E-Payables: Electronic Payments

Transcription

1 Reduce Your Payment-Processing Costs July 2009 Christopher J. Dwyer

2 Page 2 Executive Summary To position themselves as cash management masters while driving efficiencies and other value-added benefits to the organization, accounts payable departments around the globe must effectively manage the final phase of the invoice lifecycle: settlement / payment. Moving away from the age-old dependence on paper-based checks, enterprises are shifting their payment procedures from manual reliance to the advent of electronic payments. Best-in-Class Performance Aberdeen distinguished Best-in-Class enterprises by a combination of two metrics: cost to process a single payment and payment cycle time. Best-in- Class enterprises in this study are notable for their superior performance and for their focus on streamlining the payment process, as well as their ability to effectively reduce the risk of payment fraud. Best-in-Class enterprises have achieved 13.7-times lower payment-processing costs than Laggard organizations, as well as driven payment cycle times that are 9.6-times faster. Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics. These top-performing organizations are: 53% more likely to have electronic payments requirements established as a standard means of conducting business with key suppliers 43% more likely to integrate payment solutions with existing A/P systems 42% more likely to have standardized payment processes enterprise-wide Research Benchmark Aberdeen s Research Benchmarks provide an indepth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations Electronic payments have resulted in an overall improvement in vendor relationship, the reduction of error payments and better fraud prevention. ~ Director of Finance, Large Telecommunications Services Enterprise Required Actions In order to achieve Best-in-Class performance within the final phase of the accounts payable process, companies must: Standardize payment processes across the entire organization Institute a collaborative environment between the key units involved in payments and cash management Leverage spend analysis solutions to segment the supplier base into appropriate electronic payment categories

3 Page 3 Table of Contents Executive Summary...2 Best-in-Class Performance...2 Competitive Maturity Assessment...2 Required Actions...2 Chapter One: Benchmarking the Best-in-Class...4 Business Context...4 Pressures...5 The Maturity Class Framework...6 The Best-in-Class PACE Model...7 Best-in-Class Strategies...7 Avoiding Financial Loss from Improper Payments...8 Chapter Two: Benchmarking Requirements for Success...10 Competitive Assessment...10 Capabilities and Enablers...11 Benefits of Electronic Payments...14 Chapter Three: Required Actions...17 Laggard Steps to Success...17 Industry Average Steps to Success...17 Best-in-Class Steps to Success...18 Appendix A: Research Methodology...19 Appendix B: Related Aberdeen Research...21 Figures Figure 1: Aberdeen's E-Payables Framework...4 Figure 2: Driving Factors for Focusing on Electronic Payments...5 Figure 3: Best-in-Class Strategic Actions...7 Figure 4: Main Causes of Improper Payments...8 Figure 5: Best-in-Class Technology Capabilities...13 Figure 6: Benefits of Electronic Payments...14 Figure 7: Barriers to Adopting Electronic Payments...15 Tables Table 1: Top Performers Earn Best-in-Class Status...6 Table 2: The Best-in-Class PACE Framework...7 Table 3: The Competitive Framework...11 Table 4: The PACE Framework Key...20 Table 5: The Competitive Framework Key...20 Table 6: The Relationship Between PACE and the Competitive Framework...20

4 Page 4 Chapter One: Benchmarking the Best-in-Class In recent years, the accounts payable department has begun to bolster its collective significance within the organization. Once a back-office afterthought, the modern A/P unit has transformed itself into a value-add organization that can not only drive efficiencies in invoice- and paymentprocessing, but also empower the enterprise with superior cash optimization abilities. Following the May 2009 E-Payables: Invoice Receipt and Workflow report (the first part of our 2009 A/P research series), the study for this E-Payables: Electronic Payments report, culled from the strategies, intentions and performance of over 140 enterprises, found that global organizations are turning to electronic means of settlement to drive lower payment-processing costs while improving overall cash flow. Business Context Aberdeen utilizes the all-encompassing term "e-payables" to reflect the processes within the accounts payable function. The e-payables framework (Figure 1) represents the four main phases of the invoice lifecycle. Fast Facts Nearly 70% of enterprises place a critical / high-priority on improving overall payment processes and procedures Top-performing organizations have achieved 13.7-times lower payment-processing costs, as well as driven payment cycle times that are 9.6-times faster Figure 1: Aberdeen's E-Payables Framework After proper receipt and approval of an invoice, it is confirmed for disbursement (settlement) via one of four main methods of payment: check (paper-based), Automated Clearing House (ACH), commercial cards, or wire transfer. The latter three are considered electronic means of payments: ACH is an electronic network for financial transactions in the United States. ACH processes large volumes of both credit and debit transactions, which are originated in batches. ACH credit

5 Page 5 transfers include direct deposit payroll, expense reimbursements, and supplier payments. Commercial card systems are issued by banks and other financial institutions, and support debit and credit products for use by enterprises with their supplier base. The most common formats of commercial cards are purchasing cards (p-cards) and corporate cards. While historically leveraged for the purchasing process, enterprises are now using commercial cards as a method to pay invoices. Wire transfer is utilized to transfer finances from one enterprise to another, typically from a one bank account (buyer) to another (supplier). Transfers are conducted through an electronic system and its assignment of routing numbers to uniquely identify each bank. The study for this E-Payables: Electronic Payments report found that nearly 70% of enterprises place a critical / high-priority level on improving overall payment processes and procedures, a figure that reinforces the notion that overall financial success within the enterprise rests on the operational shoulders of the accounts payable department. Pressures In modern economic times, driving efficiency in everyday processes often spurs bottom-line growth. It is no surprise to see that an overwhelming majority (80%) of enterprises cite the need to reduce overall paymentprocessing costs as their main driver for focusing on electronic payments as part of the A / P lifecycle (Figure 2). Figure 2: Driving Factors for Focusing on Electronic Payments Need to reduce overall payment costs Need for better cash management Need to reduce risk of payment fraud 46% 42% 80% In our payment process, the main problem is the cost that we pay for each check that we have to make. Our main strategy is the use of electronic payments, but some of our suppliers aren t set up to receive them. Need to reduce paper from A/P department 33% ~ Finance Director, Academic Institution Need to ensure compliance with regulations 28% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Percentage of respondents, n = 145

6 Page 6 Recessionary effects have plagued the modern enterprise; with cost containment at the forefront of the common business executive's mind, controlling payment-processing costs is a significant factor in driving additional value to the organization. Also prevalent on the minds of professionals is the need for better cash management (46%). By capitalizing on early payment discounts (and avoiding nagging late-payment fees), enterprises can reap the rewards of faster / more efficient settlement for superior working capital. The overarching risk of payment fraud (42%) is an all-too-real scenario in a modern technological world. Settlement systems can be penetrated by unauthorized persons, and although no electronic payment means offer full protection from infiltration, automated payments systems are less apt to be hijacked than paper-based checks. The Maturity Class Framework Aberdeen used two key performance criteria to distinguish the Best-in- Class from Industry Average and Laggard organizations: cost to process a single payment and time to process a single payment. Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 20% of aggregate performance scorers Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers Mean Class Performance $1.61 to process a single payment 1.9 days to process a single payment $8.12 to process a single payment 6.0 days to process a single payment $16.96 to process a single payment 27.5 days to process a single payment Best-in-Class enterprises are noted for their success across the scope of the two most crucial performance metrics in the settlement phase of the invoice lifecycle. Payment-processing costs and cycle time are significant metrics in the accounts payable scheme; they represent and reflect the overall efficiency of an enterprise's payment process in the final step of the A/P process. Top-performing organizations have achieved 13.7-times lower payment-processing costs than Laggard organizations, as well as driven payment cycle times that are 9.6-times faster. With a large flux on invoices funneled through the average organization each month, there are significant cost benefits from leveraging Best-in-Class strategies for the settlement phase of the accounts payable process.

7 Page 7 Chapter Two will delve into the core strategies, capabilities, and technology enablers that these top-performing companies are utilizing to reduce payment-processing costs and time. The Best-in-Class PACE Model Using electronic payment solutions to achieve corporate goals requires a combination of strategic actions, organizational capabilities, and enabling technologies that can be summarized as shown in Table 2. Table 2: The Best-in-Class PACE Framework Pressures Actions Capabilities Enablers Need to reduce overall payment costs Conduct internal assessment of process and technological capabilities for A/P Integrate payment solutions with existing A/P systems Best-in-Class Strategies Payment processes standardized across the enterprise Tight internal payment controls Segmented supplier base for electronic and manual payments Clearly defined executive sponsor or champion for electronic payments To overcome the key pressures and challenges related to paymentprocessing, such as inflated costs and delayed cycle times, Best-in-Class enterprises have undertaken two main strategic actions to alleviate the hurdles associated with the settlement phase of the A/P process (Figure 3). Figure 3: Best-in-Class Strategic Actions Electronic payment methods (ACH, commercial cards, wire transfer) Electronic Invoice Presentment and Payment (EIPP) Supplier / payment network Electronic invoice enablement (XML/EDI) EDI and XML (for remittance exchange) Automated positive pay and daily reconciliation Integrate payment solutions with existing A/P systems 38% 65% Mandate suppliers to accept electronic payments 20% 43% Best-in-Class All Others 0% 10% 20% 30% 40% 50% 60% 70% Percentage of Respondents, n =145

8 Page 8 By integrating electronic payment solutions with existing accounts payable systems (65%), top-performing enterprises are cultivating a seamless relationship between back-end systems (such as ERP and other financial software) on the buyer and supplier ends. With this secure data transfer process in place, Best-in-Class enterprises are ensuring streamlined payment procedures and a more efficient workflow. Enterprises with this integration in place can speed up payment approvals and cycle times while simultaneously reducing paper (and associated costs) and improving supplier relationships. Best-in-Class enterprises are also afforded the ability to forecast the availability of working capital and cash flow from the enhanced visibility of payment and A/P integration. Best-in-Class enterprises have mandated their supplier base to accept electronic payments as the standard means of settlement (43%). By doing so, they have effectively communicated the benefits of automated payment through ACH, wire transfer, or commercial cards. Communication is often the key in mandating electronic payments; top-performing organizations have educated their supplier base as to the optimal efficiencies enabled by electronic payments, such as working capital improvements and quicker settlement, as well as real-time validation of errors and the ability to view invoice and payment status through a secure portal. Avoiding Financial Loss from Improper Payments Conducting business within the confines of a downtrodden economy can take its toll on the typical enterprise. However, internal mismanagement of A/P processes, unlike the effects of a volatile business world, can be avoided and controlled. Nearly 41% of all enterprises have experienced financial loss as a direct result of improper or fraudulent payments. Figure 4 details the main causes behind improper payments within the organization. Figure 4: Main Causes of Improper Payments Invoice / billing error 70% Vendor/supplier error 52% Duplicate invoice 44% Non-compliance with existing contracts or pricing 41% Non-compliance with company policies 24% 0% 10% 20% 30% 40% 50% 60% 70% 80% Percentage of Respondents, n = 145

9 Page 9 Invoice and billing errors remain the top cause of improper payments (70%), a fact that calls for better overall management of the payment phase of the A/P process. Simple data entry mistakes can lead to billing errors, and enterprises mismanaging the data within their payment solutions can effectively cause the incorrect amounts to be allotted for settlement. However, not all of the burden is on the enterprise itself. Vendor errors can easily occur in the invoicing process, especially if manual touch-points are the baseline for outbound invoicing. Just like A/P automation solves many core issues on the buyer side, solutions like EIPP (and e-invoicing) present suppliers with the opportunity to transmit invoices to their buyers electronically, avoiding many of the errors that occur with manual invoicehandling. Aberdeen Insights Best-in-Class Fraud Prevention Strategies In the modern financial world, payment fraud is an all-too-real actuality for enterprises around the globe. With a myriad of options for automated payment systems available to organizations, no one method is 100% preventative of fraudulence and misuse. Best-in-Class enterprises have experienced 65% lower rates of improper / fraudulent payments than Laggard enterprises through a series of specific strategies: Nearly 60% of top-performing enterprises employ an accountspayable-led review team to audit and track payment fraud. The A/P department, close to the actual payment process, is the most educated and experienced in all matters financial and are more apt to detect out-of-the-norm scenarios in the settlement phase. Sixty-three percent (63%) of Best-in-Class enterprises track and detect fraudulent payments both before and after the actual payments are made. Keeping the lookout open at both ends of the payment process is crucial in pinpointing situations of misuse. These two crucial fraud prevention strategies have propelled Best-in- Class enterprises to a superior level; in the past year, only 17% of these top-performing organizations have experience financial loss as a direct result of either improper or fraudulent payments. Also, Best-in-Class enterprises have experienced 2.3-times less employee-driven expense fraud than all other organizations.

10 Page 10 Chapter Two: Benchmarking Requirements for Success Thrust into a position that can add value and efficiencies to the overall enterprise, the accounts payable function is in place to drive optimal cash management and time / cost savings through superior execution of the final piece of the A/P puzzle: payment. By leveraging a core set of strategies, capabilities, and technology enablers, Best-in-Class enterprises have effectively reduced their overall payment-processing costs and cycle times. Case Study Leveraging Electronic Payments A mid-market chemicals enterprise was faced with inflated paymentprocessing costs and cycle times, as well as early bottlenecks in their overall payment process. "We had a few issues with our payment system," the Chief Financial Officer said. "Not only was issuing checks presenting a time concern in our payment process, we had to manually initiate ACH payments with our suppliers." The enterprise, which was utilizing a complex payment program (involving multiple banks and international payments), began their transition from a check-based payment process to one that leveraged electronic payments. The company also utilized a centralized accounts payable core and secured executive support for their new payment program initiative. "One of our main strategies was converting all of our supplier payments to both ACH and purchasing cards," said the CFO. The new program accelerated payment- and transaction-processing, allowing the enterprise to reduce their overall payment cycle time by nearly 50%. The benefits from electronic payments weren't the only value-added experience; by leveraging a positive-pay process within their ACH system, their current improper and fraudulent payment rate hovers near the 2% mark. Fast Facts 61% of Best-in-Class enterprises have standardized payment processes in place Best-in-Class enterprises are 30% more likely to utilize electronic invoicing Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute their accounts payable operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing invoice and payment data and exposing it to key stakeholders); (4) technology (the selection of appropriate e-payables tools and effective deployment of those tools); and (5) performance management (the ability of the organization to measure their A/P results to improve their business). These characteristics

11 Page 11 (identified in Table 3) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics. Table 3: The Competitive Framework Process Organization Knowledge Technology Performance Best-in-Class Average Laggards Payment processes standardized across the enterprise 61% 52% 35% Tight internal payment controls (written policies, separation of duties, etc.) 77% 61% 56% Centralized A/P model 69% 58% 52% Clearly-defined executive sponsor / champion for electronic payments 73% 45% 36% Segmentation of supplier base for electronic and manual payments 35% 30% 22% E-payables technology currently in use: 90% wire transfer 70% ACH 45% EIPP 45% automated daily reconciliation 40% spend analysis for supplier base segmentation 76% wire transfer 64% ACH 33% EIPP 31% automated daily reconciliation 28% spend analysis for supplier base segmentation 71% wire transfer 54% ACH 24% EIPP 19% automated daily reconciliation 23% spend analysis for supplier base segmentation Well-defined incentives, metrics and penalties applied to payments 36% 24% 11% Ability to quickly retrieve payment information for audit purposes 69% 54% 41% Capabilities and Enablers The Competitive Framework (outlined in Table 3) details the core capabilities and technologies employed by Best-in-Class enterprises to not only streamline the settlement phase of the A/P process, but also to drive superior results across the scope of payment-processing costs and cycle time.

12 Page 12 Process: Standardization and Tight Controls Standardization is considered a core competency in the realm of procurement and supply management. In the accounts payable arena, standardized processes are one of many Best-in-Class capabilities for success. With standardized payment processes in place across the greater organization (61%), top-performing enterprises are ensuring that all business units are leveraging the same set of guidelines and processes for the payment of invoices. For example, an organization might require the use of purchasing cards for certain indirect materials, while leveraging other payment means for direct materials. Tight payment controls, in place in 77% of Best-in-Class enterprises, enables the organization to enforce specific procedures associated with payments, as well as provide a clear representation of duties. Tight controls may also involve an evaluation of current customers and the prohibition of shipping items and / or materials if overdue payments are in the financial system. Organization: Executive Support and Centralization Securing executive support is often the first step in moving to any automated payment system. Having an executive champion for electronic payment adoption is especially crucial; the payment phase is a major moving part of every organization. Moving to an electronic payment system involves overhauling a chief component of the existing accounts payable process. Best-in-Class enterprises (77%) have educated their C-level decision-makers on the benefits of electronic payments, and as we will see later in this chapter, have readily made use of this technology. A centralized A/P model (69%) presents the opportunity for Best-in-Class enterprises to host all payables activity through a single accounts payable unit; this reduces the risk of payment errors and increases visibility into all settlement activity. Although invoice- and payment-processing operations are typically handled within a larger accounts payable unit, the actual A/P department can collaborate with other internal stakeholders, such as the finance, treasury and procurement groups. Electronic payments provide more flexibility in our ability to respond to urgent payment needs. We have an aboveaverage payment history according to some of our internal reports. ~ CFO, Small Apparel Manufacturer Knowledge Management: Segmentation Best-in-Class enterprises are more likely to segment their supplier base for electronic and manual payments (35%). Each form of electronic payment (ACH, commercial card, and wire transfer) is appropriate for specific settlement situations. For example, commercial cards are often the simplest option for indirect spend categories, while ACH is the most appropriate method for vendors with a high volume of transactions. A full discussion of electronic payment preference is included at the end of this chapter. Technology Much like automation has steadily improved overall invoice-processing performance on the invoice receipt and workflow front, technology is the cornerstone for superior payment management. Through the core set of

13 Page 13 electronic payment methods and other enablers (detailed in Figure 5), Bestin-Class enterprises have leveraged automation to not only spur success, but also streamline the settlement phase of the accounts payable process. Figure 5: Best-in-Class Technology Capabilities Percentage of Respondents 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 90% 78% Wire transfer 70% 61% Automated Clearing House (ACH) 62% 56% 45% 41% 39% 28% 27% 26% Commercial EDI/XML for cards remittance exchange Best-in-Class All Others EIPP Spend analysis (to segment suppliers) We are at 70% electronic payments, 96% electronic remittance and 88% electronic invoicing. This has decreased our staffing needs in A/P by approximately five full-time employees over the past eight years. It has resulted in cost savings and increased supplier satisfaction in a quicker and more efficient method of receiving payments. ~ Procurement Director, Large Financial Services Firm n = 145 Top-performing enterprises are readily leveraging technology solutions to assist them in streamlining the payment phase of the invoice lifecycle. Not only are they more likely to utilize the three main electronic methods of payment (wire transfer - 90%, ACH - 70%, and commercial cards - 62%), they have also relied on other key enablers to spur payment performance: EDI / XML remittance information (45%) is a major step over paper-based checks; much like the advent of supplier / payment networks, an EDI or XML connection can seamlessly send and receive sensitive financial information nearly instantaneously. Electronic Invoice Presentment and Payment (EIPP) (41%) involves the web-enabled presentment and sharing of invoices between buyers and sellers. EIPP allows an enterprise to receive invoices via an electronic portal and subsequently provide payment. Aberdeen research has found that enterprises leveraging EIPP solutions have seen a 66% reduction in payment-processing costs, as well as a 50% reduction in payment cycle times. Spend analysis is most often associated with driving enhanced visibility into enterprise spend and allowing procurement executives to conduct more informed sourcing decisions. However, spend analysis can be leveraged to segment an enterprise's supplier base

14 Page 14 into electronic payment categories. Best-in-Class enterprises (nearly 40%) have utilized this core procurement technology to categorize each supplier by the most appropriate electronic payment method. Many payment automation solutions offer functionalities that extend beyond the core of ACH, commercial cards or wire transfer - such as check-to- ACH conversion as well as straight-through-processing. Performance Management The ability to quickly retrieve payment information (69%) allows topperforming organizations to dig deep within their invoice and payment data for total A/P auditing. This ability enables Best-in-Class enterprises to match post-payment discrepancies with original invoices and take proper action to avoid financial loss. Well-defined metrics and penalties (36%) present Best-in-Class enterprises with the opportunity to benchmark their payment performance and address areas of concern, such as failure to capture payment discounts, cycle times, etc. By having this performance management capability in place, organizations can solve payment management problem areas and figure out which technology solution or process capability is needed to spur superior performance. Benefits of Electronic Payments Like many other processes that are automated, there are a wealth of benefits associated with the utilization of electronic payment methods for invoice settlement (Figure 6). We have a strong internal control system with division of duties, and stratified levels of approval and payments. We utilize the automated banking solution provided by one the major banking institutions in Canada. We have integrated our processes with a new ERP software system that has formalized most of our procedures. Payment fraud is virtually non-existent. ~ CFO, Small Apparel Manufacturer Figure 6: Benefits of Electronic Payments Drives cost savings 52% Accelerates transactionprocessing 34% Removes paper from A/P department 25% Enables straight-through processing 22% Improves payment fraud control 21% 0% 10% 20% 30% 40% 50% 60% Percentage of Respondents, n = 145

15 Page 15 The most alluring benefit to leveraging electronic payments is cost savings (52%). Without the use of paper-based checks, enterprises can cut down on touch-points and eliminate the extra costs associated with paper handling of payments. With the reduction of payment costs as the top global pressure in the payments arena, electronic payments can be used in the A/P process to drive down the bulky costs of conducting business manually. Electronic payment methods can also accelerate transaction-processing (34%) by providing an automated means of settlement. Instead of waiting days for a check to be mailed and processed, automated methods (such as wire transfer, commercial cards, or ACH) provide much quicker settlement. The significant delay associated with checks can cause enterprises to squander payment discounts. Barriers to Implementing Electronic Payments Although there are a myriad of benefits to leveraging electronic payment methods in the settlement phase of the A/P lifecycle, there are a set of barriers which enterprises face in implementing these electronic means of payment (Figure 7). Figure 7: Barriers to Adopting Electronic Payments Suppliers not willing to 45% Lack of invoice-processing standardization /automation 41% Lack of integration between electronic payment and A/P systems 40% Shortage of IT resources 35% Resistance to providing 29% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Percentage of Respondents, n = 145 Supplier reluctance (45%) is the most common barrier to adopting an electronic payment system. Because electronic payment methods involve the automated trading of sensitive and private financial information (i.e. bank account details), many suppliers are hesitant to set up a seamless connection with their buyers. However, electronic payment methods provide a much faster means of settlement than checks, allowing suppliers

16 Page 16 to forego the age-old procedure of maintaining excess cash to fund their working capital needs. Although supplier unwillingness remains the top barrier to adoption, a lack of standardization and automation (41%) on the invoice-processing front is also a cause for concern. Without the core capabilities of standardized invoice-processing (a singular process across all business units for invoiceprocessing) and automation around the invoice receipt and workflow phases of the A/P process, enterprises must first remedy this situation before looking to electronic payments as a cure-all for accounts payable woes. Aberdeen Insights Preferred Methods of Electronic Payment Although any of the three main methods of electronic payment (ACH, commercial cards, and wire transfer) help to quicken payment-processing cycle times (and subsequently lower costs), each option must be leveraged in a preferential manner for enterprises looking to streamline the entire payment process. For supplier prioritization and segmentation of indirect spend categories, commercial cards (nearly 60%) are the preferred electronic payment method. Enterprises can leverage cards for low-dollar indirect categories, and not only speed up payment to suppliers, but also increase employee efficiency as well. For international payments, enterprises prefer wire transfer as their method of settlement (61%). Wire transfer involves a secure transmission of sensitive financial information (via SWIFT or other method) to a receiving bank. It is the most popular and widely-used electronic payment method overseas (particularly Europe). Automated Clearing House (ACH) is the preferred payment method for both volume of transactions (50%) and speed / timing of payment (43%). Batch-oriented debit and credit transactions are funneled via a secure network connection, allowing enterprises to settle a high volume of transactions in a timely manner.

17 Page 17 Chapter Three: Required Actions The accounts payable department is now in a position to drive value across the entire organization. With cost containment and cash optimization at the forefront of the modern executive's mind, it is critical that enterprises seek guidance from the following set of recommended actions to help spur superior payment performance: Laggard Steps to Success Standardize payment processes across the enterprise. Much like other cogs in the accounts payable machine (invoice receipt and workflow), all processes must follow a singular set of guidelines across the enterprise to reduce the risk of improper payments. Only 35% of Laggard enterprises have this key capability in place (as compared to 61% of top-performing organizations). Build a business case for electronic payments adoption and present it to senior management and other decision-makers. Only 30% of Laggard enterprises have built an electronic payments business case, something over 60% of Best-in-Class enterprises have done. Paper-based checks are a thing of the past; Laggard enterprises must sway the minds of their senior managers and educate them on the cost and time benefits of electronic payments. Institute a collaborative environment between the key units involved in payments and cash management. Visibility is often a key component in efficient payment management. By developing a cross-functional team (consisting of procurement, treasury, finance and A/P), Laggard enterprises (19%) can gain visibility into payment activities and improve cast optimization initiatives. Industry Average Steps to Success Develop a documented process for payments that is shared internally and externally. Overpayments, improper payments, and errors typically occur when the proper procedures for settlement are not followed correctly. Industry Average enterprises (34%) should develop a documented process both internally and externally that allows the A/P group to utilize the appropriate payment methods for the outgoing flux of payments. Best-in-Class enterprises are nearly twice as likely to hold this capability. Utilize EDI or XML for remittance information exchange. Only 22% of Industry Average organizations (as compared to nearly half of top-performers) are currently leveraging EDI or XML for payment information exchange. By utilizing an electronic connection and sending information digitally, enterprises can speed up the payment process and take advantage of payment discounts. Fast Facts Nearly 70% of Best-in-Class enterprises have developed a documented process for payments that is shared internally and externally Best-in-Class organizations are 54% more likely to leverage spend analysis to segment their supplier base for electronic payments Our goal is to obtain early payment discounts. Electronic payment solutions speed up the payment process and allow payment discounts to be received. ~ Director of Finance, Asian Retail Enterprise

18 Page 18 Leverage spend analysis for payment segmentation. The classic procurement tool can be used in the payment process, however, only 23% of Industry Average enterprises are doing so. Spend analysis can segment and categorize the supplier base into the most appropriate payment methods to ensure proper and effective settlement. Best-in-Class Steps to Success Look to supplier / payment networks as a standard means of settlement. Supplier / payment networks were designed as a "set it and forget it" solution; a web-based connection between the enterprise and its supplier base encourages a seamless transfer of sensitive payment information and quickens the settlement process. Only 30% of Best-in-Class organizations are currently leveraging this technology. Implement a dynamic-discounting program. Crucial to surviving in the modern business world is superior cash management. Through dynamic-discounting, suppliers can dynamically alter payment terms ("net 30") to accelerate paymentprocessing. Enterprises can fuel cash liquidity efforts by capturing early payment discounts, however, only 26% of Best-in-Class enterprises have implemented this type of program. Leverage outside fraud prevention solutions. Although Bestin-Class enterprises have effectively minimized their risk of payment fraud, there is room for improvement. No single electronic payment method is 100% safe from improper or fraudulent payments. A mere 26% of top-performing organizations are utilizing outside fraud prevention tools (such as post-payment audit recovery solutions and other technologies); these outside solutions can easily detect instances of fraud and protect business assets. Aberdeen Insights Summary Similar to the other processes in the accounts payable process (invoice receipt and workflow), a successful payment phase involves an efficient blend of strategies and technologies to attain lower payment-processing costs and cycle times, as well as optimize working capital. For most organizations, proper payment management begins with transformation within the enterprise. Standardized payment processes are crucial, and a single set of guidelines and procedures for settlement across the organization, helping to avoid improper payments, overpayments, and reducing the risk of payment fraud should be encouraged. With a solid management core, enterprises can leverage any number of electronic payment methods, including ACH, commercial cards or wire transfer. All are significant upgrades over paper-based checks and can present an array of cost and time benefits. For effective payment management, enterprises can follow the lead of the Best-in-Class and utilize spend analysis to segment their supplier base, as well as leverage A/P-led fraud prevention teams to reduce the risk of improper and fraudulent payments.

19 Page 19 Appendix A: Research Methodology Between June and July 2009, Aberdeen examined the use, the experiences, and the intentions of more than 140 enterprises using settlement and payment processes within their respective accounts payable departments. Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on payment strategies, experiences, and results. Responding enterprises included the following: Job title: The research sample included respondents with the following job titles: manager (33%); senior management (28%); director (11%); A/P staff (8%); and others. Job function: The research sample included respondents with the following job functions: finance (40%); procurement (22%); IT (15%); and others. Industry: The research sample included respondents from the following industries: finance (10%); manufacturing (9%); chemicals (6%); retail (5%); software / hardware (5%); and 24 others. Geography: The majority of respondents (68%) were from North America. Remaining respondents were from Europe (15%), the Asia-Pacific region (11%) and Middle East / Africa (6%). Company size: Thirty-six percent (36%) of respondents were from large enterprises (annual revenues above US $1 billion); 38% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 26% of respondents were from small businesses (annual revenues of $50 million or less). Headcount: Sixteen percent (16%) of respondents were from small enterprises (headcount between 1 and 99 employees); 28% were from midsize enterprises (headcount between 100 and 999 employees); and 56% of respondents were from large businesses (headcount greater than 1,000 employees). Study Focus Responding executives completed an online survey that included questions designed to determine the following: The degree to which payment processes are deployed in their operations and the financial implications of the technology The structure and effectiveness of existing payment implementations Current and planned use of payment solutions to aid operational and promotional activities The benefits, if any, that have been derived from payment initiatives The study aimed to identify emerging best practices for payment processes and to provide a framework by which readers could assess their own management capabilities.

20 Page 20 Table 4: The PACE Framework Key Overview Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures external forces that impact an organization s market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product / service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products / services, ecosystem partners, financing) Enablers the key functionality of technology solutions required to support the organization s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management) Table 5: The Competitive Framework Key Overview The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance: Best-in-Class (20%) Practices that are the best currently being employed and are significantly superior to the Industry Average, and result in the top industry performance. Industry Average (50%) Practices that represent the average or norm, and result in average industry performance. Laggards (30%) Practices that are significantly behind the average of the industry, and result in below average performance. In the following categories: Process What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization How is your company currently organized to manage and optimize this particular process? Knowledge What visibility do you have into key data and intelligence required to manage this process? Technology What level of automation have you used to support this process? How is this automation integrated and aligned? Performance What do you measure? How frequently? What s your actual performance? Table 6: The Relationship Between PACE and the Competitive Framework PACE and the Competitive Framework How They Interact Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions.

21 Page 21 Appendix B: Related Aberdeen Research Related Aberdeen research that forms a companion or reference to this report includes: E-Payables: Invoice Receipt and Workflow; May 2009 The CPO's Agenda: Smart Strategies for Tough Times; April 2009 The CFOs View of Accounts Payable: Cash is King; February 2009 The E-Payables Benchmark Series: A / P Strategies for Success; September 2008 The E-Payables Benchmark Series: Electronic Payments and Fraud Prevention; June 2009 Supplier Enablement: Converging Procurement and Accounts Payable; April 2008 The E-Payables Benchmark Series: Imaging and Workflow; March 2008 Accounts Payable Transformation: Better, Faster, Cheaper; December 2007 E-Payables Solution Selection: Your Guide to A / P Transformation; September 2007 E-Payables: Advancing A / P Automation; March 2007 Information on these and any other Aberdeen publications can be found at Author: Christopher J. Dwyer, Research Analyst, Global Supply Management, (chris.dwyer@aberdeen.com) Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte- Hanks (Information Opportunity Insight Engagement Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen or call (617) , or to learn more about Harte-Hanks, call (800) or go to This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc a