Automating the Settlement Process

•  Discussion Outline –  Why automate payments –  Options to achieve automation –  Selecting a service provider –  Transforming your payment process –  Future of electronic payments

Agenda

Why Automate Payments?

•  There is opportunity –  Accounts Payable remains a paper-based process*

•  83% of all invoices are still on paper •  68% of payments are still remitted with paper checks

–  Universal need to do more with fewer resources •  There is desire

–  69% of Finance professionals are seeking to increase use of ACH and Purchasing Card payments for accounts payable in the next 18 months**

•  There is available technology –  Affordable SaaS technologies are coaxing previously reluctant

payers and even vendors off the sidelines

The Case for Change……

SOURCE: *PayStream Advisors August 2010, ** PayStream Advisors December 2011

0% 10% 20% 30% 40% 50% 60% 70%

Compliance with Sarbanes-Oxley and other regulatory requirements

Growing risk of payment fraud

Lacked predictability of cash flow

Corporate Mandate to reduce overall payment transaction cost

Stakeholder demand for improved operational efficiency

Why Automate?

SOURCE: Aberdeen Group, August 2011

Pressures Driving A Focus on E-Payables

Automation – A Win, Win

•  Automating your payments can result in: –  Cost savings

•  Resource allocation •  Process efficiencies •  Paper production of forms and filing •  Bank fees (associated with outsourced checks or

complex remittance support with epayments) –  Increased negotiating leverage with suppliers

•  Early payment discounts •  Dynamic discounting

Cost Savings Opportunities

Companies that installed an electronic invoicing solution reported a 61% reduction in invoice processing costs… financial returns from automated discount management are 5 to 10 times as large.

– Paperless Accounts Payable, IOMA

Options to Automate

US B2B Payment Mix

81%

57%

10%

25%

7% 13%

2% 4%

2004 2007 2010

Checks

ACH

Wire

Cards

Source: AFP; First Annapolis analysis

B2B payment trends are heavily influenced by corporate mandates to realize automation efficiencies

•  While most organizations already offer ACH payments to employees, vendor ACH is less widespread

•  Buyer goals:

–  Drive down the cost of payments –  Free up AP resources to focus on

value-added activities –  Meet vendor requests for electronic

payments and remittance

A Case for ACH

A Case for Wires

•  Same day settlement is a critical requirement for certain B2B transactions

•  Buyer goals:

–  Streamline processes –  Simplify ongoing maintenance –  Eliminate “bank stickiness” –  Reduce training costs

Wire types

•  AKA “Fedwires” •  Provide same day settlement for transactions •  Often used for high dollar transactions

Domestic

•  AKA “Funds Transfer or Real Time Gross Settlement” transactions

•  Same day settlement of funds on a global basis •  Often used for all overseas transactions despite

settlement requirements

International

•  A consortium of banks and businesses •  Standard messages that move money globally •  Barriers to entry for corporates have been eliminated

SWIFT

•  Credit cards used by businesses to pay for goods and services, such as business travel, MRO and vehicle expenses –  Improves upon consumer cards with additional

purchasing controls and reporting •  Buyer goals:

–  Utilize credit line to pay for expenses –  Decentralize purchasing to in a controlled

environment –  Enable point of sale purchase and payments

Commercial Cards

A Case for Checks

•  Checks will always be around! •  Paying by check makes sense when:

–  The payee is not a repeat vendor –  You need to make an inexpensive,

immediate payment

Employing A Comprehensive Payables Strategy is Best Practice

•  Repetitive payments •  High dollar payments •  International payments

ACH

• One off payments • Unbanked • Emergency low dollar

payments Checks

• Small, one off payments • Travel and expense • Bypass approval process

Card

• Any payment requiring same day settlement

•  International payments where an ACH cannot be used

Wires Optimal Payments Mix

Card

Wires ACH

Selecting a Service Provider

Bank Solutions

•  Banks now offer a full suite of payment capabilities including: –  Outsourced Check Printing –  ACH –  Wires –  Card

•  The Bank’s goal is to increase customer “stickiness” –  One stop shopping –  Maximize amount of customer’s assets with a single

institution

Bank Solutions

•  Bank services can be convenient but limiting –  ACH remittance delivery is costly or non existent –  Difficult to switch banks for better interest rates, etc if

all payments are tied to single institution –  Banks can end business relationships due to

unfavorable finances, credit or publicity •  Recommendations:

–  Leverage the bank services that get you benefits that drive your business

–  Do not tie all payment processes to a single financial institution

Finding a Provider: Non-Bank Solutions

•  Look for trusted, long standing providers that: –  Take a consultative approach –  Have industry experts on staff –  Are willing to plug into existing processes

•  A mature solution will: –  Provide a more immediate ROI –  Reduce the time to the first automated payment –  Promote growth –  Ease vendor adoption

The Right Solution Maximizes Your Resources

•  Do more with less… –  Your AP Automation solution should provide savings and

efficiencies – not complicate your business •  ERPS & Accounting Systems

–  Simple integration with any back office accounting system –  Few requirements for ERP updates –  Leverage current payment processes

•  IT Resources –  Limited implementation involvement –  Little to no ongoing system maintenance –  Automatic technology refreshes and new feature roll-outs

Transforming Your Payment Process

•  When automating your payments process, best in class companies follow these steps for a successful transformation –  Create a project team

•  Include cross functional representation to ensure alignment –  Evaluate existing payment processes

•  Determine what steps change, what steps remain the same with the introduction of payment automation

•  Create a cost savings estimation for the automated process –  Evaluate your payment file

•  Create your optimal payment mix (ACH, wire, commercial card, check)

•  Communicate new payment method(s) to your vendors

Best Practices

•  When automating your payments process, best in class companies follow these steps for a successful transformation (continued) –  Set goals for payment transformation

•  What percent of vendors or spend will be targeted for each automated payment method

–  Implement solution service provider •  Set up vendors with preferred electronic method

–  Communicate payment automation process and goals internally •  Explain solution provider, change in payment methods, cost

savings expectations –  Begin payment transformation

•  Track successes

Best Practices

Future of Electronic Payments

•  The Order to Pay Market demands that solutions in the future… –  Be global, mobile, and relevant –  Integrate with existing invoice and PO workflow as needed –  Grow their supplier networks and address supplier pain points

•  Consolidated reconciliation and ease of integrating remittance data •  Don’t want buyers to have their bank account information

–  Navigate the regulatory environment effectively –  Converge Treasury with Trade –  Create a secure environment for their buyers and suppliers –  Consult with customers on payment mix and optimal payment

method by type and supplier –  Unlock working capital for companies to help them succeed

Industry Trends