payables automation trends - scotiabank

Visa Public 1

Payables Automation Trends

Dave MeaneySeptember 23, 2011

Visa PublicVisa PerformSource

Payables Automation Trends

Growth in Global Commercial Spending (in trillions USD)

Streamlining the AP process takes on added significance when considering the sheer volume and continued growth in commercial payments.

Source: Visa, Inc. Commercial Consumption Expenditure Index, 2008.

2


Payables Automation Trends For purchasing card growth specifically, RPMG survey respondents expect to experience an 11.6% average annual growth rate between 2009 – 2014.

Purchasing Card Spending in North America (in $ billions)

Sustained electronic B2B payments growth is being driven by organizations seeking the achieve great cost savings with traditionally inefficient functions.

Source: RPMG 2010 Purchasing Card Benchmark Survey Results. (This data does not reflect any forecast, prediction or expectation regarding Visa’s performance or revenues.)

3


Payables Automation Trends Integration of two forms of electronic B2B payments (ACH, Card) with AP and AR functions has increased dramatically.

Electronic Payment Integration with AP and AR Accounting Systems

Consequently, many AP departments have an opportunity to improve efficiency levels through a more streamlined payables process.

Source: 2007 AFP Electronic Payments Survey of 493 members and customers (primarily U.S. based).

Source: 2010 Aberdeen “Global Payments: Maximizing Cash Flow with Electronic Payments and Process Automation” survey of 160 companies globally (76% from North America).

4

Visa Public 5

Payment Strategies


Payment Strategies Recent NAPCP / First Annapolis research found that as buying organizations develop a payment strategy, they will consider multiple factors when deciding on an optimal form of payment.

Buying Organization Payment Type Decision Factors

Source: NAPCP / First Annapolis, “End-User Perspective on Suppliers’ Acceptance of Card Payments,” June 2010 (n=146).Question: How often does your organization consider the following factors when determining how to pay a supplier willing to take any form of payment?

6


Payment Strategies Supplier type can also influence a buyer’s payment strategy.

Change in Use of Electronic Payments

Source: PayStream Advisors, “Electronic Payments: Streamline P2P, Reduce Costs,” Q2 2010.

Supplier Types:

Strategic

Catalog

Direct

Indirect

Large Ticket

Small Ticket

On-Going

One-Time

In the context of these considerations, ACH and purchasing cards have been increasing while check payments have declined.

7


Payment StrategiesMost common form of B2B payments, but highest cost to processSuppliers will often permit 45 – 60 day payment termsCheck payments take 3 – 5 days to settle, increasing a supplier’s DSOs

Most common form of B2B payments, but highest cost to processSuppliers will often permit 45 – 60 day payment termsCheck payments take 3 – 5 days to settle, increasing a supplier’s DSOs

Generally offer same day settlement for the buyer and supplierHigh transaction fees to send and receiveTypically reserved for large dollar or international transactions, since for smaller, reoccurring transaction the high cost can be prohibitive

Generally offer same day settlement for the buyer and supplierHigh transaction fees to send and receiveTypically reserved for large dollar or international transactions, since for smaller, reoccurring transaction the high cost can be prohibitive

Utilizes an electronic network via a daily batch process with a 1 – 2 day settlement delayStandardized payment files with limited remittance informationCan be easily integrated into AP systems

Utilizes an electronic network via a daily batch process with a 1 – 2 day settlement delayStandardized payment files with limited remittance informationCan be easily integrated into AP systems

Most widely used card payment product for procurement of goods by various channelsCan replace the traditional PO / invoice / approval processMay have embedded controls to ensure compliance

Most widely used card payment product for procurement of goods by various channelsCan replace the traditional PO / invoice / approval processMay have embedded controls to ensure compliance

Traditional Checks

Wire Transfers

ACH(Automated Clearing

House)

Conventional / Traditional Use of P-

Cards

8

Source: First Annapolis primary research as of April, 2010.


Payment Strategies Historically, purchasing cards have been used to pay for small dollar purchases; however, technology now exists to embed cards into an automated PO process and to thereby handle much larger transactions.

Purchasing Card Highest Ticket Capture

Source: NAPCP / First Annapolis, “End-User Perspective on Suppliers’ Acceptance of Card Payments,” June 2010 (n=146). Question: Is it very common or common for your organization to place the following transaction amounts on a card?Query identifies responses of "very common" or "common" in successively larger average ticket ranges. For example, answering "very common" or "common" for $2,500 - 5k and for $5 - 10k, but not for larger ticket ranges would bucket respondent into $5 - 10k.High revenue = $1 billion or more in annual revenue / budgetHigh spend = $20 million or more in annual purchasing card spendHigh capture = purchasing card spend = 4% or more of budget / revenue

9


Payment Strategies Buyer-held ghost accounts are one type of virtual card that does not require the issuance of a physical plastic.

10

Buyer-Held Ghost Accounts

Aggregate Transactions

Ghost accounts are assigned by the buyer to a specific supplier, department, project, or piece of equipment; however, one employee still has ultimate responsibility for the account.

Increase Control of Purchases

By eliminating the need to issue individual plastics, organizations can help improve security and centralize control while expanding usage to a greater number of employee buyers.

Integration with Current Processes

Along with the benefits of a traditional p-card, ghost accounts can be integrated with an automated PO and invoice process to pay invoices with target supplier or for amounts below target thresholds.


Payment Strategies Payables Automation has gained momentum as a result of its reporting capabilities, potential working capital improvement, and the elimination of checks in the payment process

11

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, and reconciliation process but eliminate the paper check.

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.

Visa Public 12

Options for Payables Automation with Virtual Commercial Cards


Options for Payables Automation with Virtual Commercial Cards Integrated payables solutions that leverage the commercial card networks have increased in sophistication and utility beyond traditional plastic cards.

Replace a cumbersome, paper-laden P2P process

Embed within a more automated and streamlined P2P process

Give a card to any employee who purchases goods for the organization

Eliminate the need to issue individual plastics and easily integrate into

existing AP systems

Mandate p-card usage for targeted spend categories with transaction

limits

Operate within traditional reconciliation processes

Optimize payment for each transaction through dynamic controls and capture

increasingly larger tickets within expanded categories

Generate a detailed reconciliation file and improve supplier spend visibility

through enhanced, consolidated reporting

Traditional Plastic Cards Virtual Card Payment Process

Purchasing Card Evolution

13


Options for Payables Automation with Virtual Commercial Cards AP Automation solutions facilitate a virtual card transaction.

How AP Automation Works

Buyer

• Approve invoices for payment

• Generate payable file from ERP

• Send AP File to Issuer

1 2

4

Issuer

• Process card payables

• Adjust card limits if needed

• Send remittance to suppliers

Issuer

• Post reconciliation file to Buyer

3

• Charge account for approved amount and includes invoice numbers

Supplier

Source: Visa and First Annapolis Consulting.

14


Options for Payables Automation with Virtual Commercial Cards Virtual card accounts can be used in payables automation solutions in three separate ways, each offers various benefits to buyers and suppliers.

Definition: lodged supplier accounts are virtual cards that can be established by a buyer to be held by or embedded with a supplier. Purchases are consolidated by supplier, easing the approval,

reconciliation, and coding process.Supplier-specific spend tracked against contract levelsSuppliers can append additional information, for example PO number.

Definition: lodged supplier accounts are virtual cards that can be established by a buyer to be held by or embedded with a supplier.Purchases are consolidated by supplier, easing the approval,

reconciliation, and coding process.Supplier-specific spend tracked against contract levelsSuppliers can append additional information, for example PO number.

Definition: single use, virtual account issued for each payment.Pre-approval required by a buying organizationEach payment has time and dollar-based controlsThe card number is only revealed after order completion to a supplierMay assist reconciliation process

Definition: single use, virtual account issued for each payment.Pre-approval required by a buying organizationEach payment has time and dollar-based controlsThe card number is only revealed after order completion to a supplierMay assist reconciliation process

Definition: Buyer initiated payment and settled without any active supplier involvement via a virtual card account. Buyer authorizes transaction prior to paymentSupplier does not have to receive or enter any card informationBuyer submits a payment directly through the supplier’s acquirer while the

payment settles in the supplier’s acquiring settlement account

Definition: Buyer initiated payment and settled without any active supplier involvement via a virtual card account.Buyer authorizes transaction prior to paymentSupplier does not have to receive or enter any card informationBuyer submits a payment directly through the supplier’s acquirer while the

payment settles in the supplier’s acquiring settlement account

1. Supplier Held Lodged Accounts

2. Single Use Accounts

3. Buyer- Initiated Payments or

Straight Through Processing

15

Visa Public 16

Why & When to Automate Payments?


Why & When to Automate Payments? Buying organizations that automate payments through any form of card payment with a payables automation solution can realize a streamlined process that may yield cost savings.

17

The Value Proposition for Buying Organizations

Streamline Payments

Electronic payments help streamline the payment and reconciliation process by reducing the cycle time, cost and financial risk associated with traditional check payment activity.

Increase Control of Purchases

Buying organizations increase control of purchases and help align spending with procurement policies by leveraging a payables automation solution.

Expand Purchasing Card Spend

In addition, automating payments can help the buying organization to increase its purchasing card spending by enabling card payment for purchases that heretofore have not been paid by plastic cards.

Better Manage Cash Flow

Implementing a payables automation solution can give an organization greater flexibility to increase DPOs, improve cash conversion cycles, and enhance the predictability of cash flow forecasts.

Enhanced Data

The enhanced data that accompanies a payables automation solution facilitates capture of line-item invoice details from suppliers that pass Level III data and helps buyers to have a consolidated view of supplier spend to enable better spend category and supplier management.

Financial Incentives

Financial incentives from issuers may be available through the use of commercial cards.


Why & When to Automate Payments? Suppliers see a number of benefits from accepting card-based solutions.

18

The Value Proposition for SuppliersExpand Customer Base

Adoption of virtual card-based solutions may strengthen, retain, and potentially expand buyer / client relationships.

Improve Working Capital

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

Reduce Processing Times

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

Enhanced DataEnhanced remittance data that accompanies a virtual card solution can help improve the payment reconciliation process thereby reducing exceptions, errors, and disputes.

Strong collaboration between buyers and suppliers is a core component of any buyer’s electronic payment strategy since supplier adoption is a key to success.

payables automation trends - scotiabank

Documents