Automated Payment Solutions - Louisiana Government Finance
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Transcript Automated Payment Solutions - Louisiana Government Finance
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
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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
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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
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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
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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
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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
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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
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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
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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…
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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
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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
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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
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Shorter = higher rebate
Longer = lower rebate
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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
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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 %
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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
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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
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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
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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
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A Sample Business Case for
e-Payments
Sample Business Case for e-Payments
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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
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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
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Automated
Payment Solutions
Virtual Card Settlement
VS
Checks
Thank you!
October 3, 2013
Questions?