performance measures that matter the benefits of payables …€¦ · focus on accounts payable can...

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Performance Measures that Matter

The benefits of Payables AutomationLaura I. MaydónVisaLatin Trade CFO EventsMexico City, June 16th 2011

Visa PublicVisa Latin Trade CFO Forum | June 2011 2

Note:Survey results, research and recommended practice recommendations are intended for informational purposes onlyand should not be relied upon for marketing, legal, technical, tax, financial or other advice. When implementing any new strategy or practice, you should consult with your legal counsel to determine what laws and regulations may apply to your specific circumstances. Visa is not responsible for your use of the information, including errors of any kind, or any assumptions or conclusions you might draw from its use.


Source: “2010 Business Outlook Survey,” Association of Financial Professionals.Visa Inc., 2009 Global Cash Management Study.

Key focus areas for Finance Executives

As our economies are poised for continuous growth, companies look at their own financial standing and processes to free-up resources for additional investments. Key to identify opportunities for impactful improvements to:

More Effectively Focus on Managing Working Capital

Create and Automate a Payments Strategy

Monitor Spending

Enhance Strategic Sourcing

Deploy a Controls Strategy

Cut Costs


Focus on Accounts Payable can help meet targets

CFO’s recognize that Accounts Payable:• Impacts working capital• Plays a strategic role in the bottom line

Source: “The CFOs View of Accounts Payable. Cash is King” Aberdeen Research, February, 2009.

ControlWhen Invoices

Are Paid

Adhere toSupplierTerms

Take EarlyPay

Discounts

AvoidLate

Payments

TakeAdvantage ofCard Credit

Lines

Extend DaysPayable

Outstanding(DPO)

Visa PublicVisa Latin Trade CFO Forum | June 2011

Payments, the “least painful” component of AP automation, is poised to lead automation.

Source: From First Annapolis: 2007 PayStream Advisors, Inc., "AP Automation for the European“.Market," Q1 2007. First Annapolis market observations.

AP Automation

viewed as the least “painful”

AP automation can lead to savings and improve working capital

Studies have suggested payments automation can

drive up to 4% supplier discount savings on indirect

spend and 10% to 15% savings potential on travel

provider T&E spend.

18%Supplier spend mgmt

7%Payment

Accessing invoice info 14%

Discrepancy resolution 35%

Approval processing 25%

Imaging / data capture 25%

Matching 25%

Invoice receipt 24%

AP Automation “Pain Index”(% of top-two boxes of a five-point pain scale)

5


Commercial payments are expected to continue growing

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.

6

6 7 821 2329

32 28

55

2005 2006 2007

6269

82

20092008

1623

4

16

19

24

4

17

19

24

21

20

2

23

90

18

2

26

87

Latin America/CaribbeanCanadaU.S.

EuropeCentral/Eastern Europe, Middle East & AfricaAsia Pacific


Europe 32%

Asia Pacific29%

U.S. 21%

CEMEA 9%

ALC6%

Canada 2%

ALCCCE = $5T

32%

22.5%

45%

4.5%

Large

Medium

Small

Government

LAC LMM companies have a great potential to address automation using cards for B2B payments…

Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, July 2010. Global CCE index data sources include Bureau of Economic Analysis (BEA), U.S. Census Bureau, Organization for Economic Cooperation and Development (OECD), Structural Analysis (STAN) Database, EuroStat Database, General Government Accounts from the National Accounts of OECD Countries, United Nations Statistics Division National Accounts Main Aggregates Database, EIU proprietary databases, government data and EIU model estimates where government data was unavailable. Large contracted defense spending not included in CCE index. Addressable market estimated by First Annapolis - 2011 Study.

LMM CCE = $ 3.4 T

Argentina Brazil Chile Colombia México Perú Total

$69.7 $474.3 $80 $66 $178 $33.9 $902 B

1.2 9 1 1.6 4 0.5 17.5 B

Billions of USD

LMM Card Addressable market

TOTAL LMM

T&E

LMM addressable market estimated to be 26% of its CCE.Corporate Travel Segment is 1.9% of addressable.

7


…and T&E expenses

The total LMM addressable T&E market in all of Latin America is estimated at $21.9 billion.

Argentina Brazil Chile Colombia México Perú Total

$1,232 $9,055 $1,097 $1,591 $4,011 $517 $17,502

Approximately 80% ofall LAC T&E addressable*

All LAC

$21,878

First Annapolis performed a study and measured the total T&E addressable market opportunity for the six countries mentioned above in LAC:

a) Applied business travel benchmarks to total industry revenue figures for the large and middle market (LMM).

b) Assumptions by product and spend category were driven by multinational and local travel agency interviews, along with validating secondary research.

Source: First Annapolis Addressable Market Study 2011.

Millions of USD

8


Capture the opportunity: create and automate a Payment Strategy

• e-ProcurementSystems

• Supplier Network

• Online TravelBooking

• ElectronicPaymentMethods(CommercialCard and ACH)

• ElectronicInvoicePayment andPresentment(EIPP) Systems

• AutomatedExpenseManagementTools

• Integration ofPayment Systemswith ERP ande-ProcurementSystems

• ElectronicReceiptStorage/Imaging

• Consolidationof Global SpendData in ERPSystem

• ContractLifecycleManagementTools

• eSourcingTools

Paymentand

SettlementOrder

PlacementStrategicSourcing Reconciliation

Controland Audit Reporting

Source: 2008 Visa/Deloitte Procure to Pay and Commercial Card Best Practices Study.


Tools for making commercial payments

Which of the following payment methods does your organization use to make commercial payments?

Source: 2009 Global Cash Management Survey.

28%20%

80%88%

33%

73%

Automated Clearing House (ACH)

47%40%

33%

60%66%

78%

17%

58%

72%

Wire Transfer

80%90%

57%

90%90%

97%

70%

50%

Commercial Payment Cards

57%

70%

15%

38%43%

76%

30%

17%

38%

68%

Checks

48%53%

40%

73%67%

50%

76%

60%

77%86%88%

USCanada

MexicoSouth Korea

JapanSouth AfricaBrazil

GermanyFrance

Australia

10


Payment Strategies

Buying Organization Payment Type Decision Factors

76%

68%

66%

53%

30%

49%

34%

19%

8%

14%

20%

20%

27%

39%

18%

28%

33%

35%

Org policies / procedures

Your process costs

Documents required

Purchase amount

Complexity of transaction

Revenue share

Float

Cash flow to supplier

Cost / fees to supplier

Frequently Sometimes

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?

11

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.


Payment Strategies

Change in Use of Electronic Payments

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

34%

67%

48%

22%

56%

30%

44%

31%

10%

3%

8%

48%

Wire Transfer

ACH

Purchasing Cards

Checks

Increased Same Decreased

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.

12

Supplier type can also influence a buyer’s Payment Strategy.


Why use commercial cards to automate AP?

Commercial cards can help enable organizations to transform processes to meet more aggressive performance goals and address untapped opportunities.

Focus on ManagingWorking Capital

Enhance Strategic Sourcing

MonitorSpending

Deploy Controls

Automate Payment StrategyCut Costs


B2B Payment Selection

As electronic invoicing increases, cards are embedding into AP systems.

Source: Supplier invoice %s from “Beyond Plastics,” Citi, GSA SmartPay® 2010 Conference. P-card integration with A/P %s from the 2007 and 2010 AFP Electronic Payments Surveys of 493 and 484 members and customers respectively (primarily US-based).

no 65%

yes 35%

P-Card integrated with A/P(U.S. market, 2007)

no58%

yes42%

P-Card integrated with A/P(U.S. market, 2010)

0%

20%

40%

60%

80%

2006 2007 2008 2009 2010 2011 2012

Supplier Invoices (actual and projected % by type)

Electronic Invoices

Paper Invoices

Needs for electronic invoicing are driving payment automation

14


B2B Payment Selection

Across the Americas, Europe, and Asia, cards are considered low cost and innovative.

(1) From First Annapolis : “ due to the multi-country / continent scope of the survey, an attempt was not made to quantify “High,” “Medium,” or “Low” for purposes of this survey”.Source: CPI / First Annapolis Summer 2010 Commercial Payments Trends Survey. August / September 2010. N = 126.

Q: Describe the relative per-transaction cost for payer (i.e., buyer) organization (1).

Q: Describe the level of innovation/continual improvement in form of payment.

Cards are attractive for companies compared to other tools for payments

0

10

20

30

40

50

60

Don’t knowNo costLowMediumHigh Don’t knowVery lowLowModerateHigh

CashCheckCardWireE-transfer (ACH)

lower cost

more innovative

%

15


Why use Cards to automate AP ?

Note: “Cost estimates based on tasks required, salary of individual performing the tasks, and time required. Implementation / systems costs. are excluded. For p-cards, implementation cost can range from $25k to $250k.Source: Accenture Procurement to Payment Process and the Role of Procurement Cards, 2007.

Although U.S. market estimates vary, consensus exists that p-cards save money.Note: Costs below are market benchmarks and may vary from any given end-user organization’s actual internal costs.

$59 $57

$35$32 $30

$27

$16 $15$9 $9

PayReconcileError handlingInvoiceReceiveOrderApprovalRequisition

PlasticP-Card

VirtualP-Card

Manual / paper process ERP EDI eProcurement eInvoice Form of payment check check ACH p-card check ACH ACH p-card ACH p-card

Furthermore, cards can drive costs down and improve the bottom line

Average Cost per Transaction by Process

16


(1) assumes Buyer may need to validate receipt prior to initiating payment. When physical p-cards are used, they are often charged at the time of goods / services receipt.(2) assumes the hypothetical transaction took place midway through the monthly billing cycle.(3) assumes Buyer has 20 days after the monthly billing cycle / statement date to pay P-Card Provider.Source: First Annapolis Consulting good faith illustrative example.

Cards can significantly improve working capital for suppliers and buyers

Check 30days

5 days

Buyer average DPOs = 35 daysSuppliers’ average DSOs = 35 days

P-Card 5 days

15days

20days

Buyer’s average DPOs = 40 days (Buyer gets 10 extra days float)Suppliers’ average DSOs = 5 days (reduced from 35 days)

Goods / ServicesReceived

PaymentInitiated

Goods / ServicesReceived

Payment initiatedSupplier paid (1)

Check clearsBuyer funds paymentSupplier paid

Buyer billed byP-Card Provider (2) Buyer pays Provider (3)

Working Capital Improvement for: Supplier Buyer

17


Cards have transformed from Purchase Only Tools to Payment Tools

0% 20% 40% 60% 80% 100%

High capture

High spend

High revenue

All survery responders

$2,500 -5k$5 -10k$10-15k$15k+

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

18

Although purchasing cards have traditionally been used to pay for small dollar purchases, technology now exists to embed cards into an automated PO process and to handle larger transactions.


Options for Payables Automation with virtual commercial 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 individualplastics 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

19

Integrated payables solutions that leverage the commercial card networks have increased in sophistication and utility beyond traditional plastic cards.


Why & when to automate payments?The value proposition for Buyers

20

Buying organizations that use any form of card payment with a Payables Automation solution can realize a streamlined process that may yield cost savings.

Streamline Payments

Increase Spend Control

Expand P-Card Spend

Better Manage Cash Flow

Access Enhanced Data

Streamline payment and reconciliation processes by reducing the cycle time, cost and financial risk associated with check payments.

Increase control of purchases and help align spending with procurement policies.

Ability to increase p-card spending by enabling card payment for purchases that heretofore have not been paid by plastic cards.

Flexibility to increase DPOs, improve cash conversion cycles, and enhance the predictability of cash flow forecasts.

Capture of line-item invoice details from suppliers that pass Level III data; have a consolidated view of supplier spend.

.


Why & when to automate payments?The value proposition for Suppliers

21

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.

Expand Customer

Base

Improve Working Capital

Reduce Processing

Times

Access Enhanced Data

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

Enable faster receipt of funds from the time of payment initiation, which can decrease supplier DSOs, potentially improve cash flow,

and enhance working capital.

Electronic settlement can simplify payment processing by making funds available when the transaction is processed and could

eliminate manual processes.

Enhanced remittance data that accompanies a virtual card solution can help improve the payment reconciliation process thereby

reducing exceptions, errors, and disputes.


Conclusions

• As a result of Payables Automation, companies can free-up resources to make additional investments and continue growing, while increasing control.

• Payables Automation’s benefits include potential working capital improvement and the elimination of checks in the payment process.

• Cards as a method of payment can drive the automation process while adding value in the cash management process: savings, increased control and access to enhanced data among others.

• Both buyers and suppliers can benefit from a card payment program, strong collaboration is key.

• There are untapped opportunities in LAC for the use of traditional or virtual cards to address B2B and T&E payments.