but there are smart ways to do it more efficiently and see returns faster. 70% of organizations ARE working to shift from paper to e-payments. 1 This paper will outline: 1 How commercial cards have become a key component of a 2 How a commercial cards program supports business growth 3 comprehensive e-payments program Best practices for implementation and ongoing management Each of the different types of e-payments below plays a specific role in a company s operations. But increasingly, card payments are getting the attention. Business Uses of Electronic Payments 2 82% 81% 50% 34% 13% of businesses use wire transfers of businesses use automated clearing house (ACH) credits of businesses use purchasing cards of businesses use ACH debits of businesses use single use accounts (virtual account number)

3 E-PAYMENTS & COMMERCIAL CARDs white paper 3 Why commercial cards play a critical role in a strategic e-payments program The way a business manages payments has a direct effect on its ability to grow and improve profitability. Moving away from traditional payment methods like checks and towards e-payments and more specifically, commercial cards opens up a wider range of strategic payment options. What does an ideal and comprehensive e-payments program look like? It can include a variety of elements, including ACH payments, bill payment, wire transfers, commercial cards, an automated payment platform, a virtual account & electronic payables solution and a direct file transmission platform. Many business only use commercial cards for travel & entertainment, or for low-value purchases. KEY COMPONENTS OF A COMPREHENSIVE E-PAYMENTS PROGRAM ACH payments Large volumes of credit and debit batched transactions, including regular direct deposit payroll and vendor payments Bill payments Regular or one-time small to mid-sized check payments managed and distributed online, including recurring expenses such as rent and equipment leases Wire transfers A real-time method of transferring immediate funds and supporting information between two financial institutions Commercial cards A variety of one-time and regular credit-based payments, including procurement, travel and entertainment (T&E) and accounts payable Solution Components Solution platforms Automated payment platform Streamlines bill payment processing and integrates with accounting systems Virtual account & electronic payables solution Securely generates virtual account number s for single/limited use purchase requests Direct file transmission platform Centralizes card, wire, ACH and check payments processing and integrates with ERP systems

4 E-PAYMENTS & COMMERCIAL CARDs white paper 4 The majority of U.S. businesses have some kind of e-payment solution in place. But many don t maximize the use of commercial cards, using them only for travel and entertainment and not for purchasing, or only for a narrow span of acceptable or low-value purchases. Some businesses, too, are lax about requiring employees to use company cards and so don t realize the full benefits. Developing a comprehensive commercial card strategy can help you reap greater rewards and gain a definite business advantage. Key objectives of a commercial card program PURCHASING CARDS Are singleuse, unique credit card numbers generated in real time for a specific purchase amount, date and supplier. Here s what you want your commercial card program to do: Empower employees to efficiently make secure, job-related transactions in a controlled environment. Provide the convenience and transparency of one program for a variety of purchases (procurement, T&E, and accounts payable) for streamlined management and reporting via a single interface. Enable timely payments to vendors and suppliers to optimize working capital; e.g., improve days payable outstanding (DPO) by up to 40 days. Work within your organizational structure; e.g., support management of purchasing and T&E by separate departments. Provide modular controls to turn on different features as needed, e.g., spending amount or category limits for cards or individual control of card use to protect against fraud more effectively than other payment methods such as checks. GHOST CARDS are distinct credit card numbers issued to different departments, but roll up to one corporate account. Are you maximizing your commercial card program? Do more business with suppliers who accept cards, and negotiate discounts. Securely use p-card and virtual card numbers (VCN) for more purchases and larger amounts. Use electronic accounts payable (EAP) solutions for non-card e-payments. Require T&E card use for all travel expenses.

5 E-PAYMENTS & COMMERCIAL CARDs white paper 5 The core products that make up a commercial card program are each important for different reasons: Travel and entertainment cards are effective for companies that don t want their employees to purchase items on their own credit cards, or for employees who don t want to worry about receiving timely reimbursement. According to RPMG Research Corporation, 68% of corporations expect travel card spending to increase through Spending controls, continuous monitoring and detailed reporting are key program features that improve employee compliance and curtail misuse. A purchasing card (p-card) can go beyond a traditional business credit card with advanced features like VCNs. VCNs are single-use, unique credit card numbers generated in real time for a specific purchase amount, date and supplier. VCNs enable a company to use a p-card with greater confidence for larger purchases. In 2007, the average p-card purchase was under $1,000; in 2013, many companies used p-cards for up to $2, In fact, p-card spending is expected to total $290 billion by 2016, with corporations demonstrating a projected average annual p-card spending growth rate of 11.2%. 5 In addition, p-cards are being used for a wider variety of purchases, with some companies using p-cards to pay for goods and services in 59% of typical business spend categories. 6 A big part of the reason for growth is improved efficiencies: p-card use eliminates the requisition, purchase order and invoice parts of the purchasing process. A variety of available card-based solutions $ Ticket Size HIGH LOW Level of Automation TRADITIONAL CARDS A/P CARDS GHOST CARDS DYNAMIC SUPPLIER CARDS (i.e., single- & multi-use accounts) Strategic Importance / Level of Control Required PURCHASING CARD SPENDING IN NORTH AMERICA ($ BILLIONS) HIGH Electronic accounts payable accounts are non-plastic purchasing accounts used to pay for invoiced goods and services. EAP accounts can be integrated with a direct file transmission platform which centralizes all payments processing. EAP accounts can also enable different departments to issue distinct credit card numbers (through the use of ghost card accounts) that roll up to one corporate account. This allows finance to easily assign costs to departments and allows suppliers to charge the account directly (e.g., when a plastic p-card can t be used), while providing the company with payment float, insight and controls. EAP accounts also allow you to set dynamically adjustable spending limits that are assigned to match the transaction amount. The number of companies using EAP accounts surveyed by RPMG Research Corporation is expected to rise from 18% in 2013 to 43% in That survey also revealed that the average EAP transaction was $4,727 in 2013, over 10 times larger than a typical purchasing card account transaction. 7 Research shows that EAP use complements p-card spend, with 73% of EAP-using organizations indicating that EAP spending will not cannibalize purchasing card spending. 8 $350 $300 $250 $200 $150 $100 $50 $ Actual Expected Source: 2012 RPMG Purchasing Card Benchmark Survey

6 E-PAYMENTS & COMMERCIAL CARDs white paper 6 Rich reporting capabilities A key attribute of commercial card use is the availability of rich transaction data (as detailed as item description and quantity) which businesses can use to support various strategic initiatives. For example, many businesses analyze spending patterns across departments in order to negotiate better terms with suppliers. In addition, detailed reporting helps businesses more quickly identify account misuse and fraud, with automated reconciliation and the ability to see patterns and continuously monitor employee compliance over time. 27% of businesses leverage p-card data to get higher discounts for goods or services. 9 Why a commercial card program is right for Businesses at any growth stage Growth Companies Improve working capital management (maximize float ) to support growth. Large corporations Realize administrative cost savings (about $74 per transaction). 10 Take advantage of rewards, discounts, rebates or revenue-sharing opportunities; avoid late fees; eliminate petty cash and related audits. It all adds up. It supports your overall financial strategy. With the data generated by card payments, a company gains more comprehensive insight into where its money is going, essentially integrating procurement and accounts payable with a company s broader financial strategy. Your accounts payable can also become a revenue generator by making discounts, rewards and rebates boost your bottom line. It improves cash flow. Paying suppliers via commercial cards enables businesses to more strategically and flexibly manage accounts payable and accounts receivable (paying suppliers in a timely manner while optimizing management of working capital). It strengthens fraud protection. 60% of companies surveyed reported being exposed to actual or attempted fraud in Check fraud remains the biggest vulnerability, with 82% of companies indicating that checks were targeted for fraud at their companies. 12 When it comes to credit and debit cards, 43% of financial professionals reported fraudulent card payments in 2013 a significant increase from 29% in However, the U.S. is currently in the process of switching to the more secure microchip/pin security (i.e., EMV or Europay/MasterCard/ Visa) technology that most other countries already use; this is expected to significantly help reduce credit card fraud. In the U.K., card fraud losses dropped 26% from 2008 to 2013 with EMV and other measures. 14 Also, with corporate card programs fraud alert protection features and automated reconciliation and real-time reporting, companies are already seeing decreasing fraud. In fact, leading p-card users surveyed by Aberdeen Group reported 82% fewer incidents of fraud with usage of p-cards. 15 And, as with consumer credit cards, T&E cards help protect businesses from being held responsible for fraudulent charges as a result of stolen cards, counterfeit cards or identity theft.

7 E-PAYMENTS & COMMERCIAL CARDs white paper 7 It streamlines operations. Automated payments and reconciliation eliminate the timeconsuming purchase order process, freeing up employee resources to focus more on strategic versus tactical activities and enabling companies to redeploy or reduce staff. The Aberdeen Group reports a 60% efficiency gain when companies remove manual processes by instituting a p-card program. 16 In addition, it s estimated that p-cards reduce procurement cycle time by about nine days. 17 T&E card programs can cut expense report processing time and cost by approximately 44%. 18 It improves compliance. Commercial card programs capture the data needed for Sarbanes-Oxley compliance, which requires companies to publish the scope and adequacy of the internal control structure and procedures for financial reporting. 19 Access to data, regular reporting, standardization of purchasing and payment processes, ability to detect fraud, minimize risk and monitor employee compliance are all critical, basic functions that are expected of companies today. MOBILIZE FOR THE (NEAR) FUTURE Mobile technology and payments are at a crossroads and businesses hold the power to drive the options that will benefit them most. 29% of companies plan to adopt mobile technology for business travel by Contactless payment technologies like Apple Pay and Google Wallet are becoming more widely adopted, and the EMV microchip/pin technology in commercial cards supports these services. Best practices to implement and maintain a commercial card program Although there s no quick way to migrate to a commercial card program, the right partner can provide the insight and guidance that helps your business reach its e-payment goals more efficiently and with fewer headaches. Challenge #1: Supplier enablement Best practice: Tap your bank s resources. Outsourcing the supplier enablement process will take most of the burden off of your financial team, although they should still remain actively involved in helping transition suppliers to accept your e-payments. You can look to your bank to: Identify tiers of existing and new suppliers to target for cards (in particular, to reduce check payments). SUPPLIER ENABLEMENT Tap your bank s resources. Spearhead the outreach and onboarding process. For a successful transition, it s important for companies to help their suppliers understand how cards benefit them, including faster payments, potentially more business, reduced processing costs, increased efficiencies and access to payments data.

8 E-PAYMENTS & COMMERCIAL CARDs white paper 8 FRAUD CONCERNS Plan ahead. Challenge #2: Fraud concerns Best practice: Plan ahead. To mitigate fraud, work with a bank that will help you design effective commercial card program controls upon implementation, such as guidelines for card issuance, policies, procedures, credit limit controls, velocity controls, merchant blocking, reconciliation processes, auditing procedures and more. Ensure the card products you choose follow industry-standard security protocols, encryption and controls, including EMV technology. In addition, look for products that immediately and automatically flag issues and issue or text alerts to administrators and cardholders. Lastly, follow industry best practices regarding continuous or risk-based reporting and analysis of transaction data to identify fraud or risk of fraud. SYSTEMS INTEGRATION Integrate commercial card data into accounting/enterprise resource planning and expense reporting systems. Challenge #3: Systems integration Best practice: Integrate commercial card data into accounting/enterprise resource planning (ERP) and expense reporting systems. This streamlines processes significantly by eliminating manual re-keying of data, and it bolsters data visibility and control. Also, integrating card data into your supply chain management gives managers the information they need to more effectively negotiate discounts with suppliers. MANAGEMENT AND TRAINING Allocate sufficient resources. Establish metrics. Invest in training. Establish and enforce user policies. Challenge #4: Management and training Best practice: Allocate sufficient resources. Although many processes are automated, a commercial card program can t actually manage itself. The most successful programs have senior-management support and therefore get adequate resources, which need to increase as the program grows. RPMG finds that p-card program administration is a part-time position until the program has more than 200 cards in use; at that point, the program typically requires one or more full-time administrators. 21 Best practice: Establish metrics to guide management success. These could include annual spend target, percentage of suppliers converted and percent reduction in check volume. You may also want to benchmark program performance against published data or against the performance of similar organizations. Best practice: Invest in training. P-card administrators should attend user training conferences to stay current on new ways to use p-cards, new features and new program and card administration tools. In addition, businesses need to train cardholders, ideally in person, and with educational materials and regular policy communications. Best practice: Establish and enforce user policies. Successful commercial card programs document and encourage the types of goods and services that should be purchased with a card, as well as the preferred suppliers employees should purchase from. Also, card use should be mandated for certain purchases based on dollar amount, vendor type, and/or purchase category.

9 E-PAYMENTS & COMMERCIAL CARDs white paper 9 THE RIGHT TIMING Prioritize now. Challenge #5: The right timing Best practice: Prioritize now. In general, it behooves businesses to migrate to e-payments sooner rather than later. Think you re too small? From an operations standpoint, it s easier to set up and train staff when a business is relatively small than to change habits and systems down the road. As you grow, your business will be required to put certain controls in place to achieve regulatory compliance, including data collection and analytics; consider doing it now, when it s less complicated. Think you re too big? You don t want to wait until you have a problem with fraud; it s smart to get ahead of potential payment issues and reduce risk, and commercial cards and reporting data are a key part of that effort. A commercial card program makes e-payments migration a better investment Commercial cards are an integral part of a strategic e-payments program. Without them, you re barely tapping the benefits that make implementation of e-payments worthwhile, including rich data to support business insights and financial strategy, improved operational efficiencies, better management of working capital and increased fraud protection. If your company hasn t yet migrated to e-payments, there s no time like the present, whether your young company is experiencing rapid growth or your more established corporation is looking for ways to trim costs. Now you know some best practices for how to get it done, including working with a partner that can to get you on the path to migration, provide access to the resources you need to get your suppliers on board and help integrate and maintain your systems as efficiently as possible. Silicon Valley Bank Commercial Card Program CARD SOLUTIONS Realize flexible payment options worldwide with the Silicon Valley Bank MasterCard BusinessCard. Unify the purchasing and T&E spend of a larger corporation with the Silicon Valley Bank MasterCard Corporate Multi Card. ADVANCED REPORTING See smarter tracking and analysis of spending through MasterCard smartdata.gen2, an advanced web-based reporting system that integrates your Silicon Valley Bank card program with your accounting systems. INNOVATIVE PAYMENT CAPABILITIES Recognize greater spend control, security and efficiency with sophisticated purchasing capabilities. These include one-time virtual card numbers, ghost cards and supplier enablement for electronic payments provided through SVB transact Gateway and Silicon Valley Bank MasterCard Purchase Control. Let Silicon Valley Bank help you realize the full potential of your card solutions. Call or visit svb.com/commercial-cards.

10 E-PAYMENTS & COMMERCIAL CARDs white paper 10 Case Study: IPG Enacts Card Payments to Strengthen Relationships and Enhance Financial Position Silicon Valley Bank worked with IPG s finance team to plan and implement an innovative electronic card payment system that strengthens our operations and bottom line. Mary Rountree, VP of Finance, IPG Situation Implantable Provider Group (IPG) is a leader in the implantable medical device benefit management industry. The privately held company is venture-backed. Founded in 2004, IPG has grown at a compounded annual rate of 218% in recent years, with annual sales of about $50 million. Its annual purchasing totals about $20 million, with about 5,500 transactions involving more than 800 vendors. Challenge IPG seeks to ensure timely payments to its large and diverse number of suppliers. The company considered its vendor set-up and payments processes to be cumbersome and inefficient, dominated by checks and paper, and sought a more secure and efficient electronic payment solution. IPG hoped to increase electronic payments on its card program, leading to fewer check payments, reduced paper processing, improved working capital and greater visibility into expenditures. Its major concerns about increasing card purchasing were compliance, fraud and gaps in key payment file fields including purchase order numbers and general ledger information. Solution IPG s finance team worked with their Silicon Valley Bank team for a strategy to leverage electronic card payments for reduced costs and greater efficiency. Savings were generated through streamlined processes, improved control over expenses and automated supplier payments and reconciliation. The key to the solution was SVB s Multi Card program, which enables companies to combine T&E and purchasing in one platform, with a suite of tools for advanced payment insight, control and efficiency. The Multi Card solution also enabled IPG to automate supplier payments and reconciliation, streamlining its accounts payables, improving its working capital and enhancing its relationships with suppliers. SVB as part of this program provides proactive supplier enrollment outreach and support. Outcome In the first three months, IPG successfully enrolled about 50 vendors in the automated supplier payment program, with another 20 actively engaged, representing a total of more than $6 million in annual payments. IPG and SVB are conducting ongoing supplier enrollment outreach to continually expand that number. IPG s average cash flow has improved by more than 15 days, it is seeing cost savings from reduced checks, bank fees and research time, and it boasts a solid and growing alternative to check payments, providing streamlined processes, improved working capital, and greater control and visibility into expenditures.

11 E-PAYMENTS & COMMERCIAL CARDs white paper 11 SOURCES AFP Electronic Payments Survey, Association for Financial Professionals, Ibid Corporate Travel Card Benchmark Survey Results, RPMG Research Corporation, Purchasing Cards: Redefining Identity in the Evolving Payments Landscape, The Aberdeen Group, July Purchasing Card Benchmark Survey Results, RPMG Research Corporation, Ibid Purchasing Card Benchmark Survey Results: Market Trends and Best Practice Program Choice, RPMG Research Corporation, Purchasing Card Benchmark Survey Results, RPMG Research Corporation, Corporate Travel Card Benchmark Survey Results, RPMG Research Corporation, Purchasing Card Benchmark Survey Results, RPMG Research Corporation, AFP Payments Fraud and Control Survey, Association for Financial Professionals, Ibid. 13 Ibid. 14 Fraud the Facts 2014, Financial Fraud Action UK, Purchasing Cards: Redefining Identity in the Evolving Payments Landscape, The Aberdeen Group, July Purchasing Card Benchmark Survey Results, RPMG Research Corporation, Ibid Corporate Travel Card Benchmark Survey Results, RPMG Research Corporation, The Sarbanes-Oxley Act, Section 404, Purchasing Card Benchmark Survey Results, RPMG Research Corporation, Fraud Prevention and Detection: Establishing and Maintaining a Purchasing Card Program with Adequate Management Controls to Prevent Fraud, Misuse, and Abuse, National Association of Purchasing Card Professionals, Jan

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