Electronic Arts European Cash Management

MARCH 2013

Changing the Receivables Game

How Digital Innovation is Improving AR

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Session Overview

B2B collections can be a complex and fragmented experience for corporations, such as the need to often support multiple payment channels, among other challenges. Hear real-world examples from organizations on how they implemented innovative solutions in accounts receivable processing that are leading to improved efficiencies and lower costs, such as:

Online and mobile invoicing with pay-now capabilities

Electronic remittance processing using Optical Character Recognition

Artificial Intelligence (AI) & Machine learning omni-channel reconciliation

Same Day ACH to accelerate invoice collections and receipts Learn best practices for organizations to improve their AR operations and customer satisfaction while reducing collection costs.

Head of J.P. Morgan’s Global Digital Receivables

A suite of products designed to digitize and automate the accounts receivable process through online and mobile channels

Has been with J.P. Morgan for 12 years, based in New York

Accredited ACH Professional (AAP)

Your Presenters

Responsible for all Treasury Operations cash management functions for both the Regulated and Non Regulated Utilities

Lock Box Operations

Stock Transfer

Previous positions Treasury Operations: Assistant Controller, Director IT, Financial Systems

Andrew Stache Executive Director, J.P. Morgan Chase & Co.

Frank D’Amadeo Assistant Treasurer, Consolidated Edison of New York

About Consolidated Edison New York

Consolidated annual revenues: $13 Billion

Total Assets $46 Billion

Principal business segments

Con Edison NY – Electric, Gas & Steam delivered to 3.6 million customers

Orange & Rockland Utilities – Electric & Gas delivered to 1.2 million customers

5th largest US provider of Solar Electric power

Employees: Approximately 15,000

Traditional AR Lifecycle

Payment Received

Supplier receives payment and associates remittance with payment data received from the bank and manages exception items such as short-pays

Supplier generates invoices from their Accounts Receivable (AR) system and physically mails or e-mails them to the buyers for payment

Buyer receives invoice and typically manually keys them into their AP system where invoices are recorded and / or matched with a Purchase Order

Supplier receives payment data and enters remittance into AR system then performs a manual reconciliation of payment to remittance to invoice

Buyer sends payment either by check with remittance information included, or ACH / wire with remittance sent in a separate e-mail

Invoice Received

The traditional B2B receivables value chain is manually intensive, involving the keying of data (by both the Buyer and Supplier) and data re-association to successfully reconcile open invoices / bills

Result: High cost per-item (upwards of $15 per invoice1), delays in posting, potential for error leading to an increase in Days Sales Outstanding (DSO)

Payment Sent Reconciliation Invoice Sent

Buyer Supplier Supplier

1 Source: BillTrust: How Much are your Invoices Actually Costing You? https://www.billtrust.com/blog/guest-blogger-how-much-are-your-invoices-actually-costing-you/

AR Challenge: Checks Remain

Despite rapid decline in early 2000s, the rate of decline has shrunk Checks still remain a prevalent part of AR, 44% of overall volume1

Result: Need to maintain very different processes for both paper and electronic receivables

1 Source: 2016 AFP Electronic Payment Survey

75% 64%

54% 50% 44%

0%

20%

40%

60%

80%

100%

2004 2007 2010 2013 2016

Use of Checks for B2B Collections

AR Challenge: Remittance

Remittance is fragmented, often separated from the payment 79% of organizations receive remittance information separate from an

electronic payment (EDI or ISO20022)1

Result: Electronic payments without remittance are more costly to reconcile than paper payments which typically include remittance

1 Source: 2016 AFP Electronic Payment Survey

55%

33%

22% 21% 15%

4% 0%

10%

20%

30%

40%

50%

60%

70%

E-Mail Online Mail With Payment Fax Other

Organizations’ Method of Receiving Remittance Information

AR Challenge: Lack of Automation

Despite the prevalence of check payments and fragmented remittance, most organizations lack automation to overcome these challenges

66% of organizations have minimal or no straight-through processing (STP) capabilities for AR1

STP allows payments to be settled with little or no manual interaction

1 Source: 2016 AFP Electronic Payment Survey

56%

10% 6% 5% 6% 8%

0%

10%

20%

30%

40%

50%

60%

70%

None 1 - 20% 21 - 40% 41 - 60% 61 - 80% More than80%

Use of Straight-Through Processing for Receivables

3 Areas of Innovation

Progressively solving receivables challenges unlocks greater organizational efficiency and cost savings

Areas of innovation focus on both sides (before and after the payment) of the AR lifecycle

Electronic Invoicing

Eliminate cumbersome paper billing with efficient digital presentment or data exchange capabilities

Reconciliation Automation

Advancements in paper and electronic remittance processing to streamline reconciliation

Receivables Optimization

With efficiency and automation in place, explore new opportunities for value-chain optimization

1. 2. 3.

Progressive Receivables Evolution

Electronic Invoicing

Electronic Invoicing Trends

Electronic invoicing has numerous obvious benefits, including: Reduced cost Improved efficiency and

integration More predictable cash flows

and reduced DSO Electronic Invoicing is popular

globally lead by Latin America government mandates Brazil, Chile and Mexico are

market leaders Global electronic invoicing volume

is expected to exceed 28 billion invoices in 20161

Expected E-Invoice

Volume 20161

Business & Government

1 Source: Billentis / Bruno Koch: E-Invoicing International Market Overview & Forecast - 2016

Latin America – 19 Billion

Asia & Africa – 1 Billion

North America – 3 Billion

Europe– 5 Billion

Achieving the Best Results: Digital Presentment

Known as biller-direct or supplier-direct, online and e-mail distribution of invoices are among the most common type of electronic invoices

Apply a multi-channel approach inclusive of online presentment capabilities

Ensure online solutions have pay now capabilities

Over 28 million sole proprietorships and small businesses1 that act like consumers – generally more accepting of direct debits

1 Small Business & Entrepreneurship Council http://sbecouncil.org/about-us/facts-and-data/

Achieving the Best Results: Segmentation

Buyer Segmentation allows you to balance customer experience with process and cost efficiency Example: Your top 5% of clients may have different payment

requirements than the remaining 95% Simple segmentation to strategic buyer and non-strategic buyers Different payment types and terms for different segments

Caution: Be sure to apply the appropriate balance to customer experience; you still want your customers to have a good experience even though they may be classified as “non-strategic”

Demographics

• Organizational size • Buying power

Behaviors

• Payment terms • Sensitivities

Needs

• Convenience • Scarcity

Emergence of Buyer-Supplier Networks

Buyer-Supplier networks provide connectivity for participants to electronically share invoices, enable payments and collaboration

Pros: Provide electronic invoicing capabilities directly integrated with ERP Automatic reconciliation of payments made in-network

Cons: Generally closed loop, require buyer and supplier to join and participate

in the same network Many large organizations (buyer or supplier) are typically hesitant to join

Reconciliation Automation

Paper Remittance Processing

Optical Character Recognition (OCR) technology first started appearing in mass-market remittance processing in early 2000s Most current OCR standards work best of standardized forms or documents, however advanced in Machine Learning are closing the gap

These early advancements have made paper processing more efficient and in many cases straight through

Image Source: Hyper Resources

Electronic Remittance Processing

Many (usually smaller) organizations do not have the technical ability to attach remittance to a payment

As a result most remittance is sent separately from the payment, typically via e-mail, and must be re-associated when the payment is received

Top banks are leading the way in offering e-mail association services integrated with their receivables solutions Leverages similar technologies for paper remittance processing including

either OCR and / or artificial intelligence Solutions must be able to read e-mail bodies as well as common

attachment types such as Excel and PDF Emerging solutions that also capture website remittance capture and

association services

Invoice / AR Matching

Invoice Matching is the natural advancement of reconciliation services

Requires access to the open AR information to match payments and remittances to invoices

Invoice Matching marries 2 different data sources to reduce exceptions: Payment and remittance are from

the buyer / payer Open AR file is “data of record”

from the client Invoice Matching checks that the

remittance data is accurate, ensuring the no unauthorized discounts are taken

Emerging Solutions

High-tech solutions are emerging to further solve remittance reconciliation challenges

Robotics: Further automate manual physical and digital tasks through process replication; examples include lockbox mail sorting and extraction (physical) and remittance portal data capture (digital)

Machine Learning: Improve on standard Optical Character Recognition by improving results with algorithms that systemically improve over time the more data samples they process

Distributed Ledger / Blockchain: Invoicing is done over a distributed ledger enabling real-time reconciliation when a payment is made

Receivables Optimization

Receivables Analytics

As “big data” goes mainstream across all industries, it is also invading traditional banking services

Currently the domain of 3rd party providers, but banks have signaled aspirations

Receivables analytics can uncover or improve a number of key insights including: Cash forecasting and

projections Accounts Receivable

Turnover Ratio DSO by supplier, channel

and product

Image Source: Anytime Collect

Accelerating Collections

The era of faster electronic collections has arrived! Same Day ACH and the emerging Clearing House Real-Time Payments

initiative provide the best opportunities to accelerate collections

Same Day ACH Real-Time Payments

Leverages existing infrastructure and established ruleset

Credit mandate in 2016 enabled low-cost just-in-time payments

Debit mandate in 2017 will provide enhanced collection capabilities

Potential for differentiated fee structures to avoid late payments

Instant payments available 24 x 7 x 365

Request for Payment capabilities will provide finality of payment and security of a credit-push

Will support extensible messaging (ISO 20022) to support more sophisticated applications (e.g. bilateral messaging)

Payment Channel Optimization

Not all payment channels are created equal: Certain payment types are more expensive than others1 (i.e. card interchange vs. flat rate ACH)

Historically, providing as many payment options as possible provided the best probably of collection

Providing financial incentives to persuade buyers / customers to pay one way versus another is an emerging trend

Incentives for payment type need to be balanced against early payment discounts and Supply Chain Finance offers

Check $1.01 - $2.00

ACH Credit $0.37 - $0.75

ACH Debit $0.22 - $0.50

Wire $12.52 - $17.50

Credit Card* $6.00 - $9.00 2.0% - 3.0%

Debit Card* $4.50 - $7.50 1.5% - 2.5%

Average Total Cost for Processing1

Internal + External Costs

1 Source: 2015 AFP Payments Cost Benchmarking Survey

* Calculated based on the average card transaction size ($300) x percentage cost basis

Summary

Innovation in AR is as exciting as ever! Digital technologies are invading the space and providing numerous benefits

for organizations large and small

Electronic Invoicing

Digital Presentment

Segmentation Buyer-Supplier

Networks

Reconciliation Automation

Paper & Electronic Remittance Processing

Invoice Matching

Emerging Technologies

Receivables Optimization

Big Data & Analytics

Accelerating Collections

Channel Optimization

1. 2. 3.

Question & Answer