“trends, strategies & solutions changing the world … conference st_ john's... ·...
TRANSCRIPT
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AGENDA
• Introductions • Goal for this session• B2B Holistic Payments discussion
North America Trends, Strategies & SolutionsBusiness Case Where does one begin?Hallmarks of a successful initiative
• Summary and Q & A
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B2B Holistic Payments Vision & Strategy ….. A New World
Enables Treasury & Finance:
‐move 80% ‐ 90% of payments to electronic‐ optimize hard $ savings and unlock working capital‐ realize process efficiencies and transformation
A Client with $102.5 million spend targeting to save $643 thousand annually.
AP Automation(eInvoicing, EIPP, Discount
Management )+Payments(EFT, ACH, Wire, Cards,
BIP, cheques)
= Client attainsprocess transformation, savings and
unlocks working capital
Trend: Holistic Payment Strategy now includes all three
Working Capital(Supply Chain Finance,
Buyer-Initiated-Payment )+
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PayStream Advisors Inc.Market Study Report, B2B ePayments, Q3 2010
Cost reduction - reduced headcount, process efficiency- reduce duplicate payments and lost cheques- earn significant card rebates- reduce data entry errors
Cash Flow- improved visibility into payments & spend - better cash flow forecasting
Fraud- reduce risk of payment fraud,
Positive “Green” impact - remove paper
Increase supplier satisfaction- reduce DSO
B2B Holistic Payments Strategy … transform Payments into Performance
100%
0%
BIP 0%
“Present” Invoices/Purchase
Transactions
PaperCheques
67%
Card 5%
EFT 21%
Wire 7%
Mid $
Payment Terms
“Goal Invoice/PurchaseTransactions”
HIGH COST LOW # of Transactions‐ ACH‐ EDI
LOW COST HIGH # of Transactions‐Pcard, T&E‐ FleetPaper Cheques5%
Card35%
EFT41%
BIP 10%
Wire 9%
5
0%
100%
Create New Holistic Payment Distribution.. map to Spend $$ and Suppliers … deliver savings
BIP 0%
“Present” Invoice/Purchase
Transactions
PaperCheques
67%
Card 5%
EFT 21%
Wire 7%
“Goal Invoice/Purchase
Transactions”
5%
Card35%
EFT41%
BIP 10%
Wire 9%
5%
66%
10%
$$$ Spend
10%
9%
5%
7%
# of Suppliers
33%
40%
15%
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Results of Holistic Analysis
Client Spend Data:• Addressable Spend $
Paid by Card $ 1,538,480Paid by EFT $ 13,461,765Paid by Wire $ 5,365,256Paid by Cheque $ 82,199,859
Total $102,565,360• Invoices 85,820• Suppliers 6,860• DPO 40 Days
Targets:• Payments 90% electronic payment (EFT + Card + BIP + Wire)• Savings Optimize• Working Capital Key Priority
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Holistic Payment Value($102.5 Million Spend)
ePayment Savings $ 68,947 Card Rebate $ 76,924Buyer-Initiated-Payment Rebate $ 53,334 AP Automation
- Return on Cash & Discounts $ 170,357- Compliance $ 138,463
AP Process Savings $ 135,000
Steady State Savings (annual) $ 643,025
Unlock working capitalSupply Chain Finance $1,410,274Buyer-Initiated-Payment $ 712,259
$0.03 - $0.04
Income Statement impact: “Goal” Savings
Balance Sheet impact:
EPS impact:
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What are they?• Corporate Credit cards• Issued to designated employees and/or key vendors• To purchase business-related goods and services,
fleet, travel and entertainment
Why use them?
• Streamline procurement for high volume, low dollartransactions
• Take costs out • Earn financial rebates• Extend DPO
Value: Card “Goal” generates savings.… 35% of transactions … 10% of Spend … 40% of suppliers
Rebate: $ 76,924 - Card Spend $10.25 million - Target Transactions 30,037
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Buyer-Initiated-Payment generates savings and unlocks working capital …10% transactions .. 10% of Spend $ … 7% of suppliers
What is BIP?• Growing payment method • Many industry names e.g. Buyer-Initiated-Payment, BIP, B2B, ePayment• Merges functionality of pCard & EFT/ACH• Win - Win with suppliers
How is it used?• To pay for goods and services from many suppliers, including:
- any PO & nonPO-based suppliers - suppliers that do not offer early pay discounts- suppliers that offer Net 30 or Net 45 terms - any Indirect and Direct purchases
• Fits easily inside a Buyer’s PO system. • Buyer sends regular payment request files to bank, once invoices ‘approved to pay’• Bank funds & pays the suppliers directly
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Value: Buyer-Initiated-Payment
Buyer
• Earn a financial rebate
• Extend DPO• Extend DPO to 45 - 60+ days• Pay bank once per month e.g.1 month
plus 7, 14, 21 or 27 days• Unlock working capital• Idea: Use Business Line of Credit to
extend another 30 – 60 days. Rebate pays for interest.
• Fits easily inside PO process• No change management
• Process efficiency• Automated payment reconciliation and
upload to ERP, GL & AP
Supplier
• Reduce DSO• Paid earlier by the bank < 30 days• Many buyers extending DPO to
45 - 60 days
• Low payment fee• Similar to an Early Pay Discount
• Increase process efficiency • No-touch, Straight-Through-
Processing and Payment• Electronic remittance process
• Maintain Privacy • No supplier banking information
shared with Buyer
Rebate: $66.667- BIP Spend $ 10.26 million - Target Transactions 8,582
Unlock $712,259 working capital
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Value: ePayment (ACH & BIP) … 51% of transactions … 76% of Spend … 22% of suppliers
New Functionality
• Makes it easy to transition from paper cheques to ePayments• Reduces the heavy admin
- delivers up-to-date supplier banking information.• Resolves the remittance & reconciliation challenges
- deliver detailed electronic remittance documents.
Value of “Goal” state to Buyer (using $102.5 million spend)
Move to ePayment generates Savings: $68,947
"As is" costs "Goal" Target CostsMetrics # Pymts Cost Fee # Pymts Cost FeeCheck 48,874 $1.57 $76,733 3,647 $1.57 $5,726ePayment 14,418 $0.15 $2,163 28,149 $0.15 $4,222Wire 6,007 7,724Card 4,291 30,037BIP 0 8,582Total 73,591 $78,896 78,139 $9,949
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Value: ePayment opens the door to AP Automation
1%
.5%
1.5%
% D
isco
unt
36.5% APR
Days
2%
2010 30
Current Approval
# of
Invo
ices
New approval
60
3% New opportunity for “Use of Cash” enables stable APR “sliding scale” discounts at any point beyond the traditional 2-part term drop date.
Greater than hurdle rate?
“Use of Cash” to captureContracted Discounts& Standing Discounts on a Sliding Scale.
Enables a new world of Working Capital
Traditional “Use of Cash”
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Savings: $170,357 (0.21%)Target Addressable Spend: $ 82,052,288
Most recent Hackett, IOMA & Aberdeen study says 0.3% – 1.0% per $1B spend
Value: AP Automation
1. Standing Discounts with Effective Terms- Treasury can offer Standing Discounts to suppliers greater than Hurdle Rate- “Effective Term” provides Treasury control
i) dynamically turn on/offii) seasonal control
2. Dynamic Discounts- At end of fiscal periods, surge in supplier need for cash- Now Treasury can dynamically propose an early pay discount to a supplier
against specific invoices- Suppliers can dynamically propose to buyers- Target specific suppliers at a specific point in tim
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Compliance Savings $138,463 (0.15%)(Most recent Hackett: 0.2% – 0.7% of spend in savings leakage)
Value: AP Automation drives AP Compliance
Functionality• 5% of invoices contain errors (IOMA AP Department Benchmark) • Invoice compliance validation
- Network Test: Insures only accurate invoices are passed into the Network.- Matching Test: 3 & 4 way match.- Workflow Test: Approval Workflow.
Savings• Drives high Compliance• Target Spend: $92.3 million
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Process Savings (FTE) $135,000(Reassignment opportunity 3 of 9 FTEs @ $45,000 loaded cost)
Value Holistic Strategy: Process Savings (FTE)
FTE reassignment opportunity:
1) Due to Card & EFT & BIP Payment processes 8% - 10% 2) Due to eInvoicing processes 25% - 35%
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Overall Metrics Current Goal
Total Targeted Spend ($) $67,693,138
Spend Target for SCF (%) 15.00%
Days Payable Outstanding (Target) 40 90 Valuation Rate for Working Capital Unlocked (WACC) 3% 3%
Value: Supply Chain Finance (SCF)…use with Strategic Suppliers to unlock Working Capital
Working Capital Unlocked $1,410,274Total Incremental value @WACC 3% $ 42,308(Weighted Average Cost of Capital)
This mechanism allows a bank to provide immediate liquidity to a supplier by purchasing the receivables confirmed by the buyer and allocating the entire risk to a solid buying entity and is proving to be a successful risk alleviator.
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Holistic Payment Value($102.5 Million Spend)
ePayment Savings $ 68,947 Card Rebate $ 76,924Buyer-Initiated-Payment Rebate $ 53,334 AP Automation
- Return on Cash & Discounts $ 170,357- Compliance $ 138,463
AP Process Savings $ 135,000
Steady State Savings (annual) $ 643,025
Unlock working capitalSupply Chain Finance $1,410,274Buyer-Initiated-Payment $ 712,259
$0.03 - $0.04
Income Statement impact: “Goal” Savings
Balance Sheet impact:
EPS impact:
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PHASE
1
Low
Savings OpportunityHigh
DIFFICULTEa
se o
f Im
plem
enta
tion
PHASE
4
PHASE
3
PHASE
2Next 6 – 9 months First 6 – 9 months
EASY
Next 9 – 12 monthsNext 6 months
Where do I start? – Ease vs. Opportunity
EFTGrowth
CardGrowth
Create Holistic
Payment Strategy
CardGrowth
EFTGrowth
BIP
Grow all solutionsto include all suppliers AP
Compliance
Discountmgnt
BIPGrowth
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Hallmarks of a Successful B2B Holistic Payment Strategy & Initiative
Key Success FactorsExecutive support & buy-in from all stakeholdersSupplier Enablement aligned with customer Goals/ObjectivesStrong supplier compliance positionCommunicate oftenChange Management Plan in place
Resources required to be activeExecutive sponsorAccounting, Treasury, Finance, AP, Procurement and IT
Obstacles to be overcomeLack of executive leadership / program vision-metrics Poor communication both internally and externally to suppliers Creation and execution of a compelling value proposition to suppliers
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Summary of Value
Creates a roadmap to move 90% of payments to electronic
Achieve process transformation & efficiencies
Take costs out of Operating Budget
Unlock working capital
Win – Win with suppliersHelps supplier optimize working capitalReduce Days Sales Outstanding and take-out costs
InfrastructureEnhance (not replace) current solutions
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Thank You
Doug MacCallumManaging Director
BMO Spend & Payments Solutions905 722-7597