Optimizing Your Payables Mix: A Guide to Maximizing Automation & Financial Return in AP

Transcription

1 Optimizing Your Payables Mix: A Guide to Maximizing Automation & Financial Return in AP Miguel Rodriguez Regional Director, Paymode-X, Bottomline Technologies, Inc.

2 Agenda Current Payments Landscape - Industry Statistics - Payment Types and Usage Results AP Spend Analysis Study Key Considerations - Industry Trends Q & A

3 Payment Strategies Traditional Check Most common form of B2B payments, but highest cost to process Suppliers will often permit day payment terms Check payments take 3-5 days to settle, increasing supplier s DSO WireTransfer Generally offer same day settlement for buyer and supplier High transaction fees to send and receive Typically reserved for large dollar or international transactions ACH (Automated Clearing House) Utilizes an electronic network via daily batch with 1-2 day settlement delay Standardized payment files with limited remittance Can be easily integrated into AP systems Traditional P-Cards Most widely used card payment product for procurement of goods by various channels Can replace the traditional PO/invoice/approval process May have embedded controls to ensure compliance

4 All Payment Types Are Important No single payment will win in business payments Checks ACH/EFT Cards Wires Cost (who pays) $1-2 (Buyer) Pennies (Buyer) 2-4% (Supplier) $5-25 (Buyer) Transaction Timing Determined by buyer Scheduled by Buyer At time of purchase Instant Good Funds Check may bounce NSF risk Chargeback risk Final Settlement Speed Data Varies (depends on when supplier cashes the check) Complete remit via paper Next Day hours Instant Remit via other method (fax, ) Supplier send purchase data to buyer (L2, L3) Remit via other method (fax, ) Fraud Risk High Medium Medium Low Other Familiar, acceptable, status quo Supplier reluctant to share bank info Buyer earns rewards or rebates Common for cross border and high value transactions Source: Glenbrook Partners, 2010

5 Primary Payment Methods Well over half of respondents make and receive B2B payments all or mainly as checks 60% and 65% respectively. Primary Method for Making Payments Mainly Card 3% Other 3% Do Not Know 8% Nearly one-quarter make and receive B2B payments mainly by Automated Clearing House (ACH) Mainly ACH 26% All or Mainly Check 60% 3% make and receive B2B payments mainly by card. Source: 2012 Federal Reserve Study, Electronic Payments & Remittance Data: Pain Points & Solutions

6 Barriers to Adopting epayments and eremittance 1. Trading Partners trading partners are unable or unwilling to originate and receive e-payments and e-remittance data. 2. Information Technology - businesses lack technology and IT resources needed to support more use of e-payments and e-remittance data. 3. More Standard Practices - many businesses cite the problem of non-standard e-remittance formats and business practices, which makes it difficult to readily exchange and automate e-remittance processing. For example trading partners reportedly use the X12 EDI 820 standard in such different ways that specific arrangements must be negotiated with each trading partner to enable processing of remittance data files. Businesses also report that remittance data frequently has key fields missing or incorrect data, making manual intervention necessary Electronic Payments & Remittance Data: Pain Points & Solutions, Federal Reserve Banks

7 Challenges to Implementing electronic payment systems What is your No. 1 obstacle to getting AP automation projects approved? 5% Lack of capital 23% Lack of senior executive attention and sponsorship 33% Lack of business case Solutions are not compelling enough Lack of internal IT resources 18% Too many other projects 2% 12% 7% Other Other projects, scarcity of resources and lack of capital present challenges when attempting to implement electronic payments programs *Institute of Financial Operations 2012 AP Automation Study

8 Transaction Volume Trends by Payment Type: Wire Transfer 250,000,000 Wire Transfer Volumes 200,000, ,000, ,000,000 50,000, Year November 2011, the Federal Reserve Banks implemented the Customer Transfer Plus (CTP) message that allows corporate originators of wire transfer payments to include up to 9,000 characters of extended remittance information within a wire transfer payment order, which can help facilitate end-to-end processing. Source: Federal Reserve Board of Governors

9 Trends by Payment Type: Commercial Card Key Findings Purchasing card spend in North America grew from $161 billion in 2009 to $196 billion in 2011 Growth is predicted to be 8% for 2012 and about a 9.6% per year average over the next five years Traditional spend categories: office equipment, computer hardware, software and peripherals, and MRO goods Benchmark Averages Monthly spend per organization: $2.1 million Transaction size: $343 Monthly spend per card: $2,393 Number of transactions per card per month: Purchasing Card Benchmark Survey Results, RPMG

10 Trends by Payment Type: ACH More than 21 Billion in US ACH Payments Reported in 2012 (April 15, 2013) According to research by the Electronic Payments Association (NACHA) ACH payment volume in 2012 exceeded 21 billion transactions for a total of $36.9 trillion, increases of 4.19% and 8.76%, respectively, compared to 2011 Web-based Transactions Web-based Transactions 10% 10% ACH debit payments 3% ACH credit payments 5% Check-initiated payments Native electronic payments 6% 7% ACH payments 4% 0% 2% 4% 6% 8% 10% 12%

11 Trends by Payment Type: Check The use of check is declining -5.7% The average value of checks paid decreased from $1,363 in 2006 to $1,292 in (8%) (12%) Coverted to ACH Checks converted to ACH averaged $227 in Including checks converted to ACH, the average value of a check written decreased from $1,278 in 2006 to $1,165 in (92%) 30.5 (88%) Overall, both the number and value of checks have decreased Paid as Checks Source: 2010 Federal Reserve Payments Study

12 Billions of Payments Check Decline Varies by Payment Purpose Total Number of Checks Written 2000 = 41.9 Billion 2006 = 33.1 Billion 2009 = 27.8 Billion (Overall decline of 33.7%) Payment Purpose Casual Income Remittance POS Remit/POS C2B B2B B2C C2C C2B declined 6.5B or 35% since 2000 B2B declined 1.2B or 13% since 2000 in Billions B2C declined 3.6B or 41% since 2000 C2C declined 3.1B or 56% since 2000 Source: 2010 Federal Reserve Payments Study

13 AP Spend Analysis Study

14 Account Payable Payment Trends: AP Spend Analysis Program What is the AP Spend Analysis Program? Review and analysis of a sample set of AP Vendor Master File by our experts Benchmarking peer data for payables mix and automation Calculation of operational costsavings and financial improvement opportunities

15 Summary of Results Statistic Total Median (File Size) Average (File Size) Payment Amount ($) $158,962,937,986 $316,924,720 $888,061,106 Transactions 12,253,593 24,231 68,456 Vendors 994,615 2,705 5, AP Spend Analyses $158B Analyzed

16 Organizations Analyzed From Small to Very Large Number of Participating Companies by AP Spend $ Size

17 AP Payment Trends: Payment Type % of Transactions Card 1% Wire 1% $160,000 $140,000 Average Payment Size $ $146,411 $120,000 ACH/EFT 32% $100,000 $80,000 Check 66% $60,000 $40,000 $20,000 $- $14,519 $9,342 $5,032 Card Check ACH/EFT Wire Paper Checks Remain the Dominant Payment Type!

18 Use of Payment Types: More Details Payment Type Transactions Per Vendor Payment Size per Transaction Annual Payment Total per Vendor # of Invoices Per Transaction Invoices per Vendor % of Vendor Population ACH/EFT $14,519 $399, % Card $5,032 $118, <1% Check 8.75 $9,342 $81, % Wire $146,411 $1,480, % Total $12,973 $148, % ACH a Win-Win for both Payers and Vendors!

19 When It Comes To Automation Success, Payer Size Matters % of Transactions by Type 100% 90% 80% 70% 60% 50% 96% 83% 76% 74% 70% 59% 40% 30% Check ACH/EFT 20% 10% 0% 1% 11% 19% 18% 29% 40%

20 In-house ACH Programs: Still Searching for Adoption 72% of the sample set (companies) pay with check for over 70% of transactions No ACH Program 26% 25% 11% of the sample set (companies) make greater than 30% of their transactions via ACH/EFT of the sample set (companies) make the majority of their payments via ACH/EFT 1st Generation In-house ACH Program 74%

21 Key Considerations

22 The Opportunity $30 Trillion in B2B Payments, a majority of which are still paper checks Primary Method for Making Payments More than 60% of businesses pay by check Other 3% Mainly Card 3% Do Not Know 8% More than 65% receive payments as a check Mainly ACH 26% All or Mainly Check 60% 88% of vendors receive their remittance as paper, or fax which requires re-keying As a document via , fax or paper with remittance detial that needs to be re-keyed Through a portal or network In a electronic file that is reconciled automatically (no manual intervention needed) 34% 32% 88% Some other method 12% Source: 2012 Federal Reserve Study, Electronic Payments & Remittance Data: Pain Points & Solutions

23 Choosing the Right Payment Mix to Meet Your Needs ACH/EFT Card Optimal Payments Mix Wires

24 Employing A Comprehensive Payables Strategy is Best Practice Repetitive payments Small, one off payments High dollar payments Travel and expense International payments ACH/EFT Card Bypass approval process One off payments Unbanked Payments requiring same day settlement Emergency low dollar payments Checks Wires Int l payments if ACH can t be used

25 Industry Trend: Settlement Networks or Portals Business commerce payments portals, also called exchanges or trading partner networks, ease connections between buyers and sellers. Source: AFP PAYMENTS DECISION GUIDE TO Business Commerce Portals A Networked economy is a collection of buyers and suppliers who share common connections. Source: Aberdeen, AP Invoice Management in a Networked Economy. Value-added services such as onboarding Vendors and maintaining them in the Vendor masterfile helps us overcome a lack of internal resources. Further, the provision of information exchange among buyers and Vendors improves the payments and invoice reconciliation process. Fay Deevy, assistant vicepresident, cash management & liquidity at Sun Life Financial. Source: AFP PAYMENTS DECISION GUIDE TO Business Commerce Portals

26 Payments Portals or Networks In addition to cost savings, other benefits of Payments Networks include*: Eliminate paper delays by automating processing Ensure greater accuracy in processing Update buyer credit limits quicker, which supports greater sales Identify new buyer and/or supplier opportunities Visibility of total company cash allows for improved and longer-term forecasting, better investment rates, reduced need to borrow, and better matching of revenue to expenses Better working capital management leads to higher enterprise value Improve compliance with trading partner agreements; opportunity to optimize payments timing * AFP PAYMENTS DECISION GUIDE TO Business Commerce Portals

27 How Does it Work? Member Payers make electronic payments to any member Vendor. Member Vendors receive electronic remittance data from any member Payer. Settlement Network

28 Settlement Network that is easy to implement Specialists onboard, manage and maintain the Vendor population SaaS model makes implementation easy, eliminating the need to rely on IT Works with existing financial and ERP systems

29 Payment Networks Deliver Business Benefits Payers PAYERS Financially Rewarding Gain Efficiencies Realize Cost Savings Leverage Current Systems Strengthen Relationships Reduce Paper and Carbon Footprint YOUR VENDORS Vendors WILL Access Cash Faster Strengthen Relationships Control Cash Better Realize Cost savings Gain Visibility Leverage the Network Effect

30 Payment Type & Optimizing Your Payables Mix Card 1% Current State Wire 1% Wire 1% Future State Check 20% Check 66% ACH/EFT 32% Card 8% ACH/EFT 71% Target For Increased Adoption Advanced AP Departments

31 Industry Trend: Working Capital Optimization Best in Class Accounts Payables Characteristics Maturity Class Invoice Processing Time Invoice Processing Cost Early Payment Discount Capture Rate Best-in-Class (Top 20% of aggregate performance scorers) Industry Average (Middle 50% of aggregate performance scorers) Laggard (Bottom 30% of aggregate performance scorers) 5.3 days $ % 10.2 days $ % 24.5 days $ % Taken together, we see that Best-in-Class organizations have shortened processing cycles, driven down costs, and opened up additional opportunities for cost savings all characteristics that position them to help support treasury. Source: Aberdeen Group 2012, Treasury Strategy and Operational Cash: the Importance of AP and AR

32 Industry Trend: Mobility - Access From Anywhere / Anytime Aite Group estimates that approximately 33% of small businesses currently bank via a mobile device While an additional 31% are interested in doing so. Approximately 54% will bank via mobile by Aite Group, 2012 Small-Business Mobile Banking: A Promising Opportunity

33 Concluding Remarks The majority of businesses are still burdened with costly check payments While larger businesses have greater success at migrating off check, they re still issuing checks for 59% of their transactions Migrating to electronic has significant appeal, but brings with it some internal hurdles A one size fits all payments approach does not exist the right mix of payment vehicles can differ for each organization Third party Payments and Settlement Networks facilitate payments between companies of any size Advanced AP departments utilizing a Settlement Network with a payments mix based on 3 things, can automate as much as 65-70% of their target transactions - Maximizing financial gains, - Lowest routing payment cost & - Strengthening Vendor relationships

34 5 Best Practice Tips Understand Your Vendor Population & Payment History Many organizations lack the time and resources to do an analysis of their Vendor population and payment history to identify helpful trends. This is Step 1 knowledge is power. Know How Your Vendors Prefer to Get Paid Are many of your Vendors already part of an existing payment network, or do they ask for a specific payment type? Find out to take advantage of momentum and increase Vendor satisfaction. Develop a Payables Optimization Plan Create rules for which payment types and terms are offered to your individual Vendor categories so you can maximize overall automation, cost reduction and financial improvement opportunities. Eliminate Non-Core Tasks for AP Expert Help Exists In-house approaches rely on AP to reach out to Vendors and onboard them to various payment methods, slowing adoption and increasing liability. Dedicated experts = accelerated adoption. Leverage Your Financial System & Bank Minimize business process re-engineering and cost by taking advantage of your existing ERP and bank relationships. SaaS/network payment automation tools integrate with what you have today.

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