It all Starts with the Invoice

It all Starts with the Invoice Speakers Mel Steals Director of Invoice Automation Solutions PNC Bank Amy Rush Shared Services Controller Courtney Caton Finance Manager Westmoreland Coal Company 1

Agenda Why are invoices important? The basics of invoice processing Invoice automation o Technology overview o Company case study What s Next?! 2

The Impact of an Invoice 3

Why should Treasury care about an Invoice? Opportunity cost of missing early pay discounts Lack of payables visibility before vouchering Accuracy of accruals and cash forecast Metrics to drive payment process improvement Vendor inquiries about payment status / timing Scalability of AP technology and staffing model Over-reliance on manual, paper-based processes 1 Synergies from acquisitions 1 2013 AFP Electronic Payments Survey 4

Common Procure to Payment Challenges 5

Invoice Automation Metrics ACCOUNTS PAYABLE (A/P) DEPARTMENT STATISTICS Metrics Best in Class (20%) Average (33%) All Others (47%) Notes Cost per Invoice less than $6.00 $14.21 $17.61 Fully loaded cost includes sorting the mail, routing invoices to the correct approver, researching accounts for general ledger distribution, identifying duplicate invoices, entering invoice details to ERP system and a myriad of other tasks to process invoices plus document storage. Invoices Processed per Employee (per month) 4,814 2,308 1,408 In a manual A/P environment, teams spend time repeatedly resolving exceptions from the same sources instead of eliminating them. Invoice Processing Cycle Time 3.7 days 12.4 days 17.1 days Measured from the time of invoice receipt to payment generated. Invoice Exception Rate 8.0% 13.1% 16.4% Even a small reduction in the invoice exception rate has a substantial impact in productivity. Total Percentage of Invoices Processed Using Straightthrough Processing (STP) 50.3% 27.0% 12.3% STP refers to "touchless processing" wherein purchase order (PO) based invoices match all of the preconfigured business rules and can be processed without any human intervention and scheduled for payment. Survey Demographics: 192 A/P Professionals represented as follows: 56% Large (revenue > $1 billion); 22% Middle Market (revenue between $250 million and $1 billion); 22% Small (revenue < $250 million) Source: Ardent Partners, epayables 2014: The Quest, published May 2014 6

Basics of Invoice Processing Procure to Pay (It actually all starts with the PO!) 7

Invoice Receipt Invoices are received through a variety of methods: Paper Document Based - postal service, fax, email; File Based - EDI, Flat File, XML, ERP Connectors, or Supplier Portal (PO Conversion and Data Entry) 52% of invoices received in paper format, 31% E-Invoice/portal/EDI, 12% email, and 5% fax 1 Automation and process determine entry point Decentralized: invoices are received at field locations, business units, subsidiaries, etc. Centralized: invoices are received at a central accounts payable or shared services group 1 Paystream Advisors Invoice Automation Adoption Benchmark 2013 8

Data Capture Key data elements to create a voucher: 1. Vendor Name 2. Vendor Number (Validation file) 3. Invoice/Account # 4. Invoice Date 5. Amount 6. Tax 7. Freight 8. Gross Amount Purchase Order Matching 1. Valid PO # (Validation file) 2. Line Item Detail 3. Matching (Quantity, Price, Receipt) Reference Matching: 1. Valid data to initiate workflow: a. Name b. Zip Code c. Division 2. General Ledger Coding by Chart field a. Company b. Department/Cost Center c. Account d. Additional (Property, tenants, common area maintenance)

Voucher Creation Invoice Routing PO invoices can be sent / routed to AP for payment if all criteria are met Non-PO invoices or PO s that don t match must be GL coded and routed to various individuals for approval depending on the type of expense and dollar limits Invoices can be routed via mail, emailed, scanned, technology, etc. Payment Initiation Entered into Payables system (Vendors Payable) Voucher is created for payment, remittance advice, and payment is scheduled Reconcile payment based on payment type Reconcile end of month statement to Vendors Payable 10

Treasury Pioneers Partnering with Accounts Payable Invoice Automation Company Case Study 11

The Next Treasury Management Product Frontier: Invoice Automation Cash Management Receivables Collect Cash for Accounts Receivables Sell Finished Goods or Services Order Materials or Services Pay for Materials or Services Receive Materials or Services Invoice Automation Purchase Order (PO) Delivery / Conversion e-invoicing enabled by a Global Network Invoice Document Receipt and Capture Invoice Validation and Enrichment Invoice Archive, Matching, Approval and Status via Order-to-Pay workflow Voucher Creation and Integrated Payment Integrated Payment 12

Invoice Automation Best Practices < - - - - - - - - - - - - - - - - Invoicing Continuum - - - - - - - - - -> Step 1 Centralized Invoice Receipt and Prep Suppliers Step 2 Automated Data Capture and Enrichment Reverse Lockbox Operations: Imaging and Key Repair Bank Security Standards Step 3 Invoice Archive with Configurable User Interface Step 4 File Integration for Voucher Creation and Invoice Status AP User Interface Options Archive and Search Indexing and GL Coding PO and Contract Matching Straight Through Invoice Approval Routing (no IT) Requisitioning Workflow Canned AP Reports with Export to Spreadsheet Dynamic Discounting Management Spend Analytics File import/export history with file status monitoring Buyer Discount Management and Spend Analytics Continuous Straight Through Process Improvement 13

Common Objectives Achieve Best Practices for Accounts Payable processing cycle Eliminate manual, non-value added work Increase efficiencies; leveraging automation technology Enable self service; suppliers, associates, auditors, etc. Improve internal controls and security of confidential information Enable electronic payment strategies 14

A Transformative Coal Company Key Points when project started Decentralized structure Slow implementation of process improvement initiatives Potential M&A activity creates need for timely, easy integrations Acquisitions could range from small, production operations to large stand alone companies Current A/P structure requires complete set up for each acquisition with minimal opportunity for quick plug in Refinancing and/or additional financing opportunities create need for accurate cash forecasting and strongly encourage more automated process 15

A Transformative Coal Company Overview of the AP Process Locations At the Beginning Accounts Payable currently matched or processed at 7 different sites: Corporate Corporate and Power Plant processing Power Plant PO Matching in secondary system; sent to Corporate for processing Mine # 1 Mine # 1 matching and processing Mine # 2 processing Mine # 3 Mine # 3 matching and processing Manual requisition approval Mine # 4 Mine # 4 matching and processing Mine # 5 Mine # 5 matching and processing Mine # 6 Mine # 6 matching and processing A/P- entire process is decentralized and operating with autonomy Non 3-way match invoices are manually approved Imaging is utilized at the back end of the AP process for archival purposes JDE is the enterprise system used companywide, and processes are standardized Multiple users manage the vendor master list Limited visibility to volume of transactions and no companywide reporting in place Accrual process involves a manual procedure by physically going through un-processed invoices 16

Alternatives Considered # 1- Consolidate A/P to a centralized internal shared services structure # 2- Outsource entire A/P process to an external 3 rd party # 3- Outsource front end of A/P process to an external 3 rd party and consolidate A/P to shared services structure # 4- Continue with existing decentralized processing locations but pursue process improvements 17

The Choice Made- # 3 Outsourced Front End and Processing with Internal Shared Services Center Outsourced Front End Invoices received at service provider Internal Service Center Real Time visibility to invoices as data capture occurs Scanned using Optical Character Recognition Electronic routing for approval of non-3 way match invoices Batch process to send invoices into ERP system for processing 18

Results Clean Desks! Scanning now occurs during front-end of process Eliminated part-time personnel at multiple sites that scanned documents for archival purposes only Eliminated redundant tasks Check runs, ACH processing, 1099s, Batch Approvals ERP upgrades or modifications testing now one site Audit requirements reduced with fewer sites to test Improved Vendor File Controls Consistent application of early pay discounts, Payment Cards, rebate programs New acquisition - plug and play Standardized, Semi-automated process for invoice accruals with reduced risk of errors Clear visibility into cash requirements 19

What s Next!?! Advanced Supplier Collaboration 20

Supplier Collaboration link to E-Invoicing Suppliers data Direct integration Network invoices Direct integration Suppliers Any to Any Mapping Electronic PO Delivery Invoice Status Global Support Multi-Lingual Support Portal w/ Order Conversion Country and customer compliance Archive Portal Buyer Three-Tier Hierarchical Validation PO Invoice Compliance to PO File Rule Based Invoice Data Enrichment 21

Procure to Pay Trend to Watch: Dynamic Discounting Growth Dynamic Discounting: arrangement between a buyer and supplier whereby payment for goods or services is made early in return for a reduced price or discount based on a sliding scale - earlier the payment, the greater the discount. Organizations use the technique to maximize supplier discounts captured by using their excess cash or financing capacity. Many suppliers seek early payment discounts because they gain access to capital at lower costs than alternative options. Third party funding solutions are emerging to fill the void when the buyer may not have sufficient funds to meet the early payment demand of their suppliers. 22

Emerging Early Payment Option Continuum Supplier Early Pay Options Card Funded Buyer Funded SCF Funded Distributed AP Negotiated Dynamic No Buyer Recourse With Buyer Recourse Buyer Objective: Extend terms generally while paying less for goods net of rebates or discounts. P-Card Dynamic Discounting SCF Transaction Size Numbers of Suppliers 23

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Contact Information PNC Bank Mel Steals Director of Invoice Automation Solutions (412) 762-0287 Melvin.steals@pnc.com Westmoreland Coal Company Courtney Caton Finance Manager (720) 354-4486 ccaton@westmoreland.com Amy Rush (254) 747-1195 amybarnesrush@gmail.com 25