Performance Measures that Matter. The benefits of Payables Automation. Laura I. Maydón Visa Latin Trade CFO Events Mexico City, June 16 th 2011

Transcription

1 Performance Measures that Matter The benefits of Payables Automation Laura I. Maydón Visa Latin Trade CFO Events Mexico City, June 16 th 2011

2 Note: Survey results, research and recommended practice recommendations are intended for informational purposes only and should not be relied upon for marketing, legal, technical, tax, financial or other advice. When implementing any new strategy or practice, you should consult with your legal counsel to determine what laws and regulations may apply to your specific circumstances. Visa is not responsible for your use of the information, including errors of any kind, or any assumptions or conclusions you might draw from its use. 2

3 Key focus areas for Finance Executives As our economies are poised for continuous growth, companies look at their own financial standing and processes to free-up resources for additional investments. Key to identify opportunities for impactful improvements to: More Effectively Focus on Managing Working Capital Create and Automate a Payments Strategy Monitor Spending Enhance Strategic Sourcing Deploy a Controls Strategy Cut Costs Source: 2010 Business Outlook Survey, Association of Financial Professionals. Visa Inc., 2009 Global Cash Management Study. 3

4 Focus on Accounts Payable can help meet targets CFO s recognize that Accounts Payable: Impacts working capital Plays a strategic role in the bottom line Control When Invoices Are Paid Adhere to Supplier Terms Take Early Pay Discounts Avoid Late Payments Take Advantage of Card Credit Lines Extend Days Payable Outstanding (DPO) Source: The CFOs View of Accounts Payable. Cash is King Aberdeen Research, February,

5 AP automation AP Automation can lead to savings and improve working capital Payments, the least painful component of AP automation, is poised to lead automation. AP Automation Pain Index (% of top-two boxes of a five-point pain scale) Invoice receipt 24% Matching 25% Imaging / data capture 25% Approval processing 25% Discrepancy resolution 35% Studies have suggested payments automation can drive up to 4% supplier discount savings on indirect spend and 10% to 15% savings potential on travel provider T&E spend. Accessing invoice info 14% Payment 7% viewed as the least painful Supplier spend mgmt 18% Source: From First Annapolis: 2007 PayStream Advisors, Inc., "AP Automation for the European. Market," Q First Annapolis market observations. 5

6 Commercial payments are expected to continue growing Streamlining the AP process takes on added significance when considering the sheer volume and continued growth in commercial payments. Growth in Global Commercial Spending (in trillions USD) U.S. Latin America/Caribbean Central/Eastern Europe, Middle East & Africa Canada Europe Asia Pacific Source: Visa, Inc. Commercial Consumption Expenditure Index,

7 LAC LMM companies have a great potential to address automation using cards for B2B payments Canada 2% 4.5% Government Asia Pacific 29% Europe 32% U.S. 21% CEMEA 9% ALC 6% ALC CCE = $5T 45% 22.5% 32% Large Medium Small LMM CCE = $ 3.4 T LMM Card Addressable market Billions of USD TOTAL LMM T&E Argentina Brazil Chile Colombia México Perú Total $69.7 $474.3 $80 $66 $178 $33.9 $902 B B LMM addressable market estimated to be 26% of its CCE. Corporate Travel Segment is 1.9% of addressable. Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, July Global CCE index data sources include Bureau of Economic Analysis (BEA), U.S. Census Bureau, Organization for Economic Cooperation and Development (OECD), Structural Analysis (STAN) Database, EuroStat Database, General Government Accounts from the National Accounts of OECD Countries, United Nations Statistics Division National Accounts Main Aggregates Database, EIU proprietary databases, government data and EIU model estimates where government data was unavailable. Large contracted defense spending not included in CCE index. Addressable market estimated by First Annapolis Study. 7

8 and T&E expenses The total LMM addressable T&E market in all of Latin America is estimated at $21.9 billion. Millions of USD Argentina Brazil Chile Colombia México Perú Total $1,232 $9,055 $1,097 $1,591 $4,011 $517 $17,502 First Annapolis performed a study and measured the total T&E addressable market opportunity for the six countries mentioned above in LAC: a) Applied business travel benchmarks to total industry revenue figures for the large and middle market (LMM). b) Assumptions by product and spend category were driven by multinational and local travel agency interviews, along with validating secondary research. Approximately 80% of all LAC T&E addressable* All LAC $21,878 Source: First Annapolis Addressable Market Study

9 Capture the opportunity: create and automate a Payment Strategy Strategic Sourcing Order Placement Payment and Settlement Reconciliation Control and Audit Reporting Contract Lifecycle Management Tools esourcing Tools e-procurement Systems Supplier Network Online Travel Booking Electronic Payment Methods (Commercial Card and ACH) Electronic Invoice Payment and Presentment (EIPP) Systems Automated Expense Management Tools Integration of Payment Systems with ERP and e-procurement Systems Electronic Receipt Storage/ Imaging Consolidation of Global Spend Data in ERP System Source: 2008 Visa/Deloitte Procure to Pay and Commercial Card Best Practices Study. 9

10 Tools for making commercial payments Which of the following payment methods does your organization use to make commercial payments? 88% 86% 76% 77% 67% 73% 60% 50% 53% 48% 40% 68% 38% 30% 17% 76% 60% 33% 47% 40% 88% 80% 73% 70% 28% 20% 33% 90% 97% 90% 90% 57% 80% 78% 72% 70% 66% 58% 57% 50% 43% 38% 17% 15% Checks Automated Clearing House (ACH) Wire Transfer Commercial Payment Cards US Canada Mexico Brazil Germany France Australia South Korea Japan South Africa Source: 2009 Global Cash Management Survey. 10

11 Payment Strategies Recent NAPCP / First Annapolis research found that as buying organizations develop a payment strategy, they will consider multiple factors when deciding on an optimal form of payment. Buying Organization Payment Type Decision Factors Org policies / procedures Your process costs Documents required Frequently 76% 68% 66% Sometimes 14% 20% 20% Purchase amount Complexity of transaction Revenue share Float 30% 34% 53% 49% 39% 28% 18% 27% Cash flow to supplier 19% 33% Cost / fees to supplier 8% 35% Source: NAPCP / First Annapolis, End-User Perspective on Suppliers Acceptance of Card Payments, June 2010 (n=146). Question: How often does your organization consider the following factors when determining how to pay a supplier willing to take any form of payment? 11

12 Payment Strategies Supplier type can also influence a buyer s Payment Strategy. Supplier types: Change in Use of Electronic Payments Strategic Catalog Direct Indirect Large Ticket Small Ticket On-Going In the context of these considerations, ACH and purchasing cards have been increasing while check payments have declined. Checks Purchasing Cards ACH Wire Transfer 22% 31% 48% 67% 34% 48% 44% 30% 56% 8% 3% 10% One-Time Increased Same Decreased Source: PayStream Advisors, Electronic Payments: Streamline P2P, Reduce Costs, Q

13 Why use commercial cards to automate AP? Commercial cards can help enable organizations to transform processes to meet more aggressive performance goals and address untapped opportunities. Cut Costs Automate Payment Strategy Deploy Controls Focus on Managing Working Capital Monitor Spending Enhance Strategic Sourcing 13

14 Needs B2B for Payment electronic Selection invoicing are driving payment automation As electronic invoicing increases, cards are embedding into AP systems. Supplier Invoices (actual and projected % by type) P-Card integrated with A/P (U.S. market, 2007) 80% 60% Electronic Invoices Paper Invoices yes 35% no 65% 40% P-Card integrated with A/P (U.S. market, 2010) 20% 0% yes 42% no 58% Source: Supplier invoice %s from Beyond Plastics, Citi, GSA SmartPay 2010 Conference. P-card integration with A/P %s from the 2007 and 2010 AFP Electronic Payments Surveys of 493 and 484 members and customers respectively (primarily US-based). 14

15 Cards B2B are Payment attractive Selection for companies compared to other tools for payments Across the Americas, Europe, and Asia, cards are considered low cost and innovative. Q: Describe the relative per-transaction cost for payer (i.e., buyer) organization (1). Q: Describe the level of innovation/continual improvement in form of payment % lower cost more innovative High Medium Low No cost Don t know High Moderate Low Very low Don t know E-transfer (ACH) Wire Card Check Cash (1) From First Annapolis : due to the multi-country / continent scope of the survey, an attempt was not made to quantify High, Medium, or Low for purposes of this survey. Source: CPI / First Annapolis Summer 2010 Commercial Payments Trends Survey. August / September N =

16 Furthermore, Why use Cards cards to can automate drive costs AP? down and improve the bottom line Although U.S. market estimates vary, consensus exists that p-cards save money. Note: Costs below are market benchmarks and may vary from any given end-user organization s actual internal costs. Pay Reconcile Error handling Invoice Receive Order Approval Requisition Average Cost per Transaction by Process $59 $57 Note: Cost estimates based on tasks required, salary of individual performing the tasks, and time required. Implementation / systems costs. are excluded. For p-cards, implementation cost can range from $25k to $250k. Source: Accenture Procurement to Payment Process and the Role of Procurement Cards, $35 $32 $30 Manual / paper process $27 Virtual P-Card $16 $15 ERP EDI eprocurement einvoice Plastic P-Card $9 $9 Form of payment check check ACH p-card check ACH ACH p-card ACH p-card 16

17 Cards can significantly improve working capital for suppliers and buyers Goods / Services Received Payment Initiated Check clears Buyer funds payment Supplier paid Check 30 days Buyer average DPOs = 35 days Suppliers average DSOs = 35 days 5 days Goods / Services Received Payment initiated Supplier paid (1) Buyer billed by P-Card Provider (2) Buyer pays Provider (3) P-Card 5 days 15 days 20 days Buyer s average DPOs = 40 days (Buyer gets 10 extra days float) Suppliers average DSOs = 5 days (reduced from 35 days) Working Capital Improvement for: Supplier Buyer (1) assumes Buyer may need to validate receipt prior to initiating payment. When physical p-cards are used, they are often charged at the time of goods / services receipt. (2) assumes the hypothetical transaction took place midway through the monthly billing cycle. (3) assumes Buyer has 20 days after the monthly billing cycle / statement date to pay P-Card Provider. Source: First Annapolis Consulting good faith illustrative example. 17

18 Cards have transformed from Purchase Only Tools to Payment Tools Although purchasing cards have traditionally been used to pay for small dollar purchases, technology now exists to embed cards into an automated PO process and to handle larger transactions. Purchasing Card Highest Ticket Capture All survery responders High revenue High spend $2,500-5k $5-10k $10-15k $15k+ High capture 0% 20% 40% 60% 80% 100% Source: NAPCP / First Annapolis, End-User Perspective on Suppliers Acceptance of Card Payments, June 2010 (n=146). Question: Is it very common or common for your organization to place the following transaction amounts on a card? Query identifies responses of "very common" or "common" in successively larger average ticket ranges. For example, answering "very common" or "common" for $2,500-5k and for $5-10k, but not for larger ticket ranges would bucket respondent into $5-10k. High revenue = $1 billion or more in annual revenue / budget High spend = $20 million or more in annual purchasing card spend High capture = purchasing card spend = 4% or more of budget / revenue 18

19 Options for Payables Automation with virtual commercial cards Integrated payables solutions that leverage the commercial card networks have increased in sophistication and utility beyond traditional plastic cards. Traditional Plastic Cards Purchasing Card Evolution Virtual Card Payment Process Replace a cumbersome, paper-laden P2P process Embed within a more automated and streamlined P2P process Give a card to any employee who purchases goods for the organization Eliminate the need to issue individual plastics and easily integrate into existing AP systems Mandate p-card usage for targeted spend categories with transaction limits Optimize payment for each transaction through dynamic controls and capture increasingly larger tickets within expanded categories Operate within traditional reconciliation processes Generate a detailed reconciliation file and improve supplier spend visibility through enhanced, consolidated reporting 19

20 Why & when to automate payments? The value proposition for Buyers Buying organizations that use any form of card payment with a Payables Automation solution can realize a streamlined process that may yield cost savings. Streamline Payments Streamline payment and reconciliation processes by reducing the cycle time, cost and financial risk associated with check payments. Increase Spend Control Expand P-Card Spend Better Manage Cash Flow Increase control of purchases and help align spending with procurement policies. Ability to increase p-card spending by enabling card payment for purchases that heretofore have not been paid by plastic cards. Flexibility to increase DPOs, improve cash conversion cycles, and enhance the predictability of cash flow forecasts. Access Enhanced Data Capture of line-item invoice details from suppliers that pass Level III data; have a consolidated view of supplier spend.. 20

21 Why & when to automate payments? The value proposition for Suppliers Strong collaboration between buyers and suppliers is a core component of any buyer s electronic payment strategy since supplier adoption is a key to success. Expand Customer Base Improve Working Capital Reduce Processing Times Access Enhanced Data Adoption of virtual card-based solutions may strengthen, retain, and potentially expand buyer / client relationships. Enable faster receipt of funds from the time of payment initiation, which can decrease supplier DSOs, potentially improve cash flow, and enhance working capital. Electronic settlement can simplify payment processing by making funds available when the transaction is processed and could eliminate manual processes. Enhanced remittance data that accompanies a virtual card solution can help improve the payment reconciliation process thereby reducing exceptions, errors, and disputes. 21

22 Conclusions As a result of Payables Automation, companies can free-up resources to make additional investments and continue growing, while increasing control. Payables Automation s benefits include potential working capital improvement and the elimination of checks in the payment process. Cards as a method of payment can drive the automation process while adding value in the cash management process: savings, increased control and access to enhanced data among others. Both buyers and suppliers can benefit from a card payment program, strong collaboration is key. There are untapped opportunities in LAC for the use of traditional or virtual cards to address B2B and T&E payments. 22