Accelerating Your Card Program's Financial Value May 22, 2016 · Accelerating Your Card Program's...

Accelerating Your Card Program's Financial Value May 22, 2016

Cameron McPhail, Director Commercial Card Sales, Scotiabank Paul Cargnelli, Head of Commercial Sales, Visa Canada

Agenda

•  Industry trends

•  What’s driving adop4on of card based payments

•  Financial benefits available

•  The future of card based payments

•  Achieving scale -‐ data analysis

•  Execu4ng on the plan -‐ supplier enrollment

Agenda

Purchasing Card Spending in North America (in $ billions)

$1 $1 $3 $8 $11 $17

$28 $40

$57 $80 $89

$98 $110

$123 $137

$149 $161

$176 $196

$217

$245 $267

$293

$318

$347

$377

$-‐

$50

$100

$150

$200

$250

$300

$350

$400

'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Actual

Expected

Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

Expected Growth Rates 2013 -‐ 2018

Corporations anticipate more aggressive purchasing card spending growth over the next five years (a 85% increase over 2013 levels in 2018). GNP expectations are

more subdued (a 44% increase over 2013 levels in 2018).

13%

45%

85%

7%

25%

44%

2013-‐2014 2013-‐2016 2013-‐2018

Corporate Sector

Government & Not-‐for-‐Profit Sector


Purchasing Card Wallet Share Transac'ons under $2,500

The percentage of under $2,500 transactions have been increasingly shifting to purchasing cards, largely shifting from paper cheques.

31% 32% 37%

44% 52% 53%

61% 58% 51% 41% 34% 34%

5% 7% 8% 10% 10% 10%

3% 3% 4% 5% 4% 3%

2003* 2005 2007 2009 2011 2013

Purchasing card Paper checks ACH transfers Wire transfers & others

Percent of TransacMons Under $2,500 Paid with Card


* In 2003, the capture category was under $2,000

Purchasing Card Wallet Share Transactions under $2,500

The percentage of $2,500 to $10,000 transactions have been increasingly shifting to purchasing cards from paper cheques.

Purchasing Card Wallet Share Transactions $2,500- $10,000

Percent of TransacMons $2,500-‐$10,000 Paid with Card


* In 2003, the capture category was $2,000-‐$10,000

9% 15% 19% 28% 31% 32%

78% 71% 65% 54% 48% 47%

8% 9% 10% 12% 15% 15%

5% 5% 6% 6% 6% 6%

2003* 2005 2007 2009 2011 2013

Purchasing card Paper cheques ACH transfers Wire transfers & others

The capture of $10,000 to $100,000 transactions is dominated by paper cheques. However, similar to the other capture categories, the share of transactions paid with purchasing cards is expected to increase over time.

Percent of TransacMons $10,000-‐$100,000 Paid with Card


9% 13%

60% 58%

19% 20%

12% 9%

2011 2013 Purchasing card Paper cheques ACH transfers Wire transfers & others

Purchasing Card Wallet Share

Transactions $10,000- $100,000

Current P-‐Card Spending by Category (in $ billions)

Opera4ng Goods/Services, $57

Office Equipment & Suppliers, $36

Travel, $27 Business Services, $25

Computer HW/SW, $21

Materials, Capital, Inventory, $16

Other Goods/Services, $14

Repair/Maintenance, $12

Educ4on/Training, $12

U4li4es, $10

Professional Services, $9 Transporta4on/Delivery, $6


A well run card program provides financial value in the following areas:

•  Generates process efficiencies (Cost Reduc4ons);

•  Maintains/Increases “Cycle” float – working capital benefits;

•  Enables increased supplier discounts;

•  Earns revenue sharing rebates.

Card-‐based payment programs can generate significant financial value

Pcard: •  Focuses on streamlining the process for buying/paying for small

dollar purchases. •  Typically for items less than $5,000. Average is ~$350. •  Cardholders are “pre approved” to buy subject to controls and post

purchase repor4ng.

Payables Automa'on (ePayables): •  Focuses on crea4ng financial value via revenue sharing, working

capital and supplier sourcing benefits. •  Select suppliers paid via non plas4c card account (i.e. an automated

ghost card). •  Typically for items between $10,000 and $1MM. Average is ~$9,000. •  Purchases con4nue to be subject to contracted supplier terms. •  Purchases s4ll subject to PO, approval(s) and other internal controls.

They are two different payment tacMcs in an overall card-‐based payment strategy

Process Cost ReducMons are Key

•  Processes around small dollar spending (<$5,000.00 per) typically represent 80% of an organiza4ons procure to pay transac4on volume and costs;

•  Yet, small dollar spending typically only represents 20% of an organiza4ons spend;

•  Industry benchmarks es4mate tradi4onal processes can cost as much as $130.00 per transac4on;

•  Thousands of North American companies benchmarked year aper year (RPMG surveys) confirm that use of Commercial Cards instead of tradi4onal means can reduce those costs by as much as 75% -‐ savings of about $70 per transac4on on average

For an average ten million dollar card program with 31,000 transac4ons a year: •  If we take 25% of the reported savings of $70 per transac4on this represents

$550,000 in cost reduc4ons; •  Even if the $70 figure is discounted by 90% (a cost per transac4on of $7) that s4ll

equals a savings of $220,000 a year.

The Case for TradiMonal P-‐Card

à typical cost: $90 per purchase

•  The challenge -‐ simplify purchasing process and reduce costs for small dollar purchases.

NEED TO BUY P.O. APPROVAL PURCHASE RECEIVE

GOODS

RECEIVE INVOICE

MATCH PAY INVOICES

POST TO

SYSTEM

SHIPPING NOTICE

P.O. INFO

EMPLOYEE MANAGER PURCHASING RECEIVING/EMPLOYEE A/P G/L

TradiMonal buying cycle – mulMple manual steps

CLEAR CHECKS

12

à typical cost: $20 per purchase

With card based payments; costs are reduced, cycle Mmes are shortened, processes are simplified.

NEED TO BUY P.O. APPROVAL PURCHASE

RECEIVE GOODS

RECEIVE INVOICE

MATCH PAY INVOICES

POST TO

SYSTEM

SHIPPING NOTICE

P.O. INFO

EMPLOYEE MANAGER PURCHASING RECEIVING/EMPLOYEE A/P G/L

PCard buying cycle – streamlines processing and costs

CLEAR CHECKS

X X X X X X

X X X

X X X X X

13


Key Card Benefits

14 Global Transac4on Banking | pg.

Used together as part of an overall payment strategy, they can deliver the best of both worlds…. •  Process savings, cheque reduc4on and buying convenience for small

dollar purchases ….. And

•  Material, hard dollar benefits made up of revenue sharing rebates, improved working capital and supplier savings for targeted larger dollar payments via card.

Impact of the financial benefits varies greatly between PCard and Payables AutomaMon

Payment Strategies Payables AutomaMon has gained momentum as a result of its reporMng capabiliMes,

potenMal working capital improvement, and the eliminaMon of cheques in the payment process

16

•  These solutions integrate into an AP system to complete the automation of the procure-to-pay process through virtual card solutions such as buyer-held ghost accounts, supplier-held lodged accounts, single-use cards, and buyer-initiated payments.

•  Organizations retain their PO, invoice, approval and reconciliation process but eliminate the paper cheque.

•  Payables automation with virtual commercial cards is well positioned for suppliers with whom the buying organization conducts a high number of transactions, for higher dollar amount transactions, transactions that require additional approvals or controls prior to payment, and for goods and services for which the buyer would prohibit payment by a traditional plastic purchasing card.

•  While payables automation accounts can be used for many supplier and transaction types, they are not generally viewed as a substitute for plastic cards, but rather to augment the capture of transactions and to enhance value derived from purchasing card technology.

Payables AutomaMon (ePayables) Overview

Enables Supplier Discounts

•  Organiza4on’s suppliers also benefit from efficiency and costs savings;

•  Suppliers speed of pay is increased to 24-‐48 hours;

•  Organiza4ons can also direct increased business to suppliers suppor4ng card based payment;

•  Many suppliers already build card based payment into their normal business prac4ces.

17

Suppliers also benefit

Card programs free up working capital

•  Card based payments typically speed up your suppliers speed of payment while extending your payment terms;

•  We pay your suppliers within 48 hours aper a purchase is made;

•  Organiza4ons pay their card monthly statement aper month end and aper the payment term period;

•  With a 21 day payment term this provides on average 36 days of float on all card spending.

Working capital benefits

Card programs deliver a new revenue stream

•  Rebates apply on all program spend;

•  Are scaled to increase as program spend increases;

•  Are a major benefit in an automated payables program.

Rebates

Used together they address the material financial benefits in all four areas

Financial Benefit PCard Payables AutomaMon

Generates process efficiencies (Cost Reduc4ons)

Maintains/Increases “Cycle” float – working capital benefits

Enables increased supplier discounts

Earns revenue sharing rebates

PCard/Payables AutomaMon – Differences in Financial Return

PCard Annual Payment Volume Payables AutomaMon Annual Volume

$4,000,000

$40,000,000

Transac4ons 11,428 4,444

Savings per Transac4ons @ $17.45 (25% of 2014 RPMG Benchmark)

$199,417

$ Minimal

Rebate 0.50% $20,000

1.00% $400,000

Sourcing Savings (1.8% on 33% of spend) Working Capital Savings (Assuming 5% cost of capital and addi4onal 35 days payment float)

$23,760

$19,178

$237,600

$191,780

Total % “hard dollar” financial benefit

$262,355

24%

$829,380

100%

Card programs deliver a new revenue stream

Best Prac4ces in Implemen4ng Payables Automa4on

Payables AutomaMon Workflow Virtual Commercial Cards AP AutomaMon soluMons facilitate a virtual card transacMon.

23

1 Buyer

Approve Invoices for

Payment

Generate Payable File

from ERP

Send AP File to Visa or commercial

bank

4

Sends Remittance via Email to Suppliers

6

Posts Reconciliation File Charges Account and Includes Invoice Numbers

Supplier

5

Adjusts Card Limits if Needed

3 2

Processes Card Payables

Why & When to Automate Payments? Buying organizaMons that automate payments through any form of card payment can realize material benefits ….

The Value ProposiMon for Buying OrganizaMons

Streamline Payments

Electronic payments help streamline the payment and reconcilia4on process by reducing the cycle 4me, cost and financial and opera4onal risks associated with tradi4onal cheque payment ac4vity .

Increase Control of Purchases

Buying organiza4ons increase control of purchases and help align spending with procurement policies by leveraging a payables automa4on solu4on.

Beker Manage Cash Flow

Implemen4ng a payables automa4on solu4on can give an organiza4on greater flexibility to increase DPO’s and enhance the predictability of cash flow forecasts.

Expand Purchasing Card Spend

In addi4on, automa4ng payments can help the buying organiza4on to increase its purchasing card spending by enabling card payment for purchases that have not been paid by plas4c cards.

Financial IncenMves

Financial incen4ves from issuers may be available through the use of commercial cards. Payables automa4on will provide incremental opportuni4es for incen4ves.

Why & When to Automate Payments? Suppliers see a number of benefits from accepMng card-‐based soluMons.

The Value ProposiMon for Suppliers

Expand Customer Base

Adop4on of virtual card-‐based solu4ons may strengthen, retain, and poten4ally expand buyer / client rela4onships.

Reduce Processing Times

Electronic seulement can simplify payment processing by making funds available to the supplier when the transac4on is processed and could eliminate manual processes such as invoice presentment and inquiries to buying organiza4ons on payment status.

Reduce Costs

Eliminate need for credit check on new buyers; reduc4on in administra4on costs on lost / stolen cheques; reduced lockbox fees; reduced deposit fees; reduced collec4on costs; auaining a higher threshold on merchant discount rate

Enhanced Data Enhanced remiuance data that accompanies a virtual card solu4on can help improve the payment reconcilia4on process thereby reducing excep4ons, errors, and disputes.

Improve Working Capital

Electronic payments enable faster receipt of funds from the 4me of payment ini4a4on, which can decrease supplier DSOs, improve cash flow, and enhance working capital.

Strong collabora,on between buyers and suppliers is a core component of any buyer’s electronic payment strategy since supplier adop,on is a key to success.

Payables Cash Flow Timeline (using the credit card networks)

Buyer IniMates Payment via Card

Supplier Seulement

Payment to Card Issuer

Consolidated Billing Statement

Buyer

Supplier

Supplier Receives Payment

Informa4on

Cheque Cash Flow Timeline

Buyer IniMates Payment via Cheque

Supplier Seklement

Buyer

Supplier

Supplier Receives Payment InformaMon

Payment Seklement

1 - 3 Days

3-5 Days

3-5 Days

Goods or Services Received

15 - 20 Days

Goods or Services Received

25 - 60 Days

Payment Terms Cash Flow Float DSO

Payment Terms Cash Flow Float DSO

15 – 20 Days

DPO: 31- 80

DSO: 16 – 23

DPO: 28 – 65

DSO:28 - 65 25 - 60 Days

1 – 30 Days 15 – 30 Days

Tradi'onal Cheque Cash Flow Timeline

Payables Automa'on Cash Flow Timeline

Cash Flow Advantages Buyers and Suppliers see benefits from accepMng card-‐based soluMons.

Actual and Expected Trends in EAP AdopMon


18% 26%

34% 43%

2013 2014 2015 2016

Actual

Expected

Category 2013 2014 2016

Fortune 500 24% 37% 56%

Large Market 26% 34% 56%

Middle Market 13% 20% 30%

Government & Not-‐for-‐Profit 16% 24% 40%

AdopMon Rate by OrganizaMon Type

Overall AdopMon Rate

60%

40%

30%

24%

21%

18%

14%

Unsure of benefit to the organiza4on

Lack of appropriate staff to implement

Actual or an4cipated supplier resistance

Other

Fees and transac4on-‐related costs too high

Too difficult to setup

Card issuer is not promo4ng or unable to provide the EAP

Reasons for Not Planning to Adopt EAP


Have your card issuer conduct a Spend Analysis to define program poten'al & targeted suppliers.

Data Required: •  Text file format •  12 Months of supplier data

Fields Required: •  Supplier Name •  Supplier Address Informa4on (op4onal, but recommended) •  Total Annual Supplier Spend •  Total Annual Transac4on Count

Visa Confidential

Next Steps: (1) How to Define the Opportunity

30

Your card issuer will iden'fy your exis'ng suppliers who (1) already accept payment by Visa (2) already par'cipate in payables automa'on

Visa Confiden4al

This report will idenMfy:

Top suppliers that accept Visa (based on total annual

spend) and pick suppliers to target for conversion to

card payment

Next Steps: (2) IdenMfy Ready Suppliers

31

Target Suppliers for Payables Automa'on

Visa Confidential

This chart will idenMfy:

Suppliers that accept Visa that have total spend between $10K and $1M to pick

suppliers for conversion to a Payables Automa4on payment solu4on

Next Steps: (3) Target VPA Suppliers

32

Visa Confidential

1.  Aper iden4fying key suppliers for conversion to card we will sum the total spend with those suppliers to quan4fy the total poten4al card program volume

2.  The ROI analysis considers the total card program volume along with financial informa4on (rebate, working capital, and cost savings)

3.  We will provide the ROI Analysis Report to help you demonstrate the financial value of card program implementa4on / expansion and to secure commitment for the project

Next Steps: (4) QuanMfy the Benefits Prepare an ROI analysis

33

Supplier Enablement Services Client Name: Sample

Visa Acceptor: All

Summary of Automated Payables Segmentation Excluded Business Unit Name: None

Excluded Cost Center Name: None

Excluded Spend Category: None

Supplier Segmentation # Supplier Records # Transaction Count $ Transaction Amount $ Avg Trans

Total Supplier List

1,920 $ 115,205,724

Excluded Suppliers

Financial Institutions

2 $ 6,577,107

Insurance

2 $ 3,138,378

Non-Visa Acceptors

1,285 $ 48,186,364

Internal

3 $ 9,631,746

Utilities

3 $ 7,652,327

Total Excluded Suppliers

1,295 - $ 75,185,922

Potential Suppliers

Strategic Suppliers (> $5M Annual Spend)

1 $ 8,106,520

Proposed Target Pool

234 1953 $ 30,819,480 15,780

Low Transaction Volume (Annual Spend < $10K)

390 1994 $ 1,093,802 548

Total Potential Suppliers

625 - $ 40,019,801

Partner with clients to support the supplier enablement process and implement program fundamentals

•  Implement best prac4ce approach

•  Managed supplier recrui4ng campaign –  Leverage scalable, skilled team –  Distribu4on of jointly approved

communica4on materials –  Inbound/Outbound calling effort tailored to

client’s needs

•  Supplier on-‐boarding tracking & repor4ng

Supplier Enablement Service

Supplier Enablement Weekly Enrollment Tracking

0

27

3

1

1

0 5 10 15 20 25 30

Need More Information

Declined to Participate

No Business with Buyer

Question for Buyer

Unresponsive

Buyer Action

$79,713

$7,431

$74,256

Potential Program Impact 1

Estimated Rebate

Processing Savings

Cash Flow

020406080

100120140160180200

No.

of S

uppl

iers

Campaign in Weeks

Supplier Enablement Progress

Target Suppliers Still Being Recruited

Suppliers in Buyer Action Status

Enrolled Suppliers

Enrollment Baseline

72

23 8

47

0 0

32

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

$18,000,000

$20,000,000

Enabled Suppliers

Does Not Qualify / Not

Card Accepting

Removed / On Hold

Recruiting Verbal Commitment

Drop-Out Buyer Action

Supplier & Spend Status $ Spend

# Suppliers

Thank you for your business and for joining us today!

Cameron McPhail, [email protected] 416-‐866-‐6936 Paul Cargnelli, [email protected] 416-‐860-‐3868

Accelerating Your Card Program's Financial Value May 22, 2016 · Accelerating Your Card Program's...

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