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2010
Procure-to-Pay Best Practices and Solutions
for the Public Sector
Sylvie Parent Regional Vice President
Public Sector Relationship Management
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Discussion Topics
• Public Sector Landscape
• Payment Trends
• ePayables Overview
• Best practices using ePayables and cards
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Public Sector Landscape
• In a word – “UGLY”
• Budget issues across Canada
• Record deficits
• Probable tax increases
• Stimulus programs ended
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Public Sector Landscape (continued)
•Federal
– Budget reductions
•Provinces and Municipalities
– Funding cuts
– Stimulus funds extinguished
•Universities and schools
– Funding cuts
– Reduced private funding
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Forcing a Fresh Look at Alternatives
• “We can’t do this because…” naysayers being kicked to the gutter
• Efficiencies being looked at more closely if:
– They are not capital-intensive to implement
– Offer multiple benefits
• Alternative revenue streams
– Rebate incentives take on even greater importance to:
• Offset budget cuts
• Fund technology costs
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• Cheque usage is decreasing across North America
• B2B cheque payments are down from 81% (2004) to 57% (2010)
• Majority of buyers plan to convert major suppliers from cheques to e-payments over the next three years
Increased
Same
Decreased
Change in Usage of Payment Methods
Sources:
PayStream Advisors, “Electronic Payments: Streamline P2P, Reduce Costs,” Q2 2010
Association for Financial Professionals, “Electronic Payments Survey,” 2010
Payment Method Trends
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Key drivers of change
• The rationale for ePayment adoption continues to be time and cost savings
• New technologies are a key factor driving growth of e-payments • Electronic accounts payable (EAP)
• Electronic invoice presentment and payment (EIPP)
• Increased “float” potential
Source: Association for Financial Professionals, “Payments Fraud & Control Survey,” 2010
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Business-to-Business Trends
Source: 2010 Purchasing Card Benchmark Survey, RPMG Palmer & Gupta
Source: AFP Electronic Payments Survey data for 2004, 2007, and 2010.
• Growth of commercial cards
• Growing adoption of Electronic Accounts Payable (EAP)
• Expansion of Electronic Invoicing
• Regulatory rulings
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Payment and Reconciliation Electronic payments are a significant opportunity for cost savings
Payment Costs:
Wire $9.86
Aberdeen Group May 2010 s tudy: "Global Payments: Maximizing
Cash Flow with Electronic Payments and Process Automation"
Cheque $7.15
EDI/EFT $4.72
Card $3.96
EIPP $2.35
Reconciliation Costs: Manual EIPP
$12.00 $5.00
Accenture 2007 s tudy: "The Role of Procurement Cards in the Source-to-Settle Process"
Automated, electronic reconciliation saves FTE’s precious time
and allows them to focus on more valuable activities
Greatest cost
savings benefits
are achievable by
moving from
paper-based
payments to
e-payments
Illustrative Example Only
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Key Trends: e-Invoicing and e-Payment
Adoption of e-Invoicing Solutions Source: Invoice Automation, Automating AP Processes, PayStream Advisors, Q3 2010
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Which Paperless Option Is Best?
Source: IAPP, Accounts Payable Automation Survey, Sept. 2010
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Most Organizations Use More than One
Cap Ex
MRO Ad Hoc
COGS
Business Purchase Landscape
CARDS ACH/EFT
CHEQUES
WIRES EDI
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ePayables Terms
• Virtual card or virtual accounts
• Cardless accounts
• Ghost accounts
• Single-use accounts
• Straight-through processing
• Buyer-initiated payments
• Electronic Invoice Presentment and Payment (EIPP)
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• “Non-plastic card accounts used to pay for invoiced goods and services…” 2010 Palmer Benchmarking Survey
• Allows an organization to keep in place traditional and sometimes necessary procurement and payables controls
• Purchase order, 3-way matching and A/P processing
• During payment process run, creates an extract file sent to financial institution which instructs merchant to process select invoices on card-based accounts
ePayables – Card-based Solutions
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ePayables – Card-based Solutions (continued)
• Recognizes the need for certain transactions to require additional front/backend scrutiny
• Allows control whole still cutting costs
• Targets specific vendors
• May be used to settle eCatalog orders
• Allows for capture on cards of spends that are above traditional purchase card spend limits
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ePayables – EIPP
• Electronic Invoice Presentment and Payment
• Collaborative internet based payment networks
• Transactions reviewed and managed online
• Removes card interchange as payment acceptance barrier
• Can house contracting and invoice-related documentation
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ePayables – Non-Card EIPP
• Focus on larger transactions
– Contract management
– Construction project
– Legal fees
– Inventory items
• Smaller merchant audience due to complexity
• Significantly more complex technical integrations
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Cost
reduction
Compression
of the procure-to-pay cycle
Increased
ability to capture early
payment
discounts
Improved
visibility into payments and overall spend
Enhanced
process efficiencies and rebate
opportunities
Reduction in
the losses incurred from cheque fraud
1 2 3 4 5 6
ePayables Benefits
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Public Sector Accounts Payable Focus
• Maintain/Increase controls
•Enhance visibility
•Improve regulatory compliance
• Increase expense accuracy and timeliness
• Lower invoice processing costs
• Reduce exception rates
• Reduce cycle times and late payments
• Mitigate risk
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Virtual Card Examples
Government agencies, universities and schools using virtual accounts have:
– Reduced overall operational costs
– Integrated with eProcurement tools (e.g., SciQuest and
Skyward)
– Eliminated cheques for many contract payments
– Increased average transaction sizes
• University has average transaction size of $19,000
– Enhanced rebates to bring additional funding to critical programs
– Increased spend visibility and process control
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Examples of Public Sector Usage of EIPP
• Reduced processing costs & support “green" initiatives
– “We’re into the 21st century and out of the paper business.”
• Contract management
– Construction
– Legal bills
• Housing Authorities - utilities
• Health Services – pharmaceuticals
• Education – school supplies, equipment and text books
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Analyze Your Payments
• What are you buying, from whom are you buying and how much are you spending?
• Are you buying from contract?
• What’s the processing cost of your transaction?
• Is value added by current payment method or process?
• Cross check your spend data with card provider matching services
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Leverage the Data
• Evaluate spend categories/supplier types and payment methods
• Transition what makes sense – One size does not fit all – Pay with the most cost effective method
• Capture and utilize the level II and III detail if it helps the reconciliation
• Use technology for more than just program management –using the data for strategic sourcing opportunity and measuring both card use and contract compliance is immensely important
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Prioritize & Implement
• What matters the most – at what point in the life of your program?
– Growing volume & transitioned spend by supplier type and/or categories
– Cost reduction
– Program compliance report-ability/audit-ability
– Purchasing card data integration with ERP
• Technology has to matter
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Measure
• Data Analysis to measure a successful program
• Transactions/Volume
• Transition of checks to electronic payments
• Cost/Benefit Ratio
– Decreased processing cost
– Increased revenue