Embracing Electronic Accounts Payable Using the SAP Financial Services Network Leonard Schwartz Director, Solution Management SAP Financial Services

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1 Embracing Electronic Accounts Payable Using the SAP Financial Services Network Leonard Schwartz Director, Solution Management SAP Financial Services Network SAP Labs LLC

2 LEARNING POINTS Discover how Electronic Accounts Payable can improve your supplier payment process Understand how virtual card payments can be integrated into the normal payment process you use in your SAP ERP Learn about how SAP can work together with cards to simplify the process of implementing an Electronic Accounts Payable (EAP) program

3 RETURN ON INVESTMENT Create efficiency and improve payment control over your Accounts Payables process Free working capital for alternative uses Streamline integration, lowering the investment required to launch an Electronic Accounts Payable (EAP) program

4 TOP OF MIND: CONTROLLING COST Companies look for opportunities to streamline processes and identify cost savings More effective approaches to managing working capital Cash management efficiency Streamlining operations and cutting costs Creating higher levels of compliance and transparency Improving strategic supplier relationships Association of Financial Professionals, 2012 Business Outlook Survey. Visa Inc., 2011 Global Cash Management Survey.

5 GROWING PURCHASE CARD SPEND $350 $300 $250 $200 $150 $100 $50 $- $1 $1 $3 $8 $11 $17 $28 Actual Expected $40 $57 $80 $267 $247 $229 $212 $196 $161 $176 $149 $137 $123 $110 $98 $89 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 $290 North America Purchase Card Spend ($ billions) Source: 2012 Purchasing Card Benchmark Survey, RPMG Research

6 WORKING CAPITAL CFO s recognize that accounts payable impacts working capital and plays a strategic role in the bottom line. virtual card payments offer an attractive alternative. Source: IOMA: AP Department Benchmarks and Analysis, 2007

7 BENEFITS FROM AUTOMATING P2P More control 47% Fraud control Improved cash forecasting 38% 40% Increased Control Cost savings 46% Early payment discounts Working capital improvement 36% 34% Cost Savings Less days sales outstanding 33% More efficient reconciliation Straight-through to AP or AR Better supplier / customer relations 35% 35% 43% Increased Efficiency Improved Supplier Relationship None 3% For data on this page, at 90 percent confidence, a variance of 3 percent is needed to indicate a significant difference Sample: Mid and large companies Source: 2011 Global Cash Management Survey Question 20: What value do you see a card-based accounts payable automation solution providing?

8 Purchase Card Use Costs Less Than Checks $89.21 (100%) $67.38 (76%) $21.81 (24%) Average cost per transactions with traditional purchase order method Cost reduction with purchasing card Average cost per transactions with purchasing card Source: RPMG Research, Purchasing Card Benchmarking Report, 2006

9 BARRIERS TO GROWING EAP 74% Of companies say convincing their suppliers to move to electronic payments can be a challenge 67% Cite the lack of integration between electronic payment platforms and their accounting systems as a hurdle Source: 2010 AFP Electronic Payments, Report of Survey Results, November 2010

10 TECHNOLOGY DRIVING OPPOTUNITY Historically: Small dollar purchases Today: Embedded into an automated Purchase Order process, handling much larger transactions Purchasing Card Highest Ticket Capture All survery responders High revenue High spend US$ (Thousands) $2.5-$5 $5 -$10 $10-$15 $15+ 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 US$2,500 - $5,000 and for US$5,000 - $10,000, but not for larger ticket ranges would bucket respondent into US$5,000 - $10,000; High revenue = US$1 billion or more in annual revenue / budget; High spend = US$20 million or more in annual purchasing card spend; High capture = purchasing card spend that is 4 percent or more of budget / revenue

11 ELECTRONIC ACCOUNTS PAYABLE (EAP) WHAT IT OFFERS Automates payable processes Sets controls on purchases Provides reconciliation reports BENEFITS Reduces manual processing costs Improves transaction risk management and spend control Eases time-consuming reconciliation

12 ELECTRONIC ACCOUNTS PAYABLE IMPACT The ramp-up of EAP spending at most organizations is quite impressive. Average EAP spending as a percent of total purchasing card program spending among respondents has increased notably from 26% in 2009 to 47% in EAP Spending as a Percent of Purchasing Card Program Spending % % Source: 2012 Purchasing Card Benchmark Survey, RPMG Research

13 ACHIEVING BEST PRACTICE STATUS Monthly EAP Spending Average monthly EAP spending has increased from $747,522 in 2009 to over $1 million in Monthly EAP spending at Best Practice programs exceeds $2 million. $2,024,327 $1,070,751 $113,525 Needs Improvement Average Best Practice Source: 2012 Purchasing Card Benchmark Survey, RPMG Research

14 SIMPLE EAP PROCESS FLOW 1 Buyer 2 3 Approve Invoices for Payment Generate Payable File from ERP Send/upload AP File to card or issuing bank Processes Card Payables Set account authorization controls 4 5 Supplier 6 Sends Remittance via to Suppliers Charges Account Posts Reconciliation File

15 INTRODUCING SAP S FINANCIAL SERVICES NETWORK Powered by SAP HANA

16 EASY ONBOARDING Network On-boarding Agree contract with SAP On-board to network Agree message mapping requirements Perform on-boarding tests Service Activation Request connection to FSN network partner Perform E2E connectivity testing Finalize service activation Run and Manage Monitor, manage and deliver financial messages Grow FSN network connections Add new services ERP Integration Corporates Banks Other FSP s ERP Integration Corporates

17 EASY INTEGRATION Any Input Canonical Model Standard Output

18 SECURE Secure Service Cloud owned and operated by SAP Separation of data and secure processing by: Controlled on-boarding Account isolation Digital signatures Data payload encryption COPORATE SAP Financial Services Network Corporate Tenant Bank Tenant BANK Multiple layer of encryption and signing are possible. Layer One: Transport encryption such as in SSL or SSH Layer Two: Content signature and encryption using PKCS#7 or (in future) PGP Layer Three: Data element level using corporate or bank keys as appropriate Separation of processing and data. Each participant has own virtual machine or tenant Partitioned data storage Database level encryption

19 NETWORKED Business Web SAP Financial Services Network Other FSP Cloud Services SAP Financial Services Network delivering Bank to Corporate Services across a multi-corporate and multiservice marketplace Business Other B2B Cloud Services Financial and Supply Chain Service Integration Financial Service Providers SAP Ariba delivering B2B services across the buyer and suppler supply chain Interoperability and Integration between Financial Service Providers, Businesses and other Cloud service providers over a SAP Business Web marketplace.

20 EAP PROCESS FLOW ENHANCED BY SAP FSN SAP FSN integration can enhance and add value to the process through: Automatic integration with existing invoice/payment run process for individual purchases. Start process same way as currently. No exceptions. Auto pull of SAP native format for payment requests without buyer required customization. Faster integration. SAP native connector. No connectivity project. Completion of reconciliation and status tracking without buyer required customizations. End the process the same way as currently.

21 STEP 1: ONBOARD TO SAP FSN ERP SAP FSN Corporate Connector Buyer Download SAP FSN Corporate Connector from the SAP Services Marketplace Configure connectivity to the SAP FSN in the SAP Cloud

22 STEP 2: ERP ENABLEMENT & MAPPING ERP Mapping & Enrichment Data Buyer Configure ERP Country & Payment Method House Bank & Account Alias Account Statement & Transaction Codes Supplier ID s IDoc (PEXR) message population

23 STEP 3: SEND PAYMENT REQUESTS ERP Buyer Enter Invoice Run Payments SAP FSN Corporate Connector Send PEXR or XML Payment Requests Payment request sent to SAP FSN Store payment request and prepare to send to card/issuing Bank with enrichments

24 STEP 4: SAP FSN CONNECTS Virtual Card Payment Instruction File Card or Issuing Bank Format payment requests SAP FSN sends payment requests Card platform or issuing bank receives payment requests

25 STEP 5: DELIVER THE PAYMENT REQUESTS Suppliers Card delivers payment requests to suppliers if virtual card payments. Suppliers enter payment requests into the card network system. Authorization happens within the card network Card or Issuing Bank Card enters authorization into network if a buyer initiated type payment Authorization happens within the card network Suppliers Card or Issuing Bank

26 STEP 6: SAP FSN RECEIVES STATUS INFORMATION Settled Items & Status Information Card or Issuing Bank Receive status of payment requests Allow reporting of status to corporate if desired Create an electronic bank statement for appropriate items

27 STEP 7: SAP ERP RECONCILES THE INDIVIDUAL PAYMENT REQUESTS Buyer ERP Reconcile Payments Virtual Card Status Virtual Card Statements Deliver status Deliver constructed electronic bank statement Reconcile individual items in the ERP

28 The Total Picture ERP Enter Invoice Suppliers Buyer Run Payments Send PEXR or XML Payment Requests Send Virtual Payment Requests Reconcile Payments Virtual Card Status Virtual Card Settled and/or Status Card or Issuing Bank Virtual Card Statements SAP FSN Connector Bespoke Connection

29 BEST PRACTICES Analyze your suppliers and payment patterns to build a Best Practice EAP program Enable suppliers today even if you will use them in an EAP program tomorrow Integrate EAP into your Accounts Payable business process

30 KEY LEARNINGS Look for opportunity to use EAP against your vendor payments Integration with your ERP is possible, SAP FSN can help

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32 THANK YOU FOR PARTICIPATING Please provide feedback on this session by completing a short survey via the event mobile application. SESSION CODE: 3707 For ongoing education on this area of focus, visit