Trends, Strategies & Solutions changing the world of Corporate Payments and Working Capital

Transcription

1 Trends, Strategies & Solutions changing the world of Corporate Payments and Working Capital 1

2 AGENDA Introductions Goal for this session B2B Holistic Payments discussion North America Trends, Strategies & Solutions Business Case Where does one begin? Hallmarks of a successful initiative Summary and Q & A 2

3 B2B Holistic Payments Vision & Strategy.. A New World Trend: Holistic Payment Strategy now includes all three Payments (EFT, ACH, Wire, Cards, BIP, cheques) + AP Automation (einvoicing, EIPP, Discount Management ) + Working Capital (Supply Chain Finance, Buyer-Initiated-Payment ) = Client attains process transformation, savings and unlocks working capital Enables Treasury & Finance: move 80% 90% of payments to electronic optimize hard $ savings and unlock working capital realize process efficiencies and transformation A Client with $102.5 million spend targeting to save $643 thousand annually. 3

4 B2B Holistic Payments Strategy transform Payments into Performance 100% 0% EFT 21% Wire 7% BIP 0% Card 5% Paper Cheques 67% Present Invoices/Purchase Transactions EFT 41% Wire 9% BIP 10% Card 35% 5% Goal Invoice/Purchase Transactions HIGH COST LOW # of Transactions ACH EDI Payment Terms Mid $ LOW COST HIGH # of Transactions Pcard, T&E Fleet Paper Cheques PayStream Advisors Inc. Market Study Report, B2B epayments, Q Cost reduction - reduced headcount, process efficiency - reduce duplicate payments and lost cheques - earn significant card rebates - reduce data entry errors Cash Flow - improved visibility into payments & spend - better cash flow forecasting Fraud - reduce risk of payment fraud, Positive Green impact - remove paper Increase supplier satisfaction - reduce DSO 4

5 Create New Holistic Payment Distribution.. map to Spend $$ and Suppliers deliver savings 100% EFT 21% 15% Wire 7% BIP 0% EFT 41% 66% 5% 7% Card 5% Wire 9% 40% BIP 10% 9% Paper Cheques 67% Card 35% 10% 10% 33% 0% Present Invoice/Purchase Transactions 5% Goal Invoice/Purchase Transactions 5% $$$ Spend # of Suppliers 5

6 Results of Holistic Analysis Client Spend Data: Addressable Spend $ Paid by Card $ 1,538,480 Paid by EFT $ 13,461,765 Paid by Wire $ 5,365,256 Paid by Cheque $ 82,199,859 Total $102,565,360 Invoices 85,820 Suppliers 6,860 DPO 40 Days Targets: Payments 90% electronic payment (EFT + Card + BIP + Wire) Savings Optimize Working Capital Key Priority 6

7 Holistic Payment Value ($102.5 Million Spend) Income Statement impact: Goal Savings epayment Savings $ 68,947 Card Rebate $ 76,924 Buyer-Initiated-Payment Rebate $ 53,334 AP Automation - Return on Cash & Discounts $ 170,357 - Compliance $ 138,463 AP Process Savings $ 135,000 Steady State Savings (annual) $ 643,025 Balance Sheet impact: Unlock working capital Supply Chain Finance $1,410,274 Buyer-Initiated-Payment $ 712,259 EPS impact: $ $0.04 7

8 Value: Card Goal generates savings. 35% of transactions 10% of Spend 40% of suppliers What are they? Corporate Credit cards Issued to designated employees and/or key vendors To purchase business-related goods and services, fleet, travel and entertainment Why use them? Rebate: $ 76,924 - Card Spend $10.25 million - Target Transactions 30,037 Streamline procurement for high volume, low dollar transactions Take costs out Earn financial rebates Extend DPO 8

9 Buyer-Initiated-Payment generates savings and unlocks working capital 10% transactions.. 10% of Spend $ 7% of suppliers What is BIP? Growing payment method Many industry names e.g. Buyer-Initiated-Payment, BIP, B2B, epayment Merges functionality of pcard & EFT/ACH Win - Win with suppliers How is it used? To pay for goods and services from many suppliers, including: - any PO & nonpo-based suppliers - suppliers that do not offer early pay discounts - suppliers that offer Net 30 or Net 45 terms - any Indirect and Direct purchases Fits easily inside a Buyer s PO system. Buyer sends regular payment request files to bank, once invoices approved to pay Bank funds & pays the suppliers directly 9

10 Value: Buyer-Initiated-Payment Buyer Earn a financial rebate Extend DPO Extend DPO to days Pay bank once per month e.g.1 month plus 7, 14, 21 or 27 days Unlock working capital Idea: Use Business Line of Credit to extend another days. Rebate pays for interest. Fits easily inside PO process No change management Process efficiency Automated payment reconciliation and Rebate: upload $ to ERP, GL & AP - BIP Spend $ million - Target Transactions 8,582 Unlock $712,259 working capital Reduce DSO Supplier Paid earlier by the bank < 30 days Many buyers extending DPO to days Low payment fee Similar to an Early Pay Discount Increase process efficiency No-touch, Straight-Through- Processing and Payment Electronic remittance process Maintain Privacy No supplier banking information shared with Buyer 10

11 Value: epayment (ACH & BIP) 51% of transactions 76% of Spend 22% of suppliers New Functionality Makes it easy to transition from paper cheques to epayments Reduces the heavy admin - delivers up-to-date supplier banking information. Resolves the remittance & reconciliation challenges - deliver detailed electronic remittance documents. Value of Goal state to Buyer (using $102.5 million spend) "As is" costs "Goal" Target Costs Metrics # Pymts Cost Fee # Pymts Cost Fee Check 48,874 $1.57 $76,733 3,647 $1.57 $5,726 epayment 14,418 $0.15 $2,163 28,149 $0.15 $4,222 Wire 6,007 7,724 Card 4,291 30,037 BIP 0 8,582 Total 73,591 $78,896 78,139 $9,949 Move to epayment generates Savings: $68,947 11

12 Value: epayment opens the door to AP Automation Use of Cash to capture Contracted Discounts & Standing Discounts on a Sliding Scale. Enables a new world of Working Capital 3% New opportunity for Use of Cash enables stable APR sliding scale discounts at any point beyond the traditional 2-part term drop date. 2% 36.5% APR Greater than hurdle rate? % Discount 1.5% 1%.5% Traditional Use of Cash Days New approval # of Invoices Current Approval 60 12

13 Value: AP Automation 1. Standing Discounts with Effective Terms - Treasury can offer Standing Discounts to suppliers greater than Hurdle Rate - Effective Term provides Treasury control i) dynamically turn on/off ii) seasonal control 2. Dynamic Discounts - At end of fiscal periods, surge in supplier need for cash - Now Treasury can dynamically propose an early pay discount to a supplier against specific invoices - Suppliers can dynamically propose to buyers - Target specific suppliers at a specific point in tim Savings: $170,357 (0.21%) Target Addressable Spend: $ 82,052,288 Most recent Hackett, IOMA & Aberdeen study says 0.3% 1.0% per $1B spend 13

14 Value: AP Automation drives AP Compliance Functionality 5% of invoices contain errors (IOMA AP Department Benchmark) Invoice compliance validation - Network Test: Insures only accurate invoices are passed into the Network. - Matching Test: 3 & 4 way match. - Workflow Test: Approval Workflow. Savings Drives high Compliance Target Spend: $92.3 million Compliance Savings $138,463 (0.15%) (Most recent Hackett: 0.2% 0.7% of spend in savings leakage) 14

15 Value Holistic Strategy: Process Savings (FTE) FTE reassignment opportunity: 1) Due to Card & EFT & BIP Payment processes 8% - 10% 2) Due to einvoicing processes 25% - 35% Process Savings (FTE) $135,000 (Reassignment opportunity 3 of 9 $45,000 loaded cost) 15

16 Value: Supply Chain Finance (SCF) use with Strategic Suppliers to unlock Working Capital This mechanism allows a bank to provide immediate liquidity to a supplier by purchasing the receivables confirmed by the buyer and allocating the entire risk to a solid buying entity and is proving to be a successful risk alleviator. Overall Metrics Current Goal Total Targeted Spend ($) $67,693,138 Spend Target for SCF (%) 15.00% Days Payable Outstanding (Target) Valuation Rate for Working Capital Unlocked (WACC) 3% 3% Working Capital Unlocked $1,410,274 Total Incremental 3% $ 42,308 (Weighted Average Cost of Capital) 16

17 Holistic Payment Value ($102.5 Million Spend) Income Statement impact: Goal Savings epayment Savings $ 68,947 Card Rebate $ 76,924 Buyer-Initiated-Payment Rebate $ 53,334 AP Automation - Return on Cash & Discounts $ 170,357 - Compliance $ 138,463 AP Process Savings $ 135,000 Steady State Savings (annual) $ 643,025 Balance Sheet impact: Unlock working capital Supply Chain Finance $1,410,274 Buyer-Initiated-Payment $ 712,259 EPS impact: $ $

18 Where do I start? Ease vs. Opportunity DIFFICULT Ease of Implementation P H A S E 4 P H A S E Grow all solutions to include all suppliers Next 6 months EFT Growth Card Growth BIP Discount mgnt AP Compliance EFT Growth Card Growth Next 9 12 months BIP Growth Create Holistic Payment Strategy P H A S E 3 P H A S E 2 1 Next 6 9 months First 6 9 months EASY Savings Opportunity Low High 18

19 Hallmarks of a Successful B2B Holistic Payment Strategy & Initiative Key Success Factors Executive support & buy-in from all stakeholders Supplier Enablement aligned with customer Goals/Objectives Strong supplier compliance position Communicate often Change Management Plan in place Resources required to be active Executive sponsor Accounting, Treasury, Finance, AP, Procurement and IT Obstacles to be overcome Lack of executive leadership / program vision-metrics Poor communication both internally and externally to suppliers Creation and execution of a compelling value proposition to suppliers 19

20 Summary of Value Creates a roadmap to move 90% of payments to electronic Achieve process transformation & efficiencies Take costs out of Operating Budget Unlock working capital Win Win with suppliers Helps supplier optimize working capital Reduce Days Sales Outstanding and take-out costs Infrastructure Enhance (not replace) current solutions 20

21 Thank You Doug MacCallum Managing Director BMO Spend & Payments Solutions