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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Questions?

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