2011 GSA SmartPay Training Conference Driving Federal Financial Supply Chain Under GSA SmartPay

Transcription

1 2011 GSA SmartPay Training Conference Driving Federal Financial Supply Chain Under GSA SmartPay Instructor s Name Instructor s Title, Citi

2 A Winning Hand: Solutions, Savings and Sustainability with GSA SmartPay The 13 th Annual GSA SmartPay Training Conference, Las Vegas

3 House Rules To ensure the best possible learning experience for participants, please adhere to the following house rules: Turn cell phones and pagers to vibrate Hold questions until end of session Ensure your participant badge is scanned to receive CLP credits For each course Must leave room and re-enter Take advantage of opportunities to provide feedback Please select the Citi Q&A icon on any Citi PC at the conference Answers to be ed after the conference within 60 days 3

4 Goals & Objectives Department of Defense This course is designed to assist you in achieving the following objectives: Use SmartPay to optimize your agency s financial supply chain Learn how to decrease supply chain costs and increase program rebate Discover ways to improve supply chain intelligence 4

5 Agenda A Look at the Federal Financial Supply Chain Federal Financial Supply Chain Challenges Solutions for Optimizing the Financial Supply Chain Purchase Card as a Method of Payment on Contracts Buyer Initiated Cards Supply Chain Finance Transportation Payments (Syncada) Conclusion 5

6 1. A Look at the Federal Financial Supply Chain 6

7 Numerous Opportunities Exist for Agencies to Improve Their Supply Chain All federal agencies are under budgetary challenges seeking ways to optimize processes and resources while unlocking new efficiencies Various procurement reform and cost-saving initiatives aim to reduce supply chain costs, create procurement efficiencies and enhance business practices in local economies. The Government Purchase Card is used for micro-purchases, but what about other payment categories? Is Purchase Card (Pcard) the best option? Are there other options? Solutions exist under the GSA SmartPay2 contract to generate value for the government while increasing program performance. These solutions are commercially accepted and deployed globally with the world s largest companies. 7

8 What Is Financial Supply Chain Management (FSCM)? End-to-end trade processes between buyers and sellers that depend on supporting financial information to effectively manage accounting, cash and fulfillment Buyer s perspective; this involves the full procurement-to-payment process For the seller, it is the order-to-cash cycle The trade cycle involves a number of different types of parties needing to exchange information and a variety of contractual documents in a timely manner A supply chain finance solution is a combination of technology (platform), services, applications, content, contractuel agreements and finance deployment We must understand the seller s cost of doing business to find ways to capture more value 8

9 Why Is FSCM Important to the Federal Government? Continual focus around Federal financial management: Accountability, Risk Management Transparency to the public Optimizing transaction value Inherent partnership: Federal Procurement and Financial Offices Tracking Federal obligation life cycle through multiple recipients Visibility into the transaction life cycle is paramount Large orders usually consist of complex trade terms, business rules and extensive invoice data Varying relationships between government trading partners Data Helps drive down costs and drive competition Increased program rebates 9

10 The Purchase Card Is an Important FSCM Tool Used Today Agency Benefits Reduces paper and manual processing on micro-purchase transactions, minimizing costs Accelerates payment process to avoid agency prompt payment penalty payments Electronic transaction creates robust supply chain intelligence to support strategic sourcing Web-based tools enable streamlined program management and monitoring for misuse Program rebates create additional financial value for the agency Supplier/Merchant Benefits Suppliers receive immediate payment on an approved invoice rather than waiting 30 days Electronic payments reduce costs for processing checks and cash Increased average transaction amounts when using electronic payments 10

11 2. Federal Financial Supply Chain Challenges 11

12 PCard Utility Peaks On Large-Ticket Transactions The primary limitation on growing the purchase card program is the discount rate that merchants have to pay to accept the card While merchants are willing to pay the rate for small-dollar transactions, they are not willing to do so for high-dollar transactions Different merchants have different thresholds as to when the size of the transaction and associated discount rate become untenable $35,000 Contract Invoice $30,000 $25,000 $20,000 $15,000 $10,000 Estimated PCard acceptance threshold $5, $0 $25 $63 $125 $250 $500 $750 Merchant Fee

13 Contracts Have Unique Payment Challenges and Opportunities Electronic invoice processing and payment can drive efficiency into your agency s supply chain, while reducing costs 13 Agency Challenges Over-Dependency on Disparate Systems High Degree of Manual Processing Burdensome Pre/Post-Payment Audit High Payment Frequency Prompt Pay Penalty Minimal Trading Partner Visibility Greater Supply Chain Intelligence Opportunity to Improve Augment existing systems through tools that automate and standardize data flow Consolidate procure-to-pay process through automation, reducing costs Electronic capture of required data to streamline compliance Consolidate multiple contract payments into one monthly payment Automation accelerates pay process, while quickly identifying exceptions Collaborative platforms with trading partners expedite processing Robust reporting at transaction level can support cost-reduction efforts

14 Unnecessary Costs Exist in the Federal Financial Supply Chain Agencies payment terms are standard 30 days, while suppliers are seeking fastest payment possible. Suppliers use credit lines to finance their working capital until they are paid Creates a cost to supplier operations, ultimately passed to the Federal Government As an example, a $10,000 invoice financed at 10% APR, costs a supplier $83.33 Product Delivery Date Buyer Payment Date $10,000 Invoice Day 0 Day 30 $83.33 = $10,000 x 10% x 30/360 Supplier Collection Date $83.33 Cost to Supplier The government offers discounting options to suppliers, but these discounts can actually increase the agencies supply chain costs. 2% 10, net 30 requires 20 = to 29% APR for supplier PCard = 2.5% average interchange equates to 30% APR 14

15 The Federal Government Can Reduce Costs on Large Pay Flows Payment Category Annual Size Opportunities for Improvement Contracts Transportation $537 Billion* $24 Billion** Standardize transaction processing Automate manual and paper processes Streamline the amount of payments Drive supply chain cost reductions Standardize transaction processing Automate manual and paper processes Streamline the amount of payments Drive supply chain cost reductions * USASpending.gov, 2010 FY ** Federal Budget, Object Class 22 15

16 3. Solutions for Optimizing the Financial Supply Chain 16

17 Purchase Card: A Method of Payment on Contracts The Purchase Card Supports Paperless Procurement Average savings with a PCard is over $70 per transaction Consolidated data provided by a PCard program results in an average of 2.2% savings per vendor PCard micro-purchases are usually less than 1% of an agency s contract payment universe Increase PCard program by 5% 10% Suppliers seeking liquidity via early payment will accept a PCard for transactions $30,000 Reduce payment frequency, consolidating into one monthly invoice 17 Acquire supply chain intelligence through electronic transaction data

18 Large Ticket Interchange Rates Lower Supplier Costs and Promote Greater PCard Use Suppliers that accept PCards can elect to be eligible for Large Ticket interchange rates, which are lower than standard rates They do this by passing Level 3 Data, which includes: item product code, item description, quantity, tax rate, discount indicator and more. By passing this data through the card network and back to the buyer for analysis and reporting purposes, the suppliers benefit from lower acceptance costs Note that not all suppliers are large ticket suppliers Citi can work with targeted suppliers to on-board them into a Level 3 Data program 18

19 Citibank Buyer Initiated Card (Paylink) Specialized payment portal on which select suppliers can register and participate in initiated payment offers before general payment terms are reached. Provides revenue opportunity for agencies and automated remittance for the supplier when discounts are not offered. Product Overview File-based payment process supporting settlement via P-Card Extension of existing P-Card virtual card offering Utilizes the Citi Payment Gateway (CPG) which acts as the network between the Buyer, Citi Commercial Cards, the Supplier, and the Supplier s acquiring bank Extend electronic payment capabilities to include P-Cards in a consistent process and format with ACH and EFT Creates specialized, lower cost interchange rates for suppliers Reduce Costs Increase Efficiency & Control Key Advantages Maintains existing processes Increases purchase and payment efficiency Enables efficient reconciliation, reporting and control for Buyers and Suppliers Provides revenue share / cost recovery opportunity 19

20 Citibank Buyer Initiated Card (Paylink) Purchase Order 1 Invoice 4 2 Payment Gateway Bank Supplier Payment File 3 Buyer 5 Text 5 Bank Supplier Text Bank Process Flow 1. Buyer sends purchase order to supplier, receives and approves invoice 2. Buyer sends payment file to Citi 3. Citi validates file, matches supplier data, and routes payment to acquiring bank 4. Supplier receives payment directly in their acquiring bank account 5. Buyer receives reconciliation file; supplier receives remittance data from Citi Supplier 20

21 Citi Supplier Finance Creates New Opportunity with Suppliers REDUCE SUPPLY CHAIN COSTS STRENGTHEN SUPPLIER BASE SUPPORT AMERICAN SMALL BUSINESS Leverage ~AAA rating to reduce costs within Agency supply chain Creates visibility into savings generated through the program to facilitate greater cost reductions with suppliers Utilizes existing pay processes and systems, without adding to workload Reduce supplier interest expense reduction, which can be used to negotiate COGS Improve working capital Enable suppliers to more quickly liquidate receivables on their balance sheet Increase credit access and reduce interest expenses to small businesses Directly support recovery efforts for the American economy 21

22 Citi Supplier Finance Can Reduce Costs in the Supply Chain By reducing supply chain costs, agencies can reduce their own costs Supplier finances $10,000 invoice at 10% until Agency approves invoice on Day 10, then uses CSF to receive payment early, with the unlocked economic value shared with Agency Basing early payment on an approved invoice, using U.S. government s ~AAA rating, will reduce cost of credit for participating agency suppliers Product Delivery Date Day 0 $27.77 = $10,000 x 10% x 10/360 Supplier Receives Early Payment Buyer Payment Date Supplier Discounts at a rate of 3.5% APR $19.44 = $10,000 x 3.5% x 20/360 $47.21 New Cost to Supplier $36.12 (43%) Savings to supplier 22

23 Supplier Finance Strengthens the Financial Supply Chain Agency Benefits 1. Create a New Profit Center Co-Marketing fee available to (i.e. rebate) Unlock value on invoice spend already occurring 2. Consolidate Vendor Payments Reduce workload of CO/COTR and Payment Office by making only one payment to Citi per day for all invoices due to participating suppliers for that day 3. Reduce Agency Costs by Reducing Supplier Costs Leverage ~AAA rating to reduce supplier finance costs, while creating visibility into savings generated for each supplier 4. No Cost to Agency No fees from Citi to implement or manage the program Utilizes existing payment processes and systems, to ensure minimal operational impact 5. Readily Available Procurement Vehicle Offered by Citi under GSA SmartPay2 contract as a Tier 2 service Suppliers Benefits 1. New Credit & Liquidity Source Reduce supplier credit costs, while providing access to credit that many suppliers do not have access to today 2. Working Capital Benefit Accelerate supplier cash flow through reduction in Accounts Receivables and shortened DSO 3. Easy Enrollment and No Upfront or Ongoing Costs No financial statements required from the supplier to enrol for the Supply Chain Finance program No setup or ongoing costs to use the web-based platform which is provided for free 4. Suppliers Have Flexibility to Participate Suppliers can choose which invoices they finance, many of which typically elect to auto-finance 23

24 Suppliers Will Adopt Supplier Finance If It Reduces their Costs 0 5% Adoption 6 15% Adoption 16 30% Adoption 40 70% Adoption 30% 29% 2.5% PCard Interchange 2% 10 Net 30 18% Interest Rate APR 16% 14% 12% 10% 8% 6% 5.96% 15.38% 12% 4% 3.73% 2% 1.45% 1.65% AAA A BBB- B- CC Non-Rated 24 Supplier S&P Rating

25 CSF Streamlining the Payment Process by Reducing Payment Frequency Agencies currently manage each individual payment with their suppliers, resulting in thousands of transactions each month Supplier Supplier Supplier Supplier Finance will consolidate the pay process, reducing the number of payments and vendor codes, decreasing workload on agencies pay offices Supplier Supplier Supplier Agency Supplier Agency Citi Supplier Supplier Supplier Supplier Supplier Supplier Supplier 25

26 How Citi Supplier Finance works Agency approves supplier s invoice for payment Buyer generates standardized instructions for Citi to pay supplier on future due date Supplier is notified of future payment through Citi Supplier may immediately convert future payment to cash 5 On due date, Agency funds its disbursement account for the full amount due 26

27 Transportation Payments Require Specialized Capabilities Payment terms and processes for transportation can be costly and cumbersome for both buyers (shippers) and sellers (carriers) The cost of processing freight-related payables and receivables is high for many reasons, among them: Complicated, detailed pricing structures Very specific and often stringent audit requirements The extensive amount of paperwork that results from complex invoices and arduous auditing Diverse payment processes result in lack of control and visibility to the shipper s global supply chain While EDI for transportation has been around for over 40 years, it has less than a 50% market penetration Without 100% standardized electronic data, agencies lack efficient means for aggregating correct data for logistics analysis and accounting information Pre- and Post- Payment audits are highly manual and time intensive Shippers and Carriers are seeking methods to improve the billing, payment and cash application of their trading partners 27

28 Agencies can automate their Transportation Pay & Audit Process 28 Snapshot of Syncada Global Transportation Network of 11,990 carriers and 187 buyers facilitating over 85,000 trading relationships. Processes annually 23.8 million transactions, 98 million small pack waybills - valued at over $19.4 billion Global staff of / customer service in 22 languages Local payments in 47 countries in 15 currencies Serve 300+ Fortune 2000 & large Government Agencies Extensive global patent and trademark portfolio Common Transportation Pay Challenges Manual processing of BOL and Invoice is inefficient by today s standards Paper intensive processes are costly and limit data capture Audit processes can be burdensome and time consuming Unprecedented need for robust supply chain intelligence to support program performance and cost reduction Multiple payment processes and systems across an organization challenges oversight requirements Citi Integrated Freight Payments Consolidate manual processes into one seamless electronic workflow: Complete invoice data and image capture Rules based processing to support compliance Automate the audit and G/L assignment process Financial reconciliation at the transactional level Drives standardized processing and payment Facilitating collaborative exception management Single monthly invoice, condenses individual payments to carriers Robust supply chain intelligence supports audit and cost reduction programs Early Payment rebate for participating agencies Generates 7.5% Operational Cost Savings against Transportation program, on average

29 Citi Integrated Freight Processing A global supply chain network backed by Syncada from Visa that automates invoicing and payment processes Automates the entire audit, approval and payment processes related specifically to freight invoices Provides an online forum for collaboration between buyers and suppliers, enabling both parties to work together to resolve invoice exceptions quickly Standard, electronic file and data formats allow for information to be integrated seamlessly into financial systems 1. Order for Transportation (BOL) Buyer Seller Buyer Sponsor 3 Audits 8 Analysis 5. ACH Payment to Carrier Seller Sponsor 29

30 4. Conclusion 30

31 Conclusion Agencies have the opportunity to reduce their program costs utilizing tools and processes that they are using today Transcending Purchase Cards for micro-purchase transactions will enable agencies to improve their financial supply chain at new levels Agencies should consider solutions that are proven and readily available There is minimal risk with piloting these solutions COTS readily available under the GSA SmartPay2 Contract Product Available GSA SmartPay2 Contract PCard Tier 1 Product Offering Buyer Initiated Tier 2 Product Offering Supplier Finance Tier 2 Product Offering Syncada Tier 2 Product Offering 31

32 Instructor 32

33 Reminders Thank you for attending! Visit the Citibank Welcome Center Level 3 Foyer West National Industries for the Blind will have a display of products Conference Slide Show come see yourself shine! Visit the Citibank One-on-One Lab Lido 3101 A/B Visit the Citibank Mini Sessions Lido 3001 A/B Citi Q&A Tell us your thoughts 33

34 Schedules available at the Welcome Center 34

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