Purchasing Card as a Payment Tool

Transcription

1 Purchasing Card as a Payment Tool Presented to: June 11, 2015 Jody L. Lutz Senior Vice President PNC Treasury Consulting Group (412) Jody.Lutz@pnc.com

2 Card Deployment A Continuum of Options Distributed Cards For travel & entertainment expenses Preferred method of payment for these vendors Improves financial controls (SOX compliance) For smaller dollar decentralized purchasing Reduces time for receipt and payment of goods Value for both buyer and vendors T&E Cards Traditional P-Cards Non-Distributed Cards For preferred (contract) vendor ordering Facilitates online ordering and payment Value for both buyer and vendors For one time and specialty payments Web Services integration an option Improves payment cycle time Payments requiring backend approval Enables card settlement on P.O. s Automated solution (both push & pull) Embedded Ghost Cards Single Use Ghost Accounts Virtual AP Cards 2

3 Payment Trends B-to-B Payments Source: 2013 Electronic Payments Survey, The Association for Financial Professionals as presented in the AFP Payments Decision Guide To Creating a Payables Strategy, Part II 3

4 Payments by Transaction Size Transactions under $2,500 58% 53% 32% 34% Pcard Check ACH 7% 10% 3% 3% Wire Sources: 2014 RPMG Purchasing Card Benchmark Survey 4

5 Payments by Transaction Size Transactions $2,500 to $10,000 71% 32% 47% Pcard Check ACH 15% 9% 15% 5% 6% Wire Sources: 2014 RPMG Purchasing Card Benchmark Survey 5

6 Payments by Transaction Size Transactions $10,000 to $100,000 60% 58% Pcard Check 9% 19% 13% 20% 12% 9% ACH Wire Source: 2014 RPMG Purchasing Card Benchmark Survey 6

7 Purchasing Card Usage Spend by Category % of Category Spend Average Program % of Category Spend Top Programs Office Equip/Supplies Operating Goods/Supplies Education/Training Computer/Mobile Business Services Transportation/Delivery Inventory Utilities Repair/Maint. Professional Services 0% 20% 40% 60% 80% Sources: 2014 RPMG Purchasing Card Benchmark Survey 7

8 Benefits of a P-card Program Why are Companies using this payment method? Increased convenience for employees Rebates & Incentives 72% 67% Lower processing cost 56% Reduction in procure-to-pay cycle time Working Captial (DPO) 37% 34% Improved compliance with contracts/purchasing policies Reduction in maverick spend Data for Price Negotiations 6% 12% 10% *2012 PayStream Advisors 8

9 Typical Process Flows P.O. Process vs Purchasing Card Purchase Order Process Purchasing Card Process 9

10 Transaction Costs & Cycle Times P.O. Process vs Purchasing Card Average Cost Per Transaction $90.26 Average Cycle Time Per Transaction 11.4 Days $ Days $ Days Traditional PO with Check Payment Cost Reduction w/p-card P-card Traditional Purchase Order Cycle time Reduction w/p-card P-card Source: 2014 RPMG Purchasing Card Benchmark Survey 10

11 Best Practices Commonalities of High Performing Programs Distribution and Access Distribute on average three times as many cards than low performance programs* Allow departments or business units to decide on how many cards should be distributed Less likely to restrict card use to only supervisors, managers, or purchasing personnel Conduct data mining of card transactions to ensure policy compliance Sourcing Restrict some or all of their card activity to preferred vendors Use card spending data as basis to request higher discounts from vendors Control Have per transaction limits that are, on average, 61% higher than low performance programs* Customize monthly card spend limits depending upon individual spending responsibility.* Have a wider allowable span of spend for any given category of goods or services *2014 RPMG P-Card Benchmark Survey Report 11

12 Card Fraud in Perspective A Look at Fraud By Payment Type Checks 45% 77% Corporate Cards 25% 34% ACH Debits 7% 25% ACH Credits 1% 10% Wire Transfers 27% 20% % of Organizations citing Fraud Attempt by Payment Type Payment Method Cited as Greatest Financial Loss as the Result of Fraud (All Respondents) Source Data: 2015 AFP Payments Fraud & Control Survey 12

13 Card Fraud in Perspective Card Fraud and Misuse Key Stats Related to Fraud and Misuse Suffered Loss PURCHASING CARD 1 Median dollar loss per incident Loss as a percentage of spend Employee Misrepresentation Internal Fraud External Fraud $167 $400 $ % 0.002% 0.003% Yes 32% No 68% Fraud committed by: Employee 25% External 77% TRAVEL CARD 2 Median dollar loss per incident Loss as a percentage of spend Employee Misrepresentation Internal Fraud External Fraud $100 $67 $ % 0.002% 0.004% Sources: RPMG Purchasing Card Benchmark Survey RPMG Corporate Travel Card Benchmark Survey 13

14 Mitigating Fraud and Abuse Best Practices for the Organization Thoughtful use of Card Controls Prohibit Cash Advances Review Decline Activity Liability Waiver Cardholder Usage Agreement Prompt Cancellations 14

15 Mitigating Fraud and Abuse Best Practices of your Banking Partner EMV Card Adoption PCI Compliance Intelligent Fraud Monitoring Integration of CAMS Data Replace Cards At Risk Partnership and Education 15

16 Switching Gears Let s Look at e-payables using Virtual AP Cards Actual and Projected Trends in EAP Adoption % 34.0% 26.0% 18.0% (projected) 2015 (projected use) 2016 (projected use) Category (Projected Use) 2016 (Projected Use) Fortune 500-Size 24% 37% 56% Large Market 26% 34% 56% Middle Market 13% 20% 30% Government and Not-for-Profit 16% 24% 40% All Respondents 18% 26% 43% *statistics reference the 2014 RPMG Purchasing Card Benchmark Survey Results 16

17 Compare and Contrast Traditional P-card vs. Virtual AP Cards Traditional Purchasing Card Virtual Accounts Payable Card Account number located on physical cards held by employees Account # s Account number provided to vendor upon enrollment or Vendor provides merchant processing information for direct settlement to their account To specific employee(s) Card Assignment To specific vendor ID Amount set by card to cover anticipated spending needs Spending Limits $0 card that is funded to the specific amount of the invoice(s) on approved payment file Review and Approval completed post-purchase. Approval Process Follows existing Accounts Payable process prior to payment being initiated. Physical interaction with merchant (in-person, on phone, or entered into online application) Payment Automated advice sent to vendor upon receipt of approved payment file. Vendor initiates payment with card # on file. A mixture of default mapping & cardholder reconciliation post transaction purchase Accounting Follows existing Accounts Payable process for coding payment information into accounting system prior to making payments 17

18 Current Accounts Payable Process Remains the Same Invoice Virtual AP Cards Sourcing Receiving Voucher Payment Decision Pull Settlement (Seller-Initiated) Approved funds added to dedicated supplier card account Electronic remittance advice directed to supplier Supplier processes along with other card transactions Push Settlement (Buyer-Initiated) Funds directed to suppliers established merchant service account Electronic remittance advice directed to supplier Supplier funded in hours Single Use Pull Settlement Approved funds added to single use card account directed to supplier Supplier will obtain single use card account number, expiration date, CVV 18

19 Cost/Benefit of Payment Why Virtual AP Cards? Payment Economics $80.00 Based on Average $5,000 Transaction $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 ($10.00) $24.11 $50.00 $3.29 ($0.00) ($0.13) ($1.59) ($7.00) Card ACH Check Wire Cost Working Capital Gain Revenue Share Payment Type 19

20 Why Virtual AP Cards? Working Capital Improvements 0 days ACH File transmitted Funds Deposited 2 days into Vendor s 0 days bank account ACH transactions funded by daily Treasury payment to disbursement bank A/P CYCLE COMPLETES 1 day CHECKS Checks Mailed ~ 3 days Vendor receives and deposits check ~ 1 days Check is presented to disbursement bank 0 days Checks funded by wire to disbursement bank 0 days Virtual AP Card 1. Card Funded 2. Remittance sent to vendor ~ 1 days Vendor charges AP Card Account ~2 days Vendor receives funds daily from its merchant processor ~22 days on average AP Card transactions funded by monthly Treasury payment to issuing bank 20

21 Working Capital Benefits Virtual Cards Naturally Extend DPO PURCHASE PAYMENT TERMS n/ Billing Cycle Cut-off Billing Cycle Cut-off Check Payment of $100 ACH to Card Issuer 22 day Float Extension 14 day terms acceleration CUSTOMER CASH BALANCE Offer vendor 14 day acceleration in payment if they agree to accept alternate card based settlement. If managed in relation to card billing cycle cut-off, customer cash flow impact can be unaffected or mitigated 21

22 Vendor Acceptance Start by Examining your Vendor Base Misc. Expense, Local Procurement and Individual Travel Centralized/Recurring Expenses (Temp Help, Office Suppliers, Courier, Large Ticket Travel) Remaining Indirect Spend Direct & Strategic Spend Capital Markets, Fiduciary, Tax, Cap Ex 22

23 Vendor Acceptance Factors Leading to Acceptance Targeted vendors are already accepting card payments from other companies. Many have already built the interchange cost into their pricing models. Other Primary Factors Leading to Acceptance* Quick payment 68% Guaranteed payment 39% Preferred payment 37% Process ease 32% Decrease costs 22% Reduce AR staff 20% * 2014 NAPCP End-User Perspective on Suppliers Acceptance of Commercial Card Payments 23

24 Card-based Supplier Payment Points of Consideration You Retain current sourcing, approval and payment decisioning Integration Suppliers Lever established connectivity to a card network Payment authorization file created and delivered to bank Information Delivery Receive electronic remittance advice and accompanying detail Retain current payment timing & create natural extension of terms Settlement Timing Eliminate postal delays, next day transaction settlement Eliminate check printing, postage and bank costs Processing Costs Eliminate lockbox and other depository costs Create revenue stream Interchange Cost for access to the network Interchange optimization Alternate rate structure 24

25 Card-based Supplier Payment Keys to Success Early Engagement and Involvement Vendor Targeting and Engagement Multiple Settlement Options Various Rebate Structures Organic Growth Quick Pay Options 25

26 Thank You! Thank You! Any Questions? 26