Purchasing Cards: Yesterday, Today & Tomorrow How far they ve come and where they are going. Susan Ouchterloney, Bank of America Merrill Lynch Ryan Cappannari, Citizens Bank Payment Solutions Date: September 23, 2013
Today s Discussion 2 Yesterday: History of Purchasing Cards Overcoming Objections to Purchasing Cards Today: Beyond Cards > A Focus on Electronic Payment Strategy epayables: An Innovative Electronic Payment Solution Executing an Electronic Payment Strategy Necessary Steps to Implement a Card Program
Automate payments by targeting appropriate payment method for each supplier Providing value relative to your objectives and culture Total spend PO & large-dollar non-po invoices 100% Private Network ACH Multiple (Includes large product ticket) solutions are required to Card fully penetrate the potential management for electronic payments across 100% of spend. PO/Non PO invoices Repetitive invoices POS, Smaller $ (<$2500+) PO/Non PO repetitive invoices PCard PCard/ Travel Card epayables/ epayables/ Card epayables/ Card Private Network ACH Single Use Private Account Network ACH * Multiple product solutions are required to fully penetrate the potential for electronic payments across 100% of spend. Payment efficiency and working capital Rebate, extended terms, Invoice and payment efficiency Core process savings and rebate 3
Purchasing Cards: Where they ve been
History: Background of Purchasing Cards Travel & Entertainment Cards (T&E cards): 1970 s Purchasing Card: Created at behest of Federal Government in late 80 s Credit Card based alternative to remove petty cash and requests for checks Originally designed for MRO transactions 5
History: Why a Purchasing Card Program? Reduce AP Costs Improve Administrative Efficiencies Improve Procurement Cycle Time Manage Payables in less time fewer payments to make Leverage spending data to negotiate with more vendors Generate $$ through revenue sharing opportunities 6
One Word: Plastic Purchasing cards are the quickest and easiest way to eliminate low dollar/low value transactions Purchasing Cards fit perfectly into most organization s AP process and can drive out paper in a short amount of time The average organization has the potential to more than double the number of transactions under $2,500 that are paid by p-card and increase fourfold the number of transactions from $2,500-$10,000. Penetration in Pcard spending payments has increased for office equipment, travel, computers, MRO, telecommunications, printing & duplicating, media/advertising and transportation/delivery services. P Card spend increased 17.6% from 2007-2009 7 Source: RPMG 2007 & 2010 Benchmark Study
Purchasing Card Spending n North America Purchasing Card Spending ($B) 40 57 Actual Projected 89 80 98 110 123 137 149 161 176 196 212 229 247 267 290 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 RPMG Research, 2012 8
Purchasing Cards: Objections and Misperceptions
My Employees Will Buy TVs Purchasing cards offer higher visibility and more timely reporting of transactions. Misuse accounted for 1.4 bps, or $140 per $1MM in spend 65% report substantial coverage of loss by liability waiver insurance Document and distribute card use policy Best practice organizations: 90% require cardholder training 85% find lower procurement policy violations with P Cards 77% provide web-based card training materials 78% support Pcard administrator attendance at conferences 10 10 Source: RPMG 2010 Benchmark Study
Suppliers Will Pass on the Fee Suppliers want to accept a card because it reduces their Accounts Receivable costs 26% reported higher vendor discounts up from 22% in 2007 The average incremental discount was 2.2% 32% reduced the number of suppliers in the AP master file by an average of 16%. Suppliers who accepted purchasing cards increased their business by 16-20% more than suppliers who did not accept purchasing cards 11 11 Source: RPMG 2010 Benchmark Study
Specific Requirements for Surcharging 12
The Reality Is.. Purchasing cards drive savings to organizations. The average purchasing card transaction cost $21.91 to process vs. $92.49 with traditional PO method The average reported savings per transaction was $71 a 76% cost reduction The average responding organization experienced workload activity reductions that would have cost the organization $271,354 P Card use resulted in a 72% reduction in procurement cycle time Rankings for Implementing a Pcard 13 13 Source: Aberdeen Group, August 2007 and 2010 RPMG Purchasing Card Benchmark Survey
Today: Not just Purchasing Cards but an Electronic Payment Strategy
The Drivers for Electronic Payment Solutions Integration Efficiency Automation Working Capital Optimization 15
Factors Driving Electronic Payment Processes Given the tangible benefits electronic payments deliver over paper-based checks, it is not surprising that the adoption of electronic payments has significantly increased over the past five years, while check usage has declined. Benefits Cost reduction Decreased paper consumption Compression of procure-to-pay-cycle Ability to capture rebated and early payments discounts Improved visibility Reduction in fraud 16
Automation Drivers and Barriers Top Factors Driving Enterprises to Focus on AP Automation Barriers to Adoption of Electronic AP Solutions Methods Reducing overall costs and generating incentives emerged as biggest driver for AP Automation The biggest barrier was unwillingness of suppliers to accept electronic payments Reduce Procure-to-Pay Transaction Costs 65% Suppliers Not Willing to Adopt Electronic Payments 40% Maximize Rebates and Incentives 49% Shortage of IT Resources 35% Improve Employee Convenience 44% Lack of Integration Between Electronic Payment & A/P Systems 33% Improve Employee Productivity 38% Inability Exchange Automated Information with Electronic Payments 26% Reduce Procure-to-Pay Cycle Time 25% Loss of Check Float 26% Source: 2011 Paystream Advisors. 17
Fraud Is Becoming an Important Consideration Mitigating the risk of fraud is becoming an important consideration in AP Automation Fraud Rates by Payment Method Fraud rates are lowest for electronic payment methods. ACH Debit 19% Commercial Card 11% Check Fraud by Payment Type 1 Check 70% Best Practices for Electronic Payment Fraud Mitigation: Utilize supplier networks Employees are not exposed to account information Account numbers are masked Have supplier networks perform account authentication 1 Source : 2011 AFP 2011 Payments Fraud and Control Survey 18
Average Cost per Transaction Across Industries Among payment methods, commercial cards are the least expensive Average Cost Per Transaction Commercial cards $3.96 ACH $4.72 Paper checks $7.15 Wire Transfer $9.86 Source: Visa PerformSource Technology Industry Overview: Commercial Payment Cards The U.S. and Global Markets and Trends. Packaged Facts December 2009. 19
epayables: An Innovative Electronic Payment Solution
Growing Usage of epayables Drives Payment Automation epayables is an Accounts Payable (AP) card solution that enables payers to convert check payments to electronic card payments, without any changes to their internal AP processes. epayables Fast Facts epayables requires limited IT resources No implementation charge or hidden fees associated with epayables Eliminates manual processing associated with ghost cards epayables reduces fraud exposure Benefits: Win-win for all Financial benefit through improved working capital and cash flow visibility Accounts Payable efficiencies gained through elimination of paper checks and reduced vendor follow-up Improved supplier relationships while maintaining controls in purchasing processes No IT investment and ease of implementation Reduced DSO for suppliers, freeing up working capital 21
The value of epayables Replace 40 50% of non-payroll AP check volume 1 Turns a costly check into a free electronic payment Eliminates per-item banking fees and processing costs Extends float opportunity and provides cash payout incentives Requires no changes to the upfront accounts payable process Optimizes your efficiency and working capital Enhances transaction risk management Reduces providers DSOs and provides guaranteed funds 22 1 Typical enrollment volume.
Trends in epayables (EAP) Solutions % of US Companies using EAP Solutions 55.6% Over $20B in current industry spend on EAP solutions 34.9% 43.6% Average EAP using-organization spends 68% more than similar-sized non-using organizations ($1.9MM vs $1.1MM per month) 14.5% 16.1% 8.3% 2005 2007 2009 2011 2012P 2014P Average EAP transaction of $2,359, which is seven times larger than average purchasing card transaction On average, 17% of a company s suppliers are paid via EAP Average organization that uses EAP pays for 47% of all Purchasing Card spending with EAP accounts RPMG, 2012 23
Executing a Strategy: How to Roll Out Electronic Payment Solutions in Your Agency
Developing a Payments Strategy What Who How Payroll Benefits Tax/fee refunds Vendor payments Bond payments Investments Employees Individuals Businesses Governments Electronic Purchase Card epayables Prepaid cards ACH Networks Wire Paper Checks What s best for your agency What s best for your payees 25
A Comprehensive Approach to AP Automation Comprehensive Payables epayables Identify vendors for check-to-card conversion Earn rebates on payment volume ACH Supplier Network Identify vendors for check-to-ach conversion Easy on-boarding for large groups of suppliers Your Agency Can Replace 40-75% Of Non-payroll AP Check Volume In 12 Weeks. (1) 26 Begin experiencing: (1) Typical enrollment volume. Visibility into cash flow, increased DPO No more checks to write No more calls from vendors seeking check status
Including ACH Private Networks In Your AP Automation Strategy Easy integration of end-to-end payment process Works with your systems environment and includes support for both high-end and low-end technology interfaces Single point of origination Enables you to send instructions for all payment types in one file: card, ACH, wire and check printing and distribution Rapid Vendor Enrollment Requires very little client effort and payees do not have to change bank accounts Displaces Check Costs Streamlines costly check-cutting processes Enhances reporting Includes supplier-friendly remittance and online access ACH Private Network 220,000 vendors are ready for immediate migration to electronic payment. (1) Reduces opportunity for fraud 27 (1) ACH enrolled vendors
ACH Private Networks: Benefits Both Buyers And Suppliers Migrate From Paper Check Processing To Electronic Transactions and Your Agency and Your Suppliers Reap The Benefits BENEFITS TO YOUR AGENCY BENEFITS TO YOUR SUPPLIERS Reduce invoice processing costs by as much as $20 Decrease invoice processing cycle time by as many as 37 days Optimize working capital through better invoice/payment visibility and control Reduce invoice errors through automation Increase client discount capture by.3 to 1.0 percent. This equates to a working capital improvement of $3MM to $10MM per $1 billion in vendor spend Potential to reduce Days Seals Outstanding by increasing early payment opportunities Can reduce supplier's processing costs for invoices by as much as $2.50 Electronic delivery of P.O. information to facilitate easy invoice entry for suppliers Supplier portal provides greater visibility into payment and invoice status 28 Aberdeen, Accenture and Gartner Group.
Necessary Steps to Implement a Card Program
How to Begin a Card Program Perform a Vendor Analysis Establish Organizational Hierarchy Develop a structure for the program Set Goals for the Program (e.g. # of checks to eliminate) Develop Program Guide and Create Rules Determine appropriate controls for the cards Management Reporting Implement a Pilot Program 30
Best Practices
What Makes a Great Program? Best practice organizations share some of these best practices. Top management sponsor who gives strong vocal support to the program. 61% of best practice programs set transaction limits greater than $5,000 79% analyze AP check payments to identify suppliers to encourage card payment 60% perform a supplier match to identify opportunities for Pcard payment 48% compare program performance data against published benchmarks Target a broader variety of commodities for purchasing card and have higher level of card payment penetration within targeted commodities Benefits of Using a Pcard 32 32 Source: Aberdeen Group, June 2008 and PayStream Advisors 2007
Best in Class P Card programs have been successful in migrating these commodities: Courier Services Electrical Supplies Equipment Leasing Fax Machines Fax Supplies Freight Furniture Guard Services Hardware Relocation Services Industrial Supplies Inventory Janitorial Supplies Legal Services Locksmith Maintenance Contracts Mailing Equipment Medical Exams Document Management Nursing Services Office Supplies Overnight Mail Pagers/Wireless Parking PC Leasing Periodicals Pest Control Photocopying Photographic Material Printing Production Services Promotional Items Virtual Offices Storerooms Subscriptions Temporary Services (Clerical/Technical) Trade Shows Training Truck Parts Uniforms Work Orders Fleet Costs 33 33
Why Programs Fail Tightly restricted controls Weak Management Support Use of Personal Cards No clear objective of program goals Unable to quantify program results Organizational fear of card misuse 34
Best Practices for Purchasing Cards Mandate Card Usage Use Online Tools for efficiency Use single card for multiple expense categories Utilize management reports for negotiation Define limits based on job priorities Conduct random audits 35
Critical Success Factors
Characteristics of High Performing Card Programs Top Management Support & Support for the Program Administrator Mandate Usage of Cards Integrated cards with preferred vendor initiatives Broad dissemination of cards Direct link between number of cards and size of company programs Beyond those who are in purchasing Include other departments such as manufacturing Refuse requisitions where cards could have been used Send memos (or sticky notes ) back to employees 37
Characteristics of High Performing Card Programs Continued Strategic supplier relationship Reduce master file of suppliers Use of Technology Data integration Data mining for vendor analysis Formal Audits 38
In Closing Be willing to look at innovative new solutions to drive value in your payment process. Best solutions/programs offer multiple options for buyer and supplier to derive value. Always lead with card as your preferred payment tool, then look to new alternatives that derive similar value to your organization. Automate your invoice and payment processing as a foundation to achieving early payment discounts. Integrate a robust buyer and supplier networks with proven supplier on-boarding that offers alternative payment types. Your banking providers are here to help. We can help you understand what is available in the market and what fits best for your organization. 39
Questions?