Automated Payment Solutions - Louisiana Government Finance

Report
Automated
Payment Solutions
Virtual Card Settlement
VS
Checks
Presented by:
John Widdifield, Executive Director, Automated Payment Solutions
JPMorgan Chase Global Commercial Card – Government, Not-for-Profit, Higher Ed, and
Healthcare
October 3, 2013
Agenda
• Current Payment Landscape
 Market share by Pay Type and Trend
• What is a Commercial Card
 Types of Commercial Card Programs
• Card Based Options for Settling AP Invoices
 AP Cards / Supplier Cards
 E-payments / Single Use Accounts
• Commercial Card Benefits VS checks
 To your organization
 Vendor Benefits
• Sample Business Case for Virtual Card Settlement
• Q&A
MasterCard® smartdata.gen2TM is a registered trademark of MasterCard Worldwide and the smartdata tool is a MasterCard Worldwide Incorporated solution
2
Current Payment Landscape
Landscape of Vendor Payments
Checks remain the principal form of payment. Small and medium-size transactions
dominate payment activity.
Transactions by Payment Type
 76% of CFOs cite “lower invoice
processing costs” as top AP goal
Checks
64%
76%
 However, paper checks:
 Can cost $0.75 to $8 per transaction
 Offer little float, minimal controls, no
visibility
Card
ACH
Wire
29%
4%
3%
Transactions
Below $2,500
13%
6%
6%
 Make fraud and misuse harder to
detect
 Do not earn rebates
Transactions Between
$2,500 - $10,000
Source: Aberdeen Group, September 2009, Visa Middle Market Study 2007, RPMG 2007
4
Factors Driving Electronic Payment Processes
Given the tangible benefits electronic payments deliver over paper-based checks, it is
not surprising that adoption of electronic payments has significantly increased over the
past five years, while manual payments have declined.
Benefits
 Cost reduction
 Decreased paper consumption
 Compression of procure-to-pay
cycle
 Ability to capture rebates and
early payment discounts
 Improved visibility
 Reduction in fraud
Source: Federal Reserve and NACHA research
5
Commercial Cards Defined
What is a Commercial Card?
What is a “Commercial” Card
Commercial Cards are credit cards with special controls and
value-added functionality
 Different from a small business or private label card
– Spend and merchant controls
– Credit based upon organization, not principal officer or cardholder
– Statement balance due in-full
– Sophisticated analytical tools available
 Terminology
– Purchasing card (P-Card)
– Corporate card (T&E)
– OneCard (combination of the two)
Two lines of embossing
7
Types of Commercial Cards
 Purchasing Cards
— Cards used at the point of sale for small dollar purchases
— Issued to individuals that need to make ad hoc purchases
— Centrally billed and centrally paid with Corporate Liability
 Travel Cards (Corporate Card)
Used
in place of
invoice
— Cards issued to individuals used primarily for travel expenses
— Could be individually billed or centrally billed
— Individually billed programs are Joint & Several Liability
 Accounts Payable Cards
— Cards used as a payment mechanism to pay invoices per
— Usually virtual or “ghost” cards tied to AP or a supplier
Typically used
after invoice
approval
 E-payments/Single Use Account “Virtual Cards”
Alternative
to checks
the regular procurement process
— Fully automated and secure virtual card alternative to checks
8
Virtual Card Based Options
for Settling AP Invoices
AP Card / Supplier Cards
and
e-payments / Single Use Accounts
1. AP Card or Supplier Card
• Card(Ghost) accounts are issued to the Accounts Payable Department
or Supplier and are used to pay invoices in lieu of issuing checks
 Purchasing and approval processes remains intact
— Vendor is flagged in AP data base as a card paying vendor
— A/P Department already has processes in place to capture
–
Account allocation
–
Capital equipment accounting
 Benefits of an AP/Supplier Card
— Reduce the number of checks issued
— Retain vendor history
— Increase DPO and decrease Vendor DSO
 The financial incentive can turn Accounts Payable
into a profit center
10
10
A/P Card process works with all systems
Your
Organization
1. The process for matching, entering and approving invoices in
your company’s AP system remains intact – nothing changes
2. Vendors are
flagged as paytype “card” in AP
system.
6. Transaction data extracted
from online system for
account reconciliation
and bank is paid
(liability to bank is
cleared to “cash”)
Your
Supplier
3. Notify your supplier
of approved payment
(Liability to bank
rather than “cash”)
4. Supplier processes
transaction on POS
device and is paid
within 48 hours
5. Vendor transaction is posted and becomes available online
11
11
e-Payments/Single Use Accounts
e-Payments/Single Use: Automating Vendor Payments
An electronic payment solution that offers the security of
ACH with the float and rebate earning potential of
commercial card
Invoices
 Virtual payment account number – no physical plastic is issued
 Reduces the opportunity of vendor and employee errors or misuse
 Auto reconciliation of vendor transactions
 Similar to checks:
 A unique 16-digit virtual account number for each payment
 Accounts are active for a defined time period (e.g., 30 days)
 Account credit limit equals the exact payment amount – to the penny
13
e-Payments offer check like controls with security of ACH
Delivered to a Specific
Vendor
Defined Time Period
Credit Limit is set to
the specific payment
Unique Account
Remittance Data accompanies each Payment
amount
Number
Invoice #001…
Invoice #002…
Invoice #003…
14
How Do e-Payments/Single-Use Accounts Work?
Automated (check-run) file exchange, notification to the suppliers, and reconciliation
5. Reconciliation, billing and payment
YOUR ERP
SYSTEM
1. Payment file
4. Transaction data
Bank
VISA OR
MASTERCARD
2. Supplier
notification
Vendor enrollment done by bank
3. Supplier payment
SUPPLIER
15
Commercial Card Benefits
VS
Checks
1. Reduction in Paper Check Volume and Processing
•
Paper check costs: $.75 - $8 / per check
• Daily Operating Issues:
• Voids
• Re-issues
• Uncashed
• Paper Check Fraud
“Every year fewer and fewer of our payments are made via paper check sent
via the US mail. Leveraging virtual cards for some vendors allows us to take
advantage of the efficiencies of electronic payments, and create an income stream.”
County Auditor, May, 2013
17
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2. Increases your DPO while decreasing vendor DSO
Example
30 Day Billing Cycle with 14 Day Payment Terms
AVERAGE PAYMENT FLOAT = 29 DAYS
30-day billing cycle
14-day grace period
Day 1 of billing cycle
Day 30
 Billing cycle begins
 Billing cycle closes
 Pay vendor with purchasing
 Statement is presented
Day 44
 Payment
due in full
card throughout cycle
 Payment not due for
 Vendor processes payment for
another 14 Days
settlement
Grace Period (time before payment is due) may be longer or shorter than 14 days
18
Shorter = higher rebate
Longer = lower rebate
18
3. Card payment can alleviate 1099 MISC reporting
• IRS regulations effective for the 2011 tax year shifted the burden for 1099
reporting on transactions paid by card to the acquirer
 Acquiring entity is now responsible for reporting all card transactions to
the IRS
—You no longer have to marry card
and check transactions to verify
payments the $600 reporting
threshold
—Your company still has to report
transactions paid via check,
cash, ACH and wire
 MasterCard’s whitepaper
outlines the legislation
19
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4. Rebate (Sample Rebate Earnings - Directional Only)
U.S. Single-Use Account Program
Annual Charge
Volume
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
$50,000,000+
Rebate Rate
0.68%
1.17%
1.34%
1.42%
1.47%
1.51%
1.53%
1.55%
1.56%
1.57%
$15MM x 1.34% = $201,000/year
$25MM x 1.47% = $367,500/year
Reduced Check Volume
Increased Cash on Hand
Notes:
Billing Terms/Frequency of Payment impacts rebate
Large Ticket Interchange (LTI) rebate
 Incentive for large suppliers to move to card settlement at a lower rate
 Brings in additional spend, but at lower rebate %
20
Value Proposition for Vendors
Electronic Card Settlement
Yields Multiple Benefits For Vendors
 Guaranteed form of payment by the bank for
customer approved transactions
 Early payment liquidity solution for vendors that
require immediate cash on hand
 Reduced check processing costs.
 Simplified reconciliation with full remittance and
payment processing details
 Access to payment portal showing historical (24
months) payment and remittance history (epayments option)
 Automate postings/clearing of paid invoices (epayments option)
 Minimal to no-change management (majority of
vendors already have a POS terminal)
 Large Ticket Rates can lower vendors’ card fees
22
Where do Virtual Cards Fit? (Segmenting your suppliers)
There are four main value drivers associated with Virtual Card Payments
 Check Processing Benefit – moving spend to e-Payments results in the reduction of checks. Benchmark cost to
process a check is between $0.75 to $8 – this cost would be eliminated for those vendors moved to e-Payments
 Days Payable Outstanding Extension – e-Payments allows accelerated payments to vendors while extending DPO
 1099 Reporting – 1099 reporting burden removed

Financial Rebate – Receive a rebate on all spend transitioned from checks
Check/Wire/ACH
Examples
• MRO
• Office Equipment
• Professional Services
Examples
• Business Retail
• Office Supplies
• Lodging
Virtual Card Settlement
Rebate
earning
solutions
Automation
benefits
Commercial
Cards
23
A/P Card/e-payments adoption grew 67% from 2009 to 2011
Adoption of Accounts Payable Card Solutions
55.6%
Projected
Actual
43.6%
34.9%
14.5%
16.1%
2007
2009
8.3%
2005
2011
2012
2014
2012 RPMG Purchasing Card Benchmark Survey
24
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AP Cards VS e-Payments: Which is the Best fit For Me?
■ AP Cards:
■ Simple to get up and running, no IT work
■ Less automated process (i.e., buyer notification to vendors of payments)
■ Generally recommended for programs with projected annual charge volume of < $10
million/year*
■ E-payments:
■ More automated and secure solution for both Buyer and Suppliers
■ Vendor Portal offers significant value to suppliers (remittance interface and data
repository)
■ Requires IT integration work, vendor enrollment process
■ Generally recommended when annual charge volume > $10 million/year*
*How much Spend Can Be Captured:
Rough Rule of Thumb: ~10% - 15% of total AP spend can be converted to a virtual
card settlement solution
e-payment solution generally requires $75 - $100 million+ annual AP spend to achieve $10 million+
in annual card spend
25
A Sample Business Case for
e-Payments
Sample Business Case for e-Payments
27
MasterCard/Visa acceptance allows for usage beyond
common categories
 1099 Vendors
 Licenses
 Construction projects
 Relocation expenses
 Consulting fees
 Rental equipment
 Courier services
 Road maintenance
 Drug testing
 Short-term leasing
 Insurance premiums
 Temporary services
 Internet provider fees
 Waste removal
 Landscaping
 Workman’s comp premiums
A vendor match will help you
discover which of your vendors
currently accepts cards
28
Understanding Spend Potential Via a Vendor Match
 Quick and cost free service
 We’ll help you identify which vendors already accept MasterCard/Visa and
what level of data they provide.
 Essential to determine program spend potential
 Confirm MCCs for easier program set-up
Providing annual
spend and number of
invoices will allow for
a thorough analysis
29
Automated
Payment Solutions
Virtual Card Settlement
VS
Checks
Thank you!
October 3, 2013
Questions?

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