epayables solution spotlight - american express

28-Jan-2013 AXP Internal Page 0 of 12

ePayables Solution Spotlight On

Vishal Patel Research Director Ardent Partners January, 2013

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ePayables Solution Spotlight: PAYVE from American Express

©2013 Ardent Partners Ltd. www.ardentpartners.com

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The ePayables Solution Spotlight builds upon Ardent Partners’ recent ePayables SMARTSet series by combining Ardent’s perspective on the accounts payables automation marketplace, recent ePayables market research, and a comprehensive profile of PAYVE® from American Express. This report focuses on business-to-business payments and provides fresh insights from the ePayables 2012: State of the AP Market report.

Ardent Partners ePayables Framework

Ardent Partners defines ePayables as the solutions and services that automate all or part of the accounts payable (“AP”) process. As shown in the ePayables Framework below (Figure1), the AP process, at a high level, starts with the receipt of an invoice from a supplier, continues through a processing phase, and ends with the payment of the invoice. This Solution Spotlight report focuses on all the last phase of the AP process - “Pay” and features a service/solution that automate this phase: PAYVE® from American Express

The Ardent Partners ePayables Framework helps AP departments evaluate their various processes by dividing invoice and payment processing into smaller, more manageable segments. AP departments can then establish a clear view into the current state of operations – “what is happening today” – and then take the opportunity to clearly define new AP processes – “what should happen tomorrow”. By developing a clear view into the scope of activities that occurs within each phase, what resources and systems are utilized, and what processes are followed, AP departments will be better able to set standard practices and work to develop best practices. The framework organizes the AP process into three major phases:

• Receive – how the enterprise receives invoices • Process – how the enterprise reviews, validates and approves the invoices • Pay – how the enterprise manages the processing and settlement of payments

Figure 1: Ardent Partners’ ePayables Framework

©Ardent Partners - 2013

Receive Process Pay

•Mail (Paper)•Fax•Email•ERS•EDI, XML, PO-Flip•eInvoice

•Validation•Matching•Workflow•Approval •Alerts•Disputes

•Commercial Card Payments •ACH•Check•Wire Transfers

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By breaking the process into smaller, more manageable segments, Ardent’s ePayables Framework will help AP departments implement greater operational efficiency, enact stronger financial controls, and improve transactional visibility and flexibility.

Solution Landscape

Ardent Partners uses its ePayables Framework to explain the different AP automation (or ePayables) solution types and the various providers in the market. Depending on their specific capabilities, solution providers are then categorized based upon the processes that they automate which fall within or across the three phases (Figure 2). This report focuses on the Pay category which covers the processing, management and execution of business-to-business (B2B) payments.

Figure 2: Ardent Partners’ ePayables Solution Framework

©Ardent Partners - 2013 Pay Phase

The final step once an invoice is validated, matched and approved is the payment. Traditionally, payments have largely been made by paper checks, however enterprises are increasingly migrating away from this manual and costly method of payment towards electronic forms of payment. This includes various commercial cards (e.g., purchasing cards, Buyer Initiated Payments and single-use account), ACH payments and wire transfers. This part of the process is also where the more sophisticated cash management strategies can be implemented (e.g., supply chain finance or trade financing).

Although they are significantly more costly to process and offer a lower level of security and control to the payer, paper checks remain a dominant method of payment today. Checks involve various hard costs (e.g., printing and mailing) as well as hidden costs (e.g., lost or returned checks, wrong addresses, cancellation charges, etc.).




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Figure 3: Payment Methods 2012

55% 45%

Electronic (P-Card, ACH, Wire) Manual (checks)


The State of ePayments

In June of 2012, Ardent Partners published a report based on a survey of approximately 220 accounts payable and other finance professionals regarding the state of their AP operations and the usage AP automation solutions. This research showed that on average 55% of all invoice payments were made using electronic payments (ePayments) with the remainder being manual(Figure 3). This represents a steady improvement of ePayment usage and is evidence of a growing to reduce paper check payments.

The average enterprise expects to shift more payments towards electronic forms of payment over the next two years due in large part to the lower processing costs and increased control and visibility that they provide. In fact, according to the Ardent Partners report, 65% expect the usage of ACH payments to increase over the next two years while 53% said the same of commercial card products. For example, ACH payments can be executed at a low standard rate (between $0.10 - $0.50 per payment, on average) while Purchasing cards (“P-cards”) also offer lower processing costs and greater spend visibility than paper checks and have the literal extra bonus of paying buyers a percentage of card volume via a rebate program. Notably only 2% of all enterprises expect to increase their usage of checks.

As more and more suppliers continue to accept ePayment and desire prompt payment, the features and functionality of payment mechanisms such as commercial cards continues to grow. AP departments are increasingly using buyer initiated payments (“BIP”) and P-Cards to pay invoices directly, decoupling the purchase from the payment. A BIP is a type of business-to-business credit card transaction that allows the buyer to control when a payment is made without having to use its own cash. For example, a buyer can use BIP to accelerate payment to a supplier to earn both hard and soft early payment benefits. This allows the buyer to make the actual payment to the BIP provider at a later time when the monthly bill comes due enabling it to hold on to cash for a longer period of time. The security and authorization features offered by card products today is quite advanced offering a level of control that is not available from other payment types; for example, single-use accounts can provide a unique account number for each transaction to help counteract fraud and restrict and/or authorize transactions and payments based upon defined dollar amounts, categories of spend, supplier names and time frames. Additionally, the detailed level of data that can be accessed by using commercial card products provides an audit trail to ensure compliance to policies and contracts can help enterprises better understand their spending behaviors.

While electronic payments comprise half of the total payments made, the same cannot be said for electronic invoices as 71% of all invoices received by AP departments in the market today are in




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paper format. High paper volumes remain a key indication of the manual, fragmented, and inefficient processes that cause processing delays, trigger payment errors and make it all but impossible to gain timely and accurate visibility into invoice and payment data. High paper volumes constrain an AP department’s ability to positively impact the management of an enterprise’s cash as well as the overall effectiveness of its financial operations. High paper volumes, in a word, are a major part of the overall AP problem. The good news is that a vast majority (86%) of AP groups in the market today understands the “paper problem” and plans to focus on it in the short-term and increase the percentage of electronic invoices received over the next two years. This general trend towards higher usage of eInvoices and ePayments is an important step towards gaining control of and improving an enterprises working capital.

Working Capital Optimization

An enterprise’s ability to optimize its working capital and improve its overall management of cash is becoming an increasingly important capability and competitive differentiator. AP is one of the key functions where working capital improvements can be implemented directly; however, the AP function must have certain capabilities at its disposal in order to support such a strategy. Figure 2 shows the top levers that AP groups can use to optimize working capital as well as the percentage of organizations that currently use or are planning to use them.

Figure 2: Mechanisms Used to Optimize Working Capital

It is clear that commercial card products and payment automation are the most popular mechanisms currently being used by enterprises to manage working capital. These solutions allow organizations to gain more control and visibility into their payment processes. For example, BIP, P-Cards or ACH payments offer lower processing costs and greater spend visibility than paper checks. P-Cards and BIP can also aid in the management of cash by offering short-term credit to the buyer while paying the supplier immediately.

A key capability that seems to be closely connected to working capital optimization and one that 51% are planning to focus on over the next year is supplier enablement. Enterprises are realizing that enabling suppliers to submit eInvoices and accept ePayments is the first step in removing paper and automating the transactions between a buyer and supplier, thereby greatly improving connectivity, control and visibility into payables.

15% 15%

40% 41% 52%

57% 51%

21%

49%

37% 34%

22%

Supplier enablement

Supply chain financing

AP process automation

Working capital analytics

Payment automation

Commercial card solution

Currently Use Plan to use in Next 12 Months





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American Express: Company Overview

American Express is a publicly-traded company (NYSE:AXP) that is headquartered in New York, NY with offices globally. The company’s products and services span the consumer and business spectrum with numerous offerings. Those specific to business include commercial cards, worldwide travel-related services, expense management products and services, small business services, merchant services, and a series of offerings to support business-to-business (B2B) payments. American Express has a long history and significant experience in the B2B payment world with innovative solutions and services that fall primarily into the “pay” phase of the ePayables framework. One example would be vPayment, the single-use account payment solution that assigns a unique account number to each payment enabling more control around the specific timing of a payment and reducing the opportunity for fraud by setting amount limits and/or payment date ranges.

In July 2012, the company launched PAYVE, a bank-agnostic service that allows mid to large-sized enterprises to centralize the processing and management of multiple forms payment including ACH, check, international wire transfers and Buyer Initiated Payments (BIP). PAYVE introduces efficiency, accuracy and control to B2B payments helping clients to migrate away from manual payments. This service enables clients to focus on the core financial value that can be driven from AP and payment operations such as improving cash flow and the management of working capital rather than payment operations.

PAYVE® from American Express

PAYVE is a managed B2B payment service from American Express that combines technology and expert services to automate payments for businesses. The three major components of PAYVE are a spend analysis service, a supplier enablement service and an online payment platform, all of which are included as part of the package that a client receives.

Before using PAYVE, clients must go through an implementation period which includes spend analysis, supplier enablement, solution design, and training. Once the client is setup on PAYVE, the process of making payments begins with the client sending a consolidated payment instruction file (typically created within an ERP system) to the PAYVE platform. This file may consist of multiple

Solution Spotlight – PAYVE® from American Express

Founded 1850

HQ New York, NY

Employees 63,500

Geographic Presence

Global, offices located in North America, Europe and Asia

Solution Delivery

Cloud-based

Industry Segments

Multiple




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payments and payment types (BIP, ACH, check or international wire). PAYVE processes these payments and ensures that the right suppliers receive the right payments as directed. Only suppliers that have been successfully enabled on the platform are able to receive electronic payments through PAYVE.

After a payment file has been processed, the client receives a confirmation file that reflects all of the payments that have been settled; this file is used by the client to reconcile open invoices within the ERP. Suppliers also receive a remittance file from PAYVE that shows the details of the payment they have received. The type of information included in a remittance file depends on the payment method. Additionally, clients can log into the PAYVE web-portal to review previously submitted payments.

The Major Components of PAYVE®

Spend IQSM

Spend IQ is an analytics service that uses proprietary technology to aggregate, analyze, and ultimately understand a client’s spend data. More specifically, data around payment methods, frequency, timing, terms, etc. Using this data, the Spend IQ team works in close collaboration with the supplier enablement team to identify, segment and target suppliers and develop a plan to onboard them. The data that is collected is also analyzed to assess and better understand the current state of payment operations such as invoice frequency, payment methods, terms and speed-of-pay. This level of data analysis can help the American Express team and the client identify suppliers that are appropriate targets for transition to electronic payments, understand and control invoice processing efficiency, and develop insights into payment terms and timing that will help improve working capital management.

Supplier Enablement

A key component of the PAYVE service is supplier enablement which can also be a major roadblock to the overall success of an electronic payment initiative. For this reason, PAYVE includes a dedicated supplier enablement team that works with the client to develop an ongoing enablement strategy and program. This is done by segmenting and targeting appropriate suppliers using the detailed analysis from the Spend IQ service. Additionally, the supplier enablement team will create and manage a comprehensive communication program designed to educate and enroll suppliers. This includes a supplier communication campaign, where the PAYVE team reaches out to suppliers (via letters, emails and phone calls), explains the PAYVE value proposition for suppliers, and ensures that suppliers successfully self enroll in the program.

As part of the supplier enablement service, the PAYVE team advises its clients on any improvement opportunities that it uncovers; for example, working with its clients to map suppliers to the best payment type. For instance, identifying a supplier that is appropriate for BIP or ACH versus checks based on the frequency of check payments, the higher the frequency of check




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payments made to the same supplier, the greater the benefit of moving to ePayments. Once such an ‘improvement opportunity’ is identified and the client approves, the supplier enablement team contacts the supplier, gathers all the relevant information, and enables it to receive one or more forms of ePayment.

Payment Platform

The Payment Platform is a secure, online portal that streamlines and enables the processing of multiple forms of payments through one consolidated platform. The different payment methods include:

• Buyer Initiated Payments – American Express pays supplier invoices on behalf of its clients, enabling them to extend their Days Payable Outstanding (DPO) and hold onto cash longer. The clients receive rebates from payment volume made using this method. Suppliers can receive robust reconciliation information in various formats including (1) a CSV file that details all the payments processed (2) an EDI 820 which is also known as a Payment Order / Remittance Advice, a type of Electronic Data Interchange document used in the exchange of transaction information between trading partners, and (3) an EDI 823 - a lockbox format sent by a financial institution as confirmation of payments received from customers of a lockbox owner). BIP integrates with ERP systems and can be implemented to work with existing processes, workflows and banking relationships.

• ACH Payments – Clients have the option to make ACH payments. The American Express team enables appropriate suppliers to accept ACH payments while allowing them to introduce and maintain their own banking information on the PAYVE web-portal. PAYVE sends the transaction through the ACH network, notifies the client and the supplier upon settlement, and provides visibility on payment status through the PAYVE web-portal. Detailed remittance information is received by suppliers as a CSV file sent via email along with addenda information posted to their banking transactions. The addenda information is optional and it allows clients to send a large amount of detailed remittance data attached to a payment.

• Check Payments – Clients can outsource their printing and mailing of checks to American Express while maintaining their existing approval processes and banking relationships. Clients (and suppliers) gain visibility into check payments via the PAYVE web-portal including remittance information and check images.

• International Wire Payments – PAYVE automates and manages the pricing and processing of international payments on behalf of its clients. American Express can process payments in over 110 currencies and offers what it believes are competitive exchange rates. Through the PAYVE web-portal, clients have visibility into details such as payment status, conversion amounts and exchange rate.




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PAYVE also provides access to all the information related to previously submitted payment instruction files including the details on all payment types and related invoices. A dashboard shows details such as where and when a payment was sent and received, how many payment records were in each payment file that was submitted, and how many invoices were paid. Clients typically access this portal in order to conduct analysis and research around payments or to troubleshoot any payment issues or problematic suppliers.

Each payment instruction file that is submitted by the client goes through a process that validates various data such as the supplier information collected during the enablement phase or ensuring that payment control totals match. Any type of validation error generates an email notification to the client prompting it to login to the PAYVE web-portal and work with the American Express team to resolve the issue. Only suppliers that have gone through the enablement process can receive payments. These enabled suppliers have access to the PAYVE portal and can review the details of the payments they have received and the related remittance information.

Implementation Process

The standard PAYVE implementation process is detailed and leverages American Express' well-regarded customer service to ensure a successful program launch. Every implementation project will have the following American Express stakeholders available:

• Implementation Manager – Responsible for overall management of the project and serves as the main point of contact for the client and other American Express stakeholders. The implementation manager’s responsibilities include organizing and leading internal and external status calls and performing and delivering the supplier analysis/segmentation plan.

• Account Manager – Responsible for maintaining a strong understanding of the client’s requirements, overall management of the client relationship and ensuring that key objectives are met.

• Technology Enablement Manager –Responsible for the deployment of the technology, which includes conducting and finalizing system/solution requirements and design, configuration of the application, testing, training, launch, and the final transition to the customer support team.

• Supplier Enablement Manager – Executes supplier strategy including enablement, supplier communication and outreach, training and status reporting

Table 1 shows the various stages of implementation that a client must go through before being able to submit payments through PAYVE. On average, implementation takes 10 – 12 weeks and many of the activities are carried out in parallel leveraging different American Express resources. Implementation is mainly focused on supplier enablement and configuring the Payment Platform.




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Stages

Table 1: PAYVE Implementation Methodology

Key Activities

Program Contract execution, project kick-off, account setup and hierarchy (week 1)

Supplier

Develop supplier strategy and communication materials (week 2 & 3)

Begin supplier enablement process (week 4+)

Change management, training, status reporting (week 2+)

Technology

Engage relevant stakeholders e.g., IT, AP (week 1)

Design – Conduct and finalize requirements gathering (week 2 & 3)

Build – Configure application, conduct testing, buyer training (week 4 +)

Launch – Process and monitor first payment file (week 7+)

Transition – Transition to customer support (week 10+)

Summary

PAYVE, from American Express, is a service that is designed to automate B2B payments in an efficient manner by using analytics and leveraging American Express’ dedicated resources and world-renowned customer service to ensure successful supplier enablement. The American Express team works closely with clients in order to uncover any opportunities for improving the efficiency of payment operations. This combination of technology, services and support is designed to help clients to centralize and gain greater visibility into B2B payments as well as to implement more sophisticated payment strategies and work towards improving working capital.




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REPORT SPONSORSHIP

The views and opinions in this report represent those of Ardent Partners at the time of publication. Sponsoring companies have had no measurable influence on the content and research in this report. The contents of this research report are the exclusive property of Ardent Partners. Please direct any comments or questions regarding our research sponsorship policy to Ardent’s Chief Research Officer, Andrew Bartolini at [email protected] and/or 617.752.1620.

Sponsor:

American Express Global Corporate Payments

Through its Global Corporate Payments group, American Express provides payments solutions to mid-sized companies and large corporations worldwide. The Company offers a full range of products and services to meet clients’ travel and entertainment and B2B spending needs, including the Corporate Card and Corporate Purchasing Card. It issues local-currency commercial cards in more than 40 countries, and International Dollar Corporate Cards in an additional 100+ countries. For more information, visit www.americanexpress.com/payments.

Contact:

Leland Cheuk Senior Manager, B2B Marketing [email protected] +1. 212.640.4784 www.americanexpress.com/payments


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ABOUT ARDENT PARTNERS

Ardent Partners is a Boston-based research and advisory firm focused on defining and advancing, the accounts payable, procurement, and supply management strategies, processes, and technologies that drive business value and accelerate organizational transformation within the enterprise. Founded by Andrew Bartolini, Ardent also publishes the CPO Rising and Payables Place websites. Register for access to Ardent Partners research at ardentpartners.com/newsletter-registration/.

ABOUT THE AUTHOR

Vishal Patel, Research Director and VP of Client Services at Ardent Partners

Vishal Patel is a recognized expert in the world of accounts payable and supply management. He has worked closely with accounts payable and procurement groups for most of his career, researching best practices and advising clients on how to utilize technology to improve organizational performance. Vishal is the lead analyst for Ardent’s ePayables (Accounts

Payable automation) coverage and is also responsible for the oversight of certain AP solution selection and benchmarking projects.

Vishal joined Ardent from a technology provider, where, as Director of Business Development, he helped establish and grow the company’s US business by helping corporations de-couple their marketing supply chains and drive significant savings. Earlier in his career, Vishal was a Research Director in the Global Supply Management research practice at Aberdeen Group where he led and supported the coverage of many key areas including contract management, commercial cards, ePayables, and complex category management.

Vishal has been named a “Pro to Know” by Supply and Demand Chain Executive and holds a B.S. in Finance and International Business from The Pennsylvania State University and an M.B.A from Babson College. He welcomes your comments at [email protected] or +1. 917.470.9522.

Industry Standard “Fine Print:”

© 2013 Ardent Partners, Ltd. All rights reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. Solution providers and consultancies should take special note that Ardent Partners reserves the right to seek legal remedies including injunctions, impoundment, destruction, damages, and fees for any copyright infringement (which includes but is not limited to usage of any Ardent Partners content in company collateral, presentations, and websites) in accordance with the laws of the Commonwealth of Massachusetts and the United States.

The information contained herein has been obtained from sources believed to be reliable. Ardent Partners, Ltd. disclaims all warranties as to the accuracy, completeness or adequacy of such information. Ardent Partners, Ltd. shall have no liability for errors, omissions, or inadequacies in the information contained herein or for interpretations thereof. The contents expressed herein represent Ardent Partners’ best analysis at the time and are subject to change without notice.


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epayables solution spotlight - american express

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