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Optimizing Your Payables Mix:
A Guide to Maximizing Automation & Financial Return in AP Miguel Rodriguez
Regional Director, Paymode-X, Bottomline Technologies, Inc.
Agenda
• Current Payments Landscape
- Industry Statistics
- Payment Types and Usage
• Results 2012-13 AP Spend Analysis Study
• Key Considerations - Industry Trends
• Q & A
Payment Strategies
ACH (Automated Clearing House)
• Utilizes an electronic
network via daily batch with
1-2 day settlement delay
• Standardized payment files
with limited remittance
• Can be easily integrated
into AP systems
WireTransfer
• Generally offer same day
settlement for buyer and
supplier
• High transaction fees to
send and receive
• Typically reserved for
large dollar or
international transactions
Traditional Check
• Most common form of B2B
payments, but highest cost
to process
• Suppliers will often permit
45-60 day payment terms
• Check payments take 3-5
days to settle, increasing
supplier’s DSO
Traditional P-Cards
• Most widely used card
payment product for
procurement of goods by
various channels
• Can replace the
traditional
PO/invoice/approval
process
• May have embedded
controls to ensure
compliance
Checks ACH/EFT Cards Wires
Cost (who pays)
$1-2 (Buyer)
Pennies (Buyer)
2-4% (Supplier)
$5-25 (Buyer)
Transaction Timing Determined by buyer Scheduled by Buyer At time of purchase Instant
Good Funds Check may bounce NSF risk Chargeback risk Final
Settlement Speed Varies (depends on when
supplier cashes the
check)
Next Day 24-48 hours Instant
Data Complete remit via
paper
Remit via other
method (fax, email)
Supplier send
purchase data to
buyer (L2, L3)
Remit via other
method (fax, email)
Fraud Risk High Medium Medium Low
Other Familiar, acceptable,
status quo
Supplier reluctant to
share bank info
Buyer earns rewards
or rebates
Common for cross
border and high value
transactions
Source: Glenbrook Partners, 2010
All Payment Types Are Important No single payment will “win” in business payments
Primary Payment Methods
Source: 2012 Federal Reserve Study, Electronic
Payments & Remittance Data: Pain Points & Solutions
Primary Method for Making Payments
All or Mainly Check 60%
Mainly ACH 26%
Mainly Card 3%
Other 3%
Do Not Know 8%
• Well over half of respondents
make and receive B2B payments
all or mainly as checks – 60% and
65% respectively.
• Nearly one-quarter make and
receive B2B payments mainly by
Automated Clearing House (ACH)
• 3% make and receive B2B
payments mainly by card.
Barriers to Adopting ePayments and eRemittance
1. Trading Partners – trading partners are unable or unwilling to originate and
receive e-payments and e-remittance data.
2. Information Technology - businesses lack technology and IT resources
needed to support more use of e-payments and e-remittance data.
3. More Standard Practices - many businesses cite the problem of non-standard
e-remittance formats and business practices, which makes it difficult to readily
exchange and automate e-remittance processing.
For example trading partners reportedly use the X12 EDI 820 standard in such different
ways that specific arrangements must be negotiated with each trading partner to enable
processing of remittance data files. Businesses also report that remittance data
frequently has key fields missing or incorrect data, making manual intervention
necessary.
2012 Electronic Payments & Remittance Data:
Pain Points & Solutions, Federal Reserve Banks
*Institute of Financial Operations 2012 AP Automation Study
Challenges to Implementing electronic
payment systems
What is your No. 1 obstacle to getting AP automation projects approved?
23%
18%
7% 12%
2%
33%
5% Lack of capital
Lack of senior executive attention and sponsorship
Lack of business case
Solutions are not compelling enough
Lack of internal IT resources
Too many other projects
Other
“Other projects, scarcity of resources and lack of capital” present challenges when attempting to implement electronic payments programs
November 2011, the Federal Reserve Banks implemented the Customer Transfer Plus (CTP)
message that allows corporate originators of wire transfer payments to include up to 9,000
characters of extended remittance information within a wire transfer payment order, which can help
facilitate end-to-end processing.
Source: Federal Reserve Board of Governors
0
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Tra
nsacti
on
Vo
lum
e
Year
Trends by Payment Type: Wire Transfer
Wire Transfer Volumes
2012 Purchasing Card Benchmark Survey Results, RPMG
Trends by Payment Type: Commercial Card
Key Findings
• Purchasing card spend in North America grew from $161 billion in 2009
to $196 billion in 2011
• Growth is predicted to be 8% for 2012 and about a 9.6% per year
average over the next five years
• Traditional spend categories: office equipment, computer hardware,
software and peripherals, and MRO goods
Benchmark Averages
• Monthly spend per organization: $2.1 million
• Transaction size: $343
• Monthly spend per card: $2,393
• Number of transactions per card per month: 7
Trends by Payment Type: ACH
• More than 21 Billion in US ACH Payments Reported in 2012 (April 15, 2013)
• According to research by the Electronic Payments Association (NACHA) ACH
payment volume in 2012 exceeded 21 billion transactions for a total of $36.9 trillion,
increases of 4.19% and 8.76%, respectively, compared to 2011
4%
6%
7%
5%
3%
10%
10%
0% 2% 4% 6% 8% 10% 12%
ACH payments
Native electronic payments
Check-initiated payments
ACH credit payments
ACH debit payments
Web-based Transactions
Web-based Transactions
The use of check is declining
• The average value of checks
paid decreased from $1,363
in 2006 to $1,292 in 2009.
• Checks converted to ACH
averaged $227 in 2009.
• Including checks converted
to ACH, the average value of
a check written decreased
from $1,278 in 2006 to
$1,165 in 2009.
Source: 2010 Federal Reserve Payments Study
Overall, both the number and
value of checks have decreased
Trends by Payment Type: Check
30.5
24.5
2.6
3.3
2006 2009
Coverted to ACH
Paid as Checks
33.1
27.8
(92%)
(88%)
(8%)
(12%)
-5.7%
6.9
1.9 1.6 2.4 1.8 1.2
3.1
4.4
2.0
2.7
1.1
0.6
8.7
10.7
8.6
3.9
5.5
6.0 8.7
5.6 5.2 5.5
2.2 2.4
0
4
8
12
16
20
2000 2006 2009 2000 2006 2009 2000 2006 2009 2000 2006 2009
Casual
Income
Remittance
POS
Remit/POS
Payment Purpose
Total Number of Checks Written
2000 = 41.9 Billion
2006 = 33.1 Billion
2009 = 27.8 Billion
(Overall decline of 33.7%)
Billio
ns
of
Pa
ym
en
ts
C2B declined 6.5B or
35% since 2000
B2C declined 3.6B or
41% since 2000
C2C declined 3.1B or
56% since 2000
in Billions
Source: 2010 Federal Reserve Payments Study
B2B declined 1.2B
or 13% since 2000
Check Decline Varies by Payment Purpose
C2B B2C C2C B2B
2012-13 AP Spend Analysis Study
2012-13 Account Payable Payment Trends:
AP Spend Analysis Program
What is the AP Spend Analysis Program?
• Review and analysis of a sample
set of AP Vendor Master File by our experts
• Benchmarking peer data for
payables mix and automation
• Calculation of operational cost-
savings and financial
improvement opportunities
Summary of Results
Statistic Total Median (File Size) Average (File Size)
Payment Amount ($) $158,962,937,986 $316,924,720 $888,061,106
Transactions 12,253,593 24,231 68,456
Vendors 994,615 2,705 5,557
$158B Analyzed
179 AP Spend Analyses
Organizations Analyzed –
From Small to Very Large
9
21
50
38
25
36
0
10
20
30
40
50
60
Number of Participating Companies by AP Spend $ Size
2012-13 AP Payment Trends: Payment Type
$5,032 $9,342
$14,519
$146,411
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
Card Check ACH/EFT Wire
Average Payment Size $ Card 1% Wire
1%
ACH/EFT 32%
Check 66%
% of Transactions
Paper Checks Remain the Dominant Payment Type!
Use of Payment Types: More Details
Payment Type Transactions
Per Vendor
Payment Size
per Transaction
Annual
Payment Total
per Vendor
# of Invoices
Per
Transaction
Invoices per
Vendor
% of Vendor
Population
ACH/EFT
27.52
$14,519 $399,562 2.12 58.4 13%
Card 23.63 $5,032 $118,906 2.49 58.8 <1%
Check 8.75 $9,342 $81,743 2.01 17.6 85%
Wire 10.11 $146,411 $1,480,215 2.30 23.2 2%
Total 11.42 $12,973 $148,152 2.05 23.5 100%
ACH a Win-Win for both Payers and Vendors!
When It Comes To Automation Success,
Payer Size Matters
1% 11% 19% 18%
29%
40%
96% 83% 76% 74%
70%
59%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Check
ACH/EFT
% of Transactions by Type
In-house ACH Programs:
Still Searching for Adoption
1st Generation In-house ACH
Program
74%
No ACH Program
26%
72%
25%
11%
of the sample set
(companies) pay with
check for over 70% of
transactions
of the sample set
(companies) make
greater than 30% of
their transactions via
ACH/EFT
of the sample set
(companies) make the
majority of their
payments via ACH/EFT
Key Considerations
The Opportunity – $30 Trillion in B2B Payments,
a majority of which are still paper checks
• More than 60% of
businesses pay by check
• More than 65% receive
payments as a check
Source: 2012 Federal Reserve Study, Electronic Payments &
Remittance Data: Pain Points & Solutions
12%
32%
34%
88%
Some other method
In a electronic file that is reconciled automatically (nomanual intervention needed)
Through a portal or network
As a document via email, fax or paper with remittance detialthat needs to be re-keyed
Primary Method for Making Payments
All or Mainly Check 60%
Mainly ACH 26%
Mainly Card 3%
Other 3%
Do Not Know 8%
• 88% of vendors
receive their remittance
as paper, email or fax
which requires re-keying
Choosing the Right Payment Mix
to Meet Your Needs
Optimal Payments
Mix
Card ACH/EFT
Wires
Employing A Comprehensive
Payables Strategy is Best Practice
• One off payments
• Unbanked
• Emergency low dollar payments
• Repetitive payments
• High dollar payments
• International payments
• Payments requiring same day settlement
• Int’l payments if ACH can’t be used
Card ACH/EFT
Wires
• Small, one off payments
• Travel and expense
• Bypass approval process
Checks
Industry Trend: Settlement Networks or Portals
“Business commerce payments portals, also called “exchanges” or “trading partner networks,” ease connections between buyers and sellers.”
Source: AFP® PAYMENTS DECISION GUIDE TO Business Commerce Portals
“A Networked economy is a collection of buyers and suppliers who share common connections.”
Source: Aberdeen, AP Invoice Management in a Networked Economy.
“Value-added services such as onboarding Vendors and maintaining them in the Vendor masterfile helps us overcome a lack of internal resources. Further, the provision of information exchange among buyers and Vendors improves the
payments and invoice reconciliation process.” Fay Deevy, assistant vice-president, cash management & liquidity at Sun Life Financial.
Source: AFP® PAYMENTS DECISION GUIDE TO Business Commerce Portals
Payments Portals or Networks
In addition to cost savings, other benefits of Payments Networks include*:
• Eliminate paper delays by automating processing
• Ensure greater accuracy in processing
• Update buyer credit limits quicker, which supports greater sales
• Identify new buyer and/or supplier opportunities
• Visibility of total company cash allows for improved and longer-term
forecasting, better investment rates, reduced need to borrow, and better
matching of revenue to expenses
• Better working capital management leads to higher enterprise value
• Improve compliance with trading partner agreements; opportunity to
optimize payments timing
* AFP® PAYMENTS DECISION GUIDE TO Business Commerce Portals
Member Payers make
electronic payments to any
member Vendor.
Member Vendors receive
electronic remittance data from
any member Payer.
Settlement Network
How Does it Work?
SaaS model makes
implementation easy,
eliminating the need
to rely on IT
Works with existing
financial and ERP
systems
Specialists onboard,
manage and maintain
the Vendor population
that is easy to implement
Settlement Network
Payment Networks Deliver Business Benefits
PAYERS YOUR VENDORS
WILL VENDORS
Payers
• Financially Rewarding
• Gain Efficiencies
• Realize Cost Savings
• Leverage Current Systems
• Strengthen Relationships
• Reduce Paper and Carbon Footprint
Vendors
• Access Cash Faster
• Strengthen Relationships
• Control Cash Better
• Realize Cost savings
• Gain Visibility
• Leverage the Network Effect
Payment Type & Optimizing Your Payables Mix
Card 1%
Wire 1%
ACH/EFT 32% Check
66%
Current State
Advanced AP
Departments
ACH/EFT 71%
Card 8%
Check 20%
Wire 1%
Future State
Target For
Increased Adoption
Industry Trend: Working Capital Optimization
Taken together, we see that Best-in-Class organizations have shortened
processing cycles, driven down costs, and opened up additional opportunities
for cost savings – all characteristics that position them to help support treasury.
Source: Aberdeen Group 2012, Treasury Strategy and
Operational Cash: the Importance of AP and AR
Maturity Class Invoice Processing
Time
Invoice Processing
Cost
Early Payment
Discount Capture
Rate
Best-in-Class (Top 20% of aggregate
performance scorers)
5.3 days $7.78 60%
Industry Average (Middle 50% of aggregate
performance scorers)
10.2 days $12.05 9%
Laggard (Bottom 30% of aggregate
performance scorers)
24.5 days $37.45 2%
Best in Class Accounts Payables Characteristics
• Aite Group estimates that
approximately 33% of small
businesses currently bank via a
mobile device
• While an additional 31% are
interested in doing so.
• Approximately 54% will bank
via mobile by 2015.
Industry Trend:
Mobility - Access From Anywhere / Anytime
Aite Group, 2012 Small-Business Mobile Banking: A Promising Opportunity
Concluding Remarks
• The majority of businesses are still burdened with costly check payments
• While larger businesses have greater success at migrating off check, they’re still
issuing checks for 59% of their transactions
• Migrating to electronic has significant appeal, but brings with it some internal hurdles
• A “one size fits all” payments approach does not exist—the right mix of payment
vehicles can differ for each organization
• Third party Payments and Settlement Networks facilitate payments between
companies of any size
• Advanced AP departments utilizing a Settlement Network with a payments mix
based on 3 things, can automate as much as 65-70% of their target transactions
- Maximizing financial gains,
- Lowest routing payment cost &
- Strengthening Vendor relationships
5 Best Practice Tips
Understand Your Vendor Population & Payment History
Many organizations lack the time and resources to do an analysis of their Vendor population
and payment history to identify helpful trends. This is Step 1– knowledge is power.
Know How Your Vendors Prefer to Get Paid
Are many of your Vendors already part of an existing payment network, or do they ask for a
specific payment type? Find out to take advantage of momentum and increase Vendor satisfaction.
Develop a Payables Optimization Plan
Create rules for which payment types and terms are offered to your individual Vendor categories
so you can maximize overall automation, cost reduction and financial improvement opportunities.
Eliminate Non-Core Tasks for AP– Expert Help Exists
In-house approaches rely on AP to reach out to Vendors and onboard them to various payment
methods, slowing adoption and increasing liability. Dedicated experts = accelerated adoption.
Leverage Your Financial System & Bank
Minimize business process re-engineering and cost by taking advantage of your existing
ERP and bank relationships. SaaS/network payment automation tools integrate with what you
have today.
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