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3 2015 Electronic Accounts Payable Benchmark Survey Results Market Trends and Best Practice Program Choices Richard J. Palmer Professor of Accounting Southeast Missouri State University Mahendra Gupta Professor of Accounting and Management Washington University in St. Louis July , RPMG Research Corporation. No part of this manuscript may be duplicated, reproduced, or quoted without the express written permission of Richard J. Palmer and Mahendra Gupta. To request permission, contact Richard Palmer by phone ( ) or

4 Preface We are pleased to present the 2015 Electronic Accounts Payable (EAP) Benchmark Survey Results. The report is based on data and analysis from over 800 EAP-using organizations across North America to identify and understand market trends and the factors that contribute to or detract from the use of and benefits associated with EAP (dynamically-adjustable cardless accounts used by organizations to pay for invoiced goods and services). Our analysis of the survey data is divided into three separate documents to assist the reader in finding the desired information in the most convenient manner, as follows: Market Trends and Best Practice Program Choices (the Main report) o Analyses and highlights of current trends in EAP use. o In-depth examination of factors critical to the success of EAP programs. o Identification of future trends and growth opportunities for EAP use. Program Profiles by Organization Type and Size o Benchmark data to evaluate EAP programs, broken down within corporate (by size and industry) and government and not-for-profit sectors (states and state agencies, city and county governments, colleges and universities, schools, and not-for-profits). The Provider s Role in EAP Program Success o An examination of customer satisfaction with and importance of EAP provider activities (across economic, service and support, reporting, and integration factors) and how it affects EAP program performance. A Table of Contents for the current report, as well as a Quick Guide to the Reports, which provides chapter content for the other reports, can be found on the next two pages. Financial institutions began marketing EAP accounts around Overall, the growth of EAP has been consistently strong in both good and poor economic conditions. However, the patterns of EAP use and benefits received by EAP-using organizations still vary widely. While many organizations have taken steps to advance their use of EAP to the next level, some organizations lag behind. This Report examines the spending norms and program choices being made by different types of organizations to derive the greatest benefit from EAP. We want to express our sincere thanks to the organizations and providers that participated in the Survey and offered their valuable input. We hope that the unselfish commitment of their time results in more efficient means to acquire and pay for goods in the marketplace. Richard J. Palmer Southeast Missouri State University Mahendra Gupta Washington University in St. Louis 2015 Electronic Accounts Payable Benchmark Survey Results Preface 4

5 Table of Contents Below is a listing of the chapters included in this Report. Click on a chapter title to jump to that page. To return to the Table of Contents, click the link in the lower left corner of any page. Chapter Title Page # i Preface ii Table of Contents iii A Quick Guide to the Reports iv Executive Summary INTRODUCTION AND EAP SPENDING NORMS 01 Introduction, Definitions, and Description of Sample EAP Goals and Comparative Advantage EAP Spending Norms EAP Market Size and Spending Growth EAP Benefits EAP Growth Potential SUPPLIER RELATIONS 07 Connecting with Suppliers Supplier Acceptance: Drivers and Impact BEST PRACTICE 09 Best Practice: Spending, Goals, and Strategy Best Practice: EAP Purchase Behavior Best Practice: Advancing Supplier Acceptance Best Practice: Governance and Risk Management Best Practice: EAP Provider Relations Best Practice: Summary Best Practice: From the Customer s Perspective PROGRAM MANAGEMENT 16 Mechanics of EAP and Integration with Organizational Information Systems EAP Governance and Risk Management EAP and Plastic Purchasing Cards: Integration and Advancement Internal and External Fraud CONCLUSION, ACKNOWLEDGEMENTS, AND APPENDICES Conclusion Acknowledgements About the Authors Appendix A: Differences by Type of EAP Used Electronic Accounts Payable Benchmark Survey Results Table of Contents 5

6 A Quick Guide to the Reports The analysis of the 2015 Electronic Accounts Payable Benchmark Survey is broken into three separate reports to help the reader find the information they desire in the most expeditious manner. The three reports are entitled: Main Report: Market Trends and Best Practice Program Choices Report #2: Program Profiles by Organization Type and Size Report #3: The Provider s Role in EAP Program Success The content of the Main Report is the subject of this document. Information on where analyses may be found in the other reports is identified below. Report #2: Program Profiles by Organization Type and Size Title Chapter Introduction, Definitions, and Description of Sample 1 Program Performance: Fortune 500-Size, Large Market, and Middle Market 2-4 Corporations Program Performance: State and City/County Government Agencies 5-6 Program Performance: Colleges and Universities, School Districts, and Not-for- 7-9 Profit Organizations Program Performance: Small Organizations 10 Benchmark Statistics by Organization Type and Size App. A Benchmark Statistics by Industry App. B Report #3: The Provider s Role in EAP Program Success Title Chapter Introduction, Definitions, and Description of Sample 1 Trends in Customer Satisfaction: Economics 2 Trends in Customer Satisfaction: Customer Service and Support 3 Trends in Customer Satisfaction: Data Integration and Reporting 4 Customer Satisfaction and EAP Program Performance 5 Customer Satisfaction and Switching 6 EAP Acceptance by EAP Users Electronic Accounts Payable Benchmark Survey Results A Quick Guide to the Reports 6

7 Executive Summary In December 2014, a 40-page web-based 2015 Electronic Accounts Payable Benchmark Survey was released to 3,970 separate organizations that were customers of one of nineteen major providers (including Bank of America Merrill Lynch, BMO, Bank of the West, BBVA Compass, Citibank, Comdata, Comerica, Commerce Bank, Electronic Funds Source, Fifth Third Bank, J.P. Morgan Chase, PNC Bank, Scotiabank, SunTrust, UMB, U.S. Bank, Wells Fargo, WEX, and Zions Bank) or members of the National Association of Purchasing Card Professionals and the National Institute of Governmental Purchasing. Eight hundred and seventy responses were received, resulting in a response rate of 22%. All major EAP providing brands (American Express, MasterCard, and Visa) are represented in the survey response. Electronic Accounts Payable (hereafter EAP ) is a relatively new application of card technology for commercial use. This survey defined EAP as non-plastic p-card accounts used to pay for goods and services after an invoice has been received for those goods or services. For purposes of this survey, there are two models of EAP implementation---push payments and pull payments. Within the pull model, EAP has three major variations. Specifically, EAP can differ based on whether or not the virtual card number is constant or if the card number (and its associated credit line) is created specifically for a single transaction and then retired (e.g., a single-use account). Within the variation in which the card number is constant, a further distinction can be made regarding the identity of the party (buyer or seller) that will maintain possession of the card number. The second model of EAP implementation is referred to as straight-through, push, or buyer-initiated payments (BIP). This payment option entails a card account that the buying organization charges on behalf of the vendor, resulting in funds being deposited (pushed) directly into the vendor s bank account Electronic Accounts Payable Benchmark Survey Results Executive Summary 7

8 Introduction, Definitions, and Description of Sample Fifty-four percent of EAP-using survey respondents are Corporations, 15% are Not-for- Profit Organizations, 12% are City or County Governments, 9% are Colleges or Universities, 8% are school districts, and 2% are Federal or State Government Agencies. Twenty-nine percent of Corporations using EAP are Fortune 500-Size companies (annual sales revenue greater than or equal to $2 billion), 25% are Large Market companies (annual sales revenue greater than or equal to $500 million but less than $2 billion), 39% are Middle Market companies (annual sales revenue greater than or equal to $25 million but less than $500 million), and 7% are Small Market companies (annual sales revenue less than $25 million). Corporate respondents represent a wide range of industries. Respondents report, on average, they have been using EAP for (on average) three years and 4 months. Thirteen percent of respondent programs are less than one year old, 34% are between 1 and 2 years old, 24% are between 3 and 4 years old, and 29% are 5 or more years old. EAP Goals and Comparative Advantage Respondents report two primary goals for EAP use: financial incentives and a reduction in the number of checks. Other important goals relate to organizational control over spending and working capital float. Respondents prefer EAP to other payment options (checks, ACH, wire transfers) across a wide variety of payment criteria, including financial incentives for use, security of payment, the amount of information obtained about goods/services purchased, per-transaction charges, the quickness with which payment can be made, training requirements, the avoidance of credit checking activity, and the technology investment required. EAP is the also the preferred payment option when considering the ability of the organization to track supplier receipt of payment, transmit remittance information, control spending, and integrate with organizational software Electronic Accounts Payable Benchmark Survey Results Executive Summary 8

9 EAP Spending Norms Average monthly EAP spending is $2.5 million at the beginning of 2015, up from $1.1 million at the beginning of Average monthly EAP spending per employee is $258, up from $136 at the beginning of The average EAP transaction in 2015 is $4,842, up from $2,359 in Average monthly EAP spending grew from $1.1 to $2.5 million in the 3 years between 2012 and 2015 One half of all respondent organizations had used EAP to pay for a single purchase of a good or service in excess of $125,000 in the past year. One-quarter of the respondents had used EAP to pay for a single purchase of good or service of $400,964 or more in the past year. On average, EAP spending is equal to 58% of total purchasing card spending by the organization (including plastic, ghost, cardless, and EAP combined), up from 49% at the beginning of Organizations currently utilize EAP to pay for, on average, 17% of their transactions of $2,500 or less, 21% of their $2,501 to $10,000 transactions, 18% of their $10,001 to $100,000 transactions, and 8% of their $100,001 to $1 million transactions. Thirty-nine percent of respondents use only virtual cards, 20% use only single-use accounts, and 7% use only buyer-initiated payments. Of organizations that use more than one EAP model, 15% use a combination of virtual accounts and single-use accounts, 8% use a combination of virtual accounts and BIP, 4% use a combination of single-use accounts and BIP, and 7% report using all models of EAP. Respondents with multiple EAP options account for a higher percentage of total EAP spending. Specifically, organizations with multiple EAP options account for 34% of the response pool but 47% of EAP spending. In terms of dollars, respondents report that about 47% of EAP payments are for operating expenses (including operating goods and supplies, office equipment and supplies, and computer-related hardware and software) and about 22% for assets (primarily inventory). The remainder of EAP payments are spread across a wide variety of services (e.g., professional services, education and training, and contractual repair and maintenance) 2015 Electronic Accounts Payable Benchmark Survey Results Executive Summary 9

10 EAP Market Size and Growth The vast majority of respondents (71%) report growth in EAP spending over the past year. The percent reporting spending growth over the past year declines with the age of the program. EAP spending grew by 33% between 2014 and EAP spending ramps up quickly in comparison to plastic purchasing card spending, increasing from 57% of plastic spending for respondents with programs less than 1 year old to nearly double the level of plastic card spending by respondents that have used EAP for five or more years. The vast majority of respondents (72%) expect EAP spending to increase over the next five years. There are three dominant rationale for expected growth in EAP spending, including efforts to target vendors for payment by EAP, improvements in supplier acceptance of EAP payment, and efforts to target high-dollar transactions for EAP payment. EAP spending is expected to increase (over 2014-level spending) 13% in 2015, 39% by 2017, and 70% by EAP spending is estimated to be $65 billion at the end of 2014 and is expected to rise about 14% per year to $110 billion by EAP Spending in North America (in $ billions) 2015 Electronic Accounts Payable Benchmark Survey Results Executive Summary 10

11 EAP Benefits Sixty-one percent of respondents have a payment strategy which calls for the use of different payment methods (e.g., EAP, purchasing card, ACH, check, wire transfer) under different conditions. Sixty-three percent of respondents had fully implemented their EAP program in less than one year. On average, it takes thirteen months to full implementation. Respondents estimate the cost for traditional check payment method of invoice and payment processing to be $31. By contrast, respondents estimate the average cost of EAP invoice payment to be $9, yielding a $22 per-transaction cost savings when EAP is used. The date of the purchase, the timing of EAP payment by the buyer, the timing of the billing by the provider, and the grace period before payment is due combine to determine the amount of float for the EAP-using organization. Higher float enables an organization to extract greater returns and value on its working capital. On average, the EAP account is charged 21 days after the invoice is received from the vendor. The average grace period from billing cycle cut-off date to due date is 15.3 days. Overall, on average, 51 days of working capital float becomes available under EAP facilitated by invoice due dates, the time gap between payment by EAP and billing from the EAP provider (average daily credit balance) and the payment grace period. With average monthly EAP spending of $2.55 million, there is additional working capital of $4.3 million made available (or a reduction in working capital need by $4.3 millions) due to the use of EAP. Assuming that the organization can generate a 5% annual return on its working capital, a typical respondent with average monthly EAP spending of $2.55 million will yield, on average, about $216,755 of additional yearly cost savings (effectively a 0.7% saving on total annual purchases) due to the 51 days of working capital float facilitated by EAP. Eighty-five percent of respondents indicate that they had received a rebate associated with their EAP spending in the past year. Among organizations that are offered early payment discounts, more than half continue to receive that discount when the invoice is paid with EAP Electronic Accounts Payable Benchmark Survey Results Executive Summary 11

12 Organizations that received a rebate related to EAP spending are over 4 times larger and pay 10 times more invoices using EAP than organizations that did not receive an EAP-based rebate. Rebate receiving organizations (a) bought a wider array of goods and services, (b) paid a larger number of suppliers with EAP, (c) are more likely to have suppliers receiving a lower larger ticket interchange rate, and (d) are more satisfied with their EAP provider s Account Manager. 51 days Average working capital float benefit from EAP use EAP Growth Potential The use of EAP as a means to pay for most categories of goods and services increased between 2012 and Payment by EAP could grow by $61 billion if current EAP users were to capture a higher percentage (a top 20% level of capture in each category) of the goods and services they already buy with EAP. Total EAP spending could grow by another $145 billion if EAP-using organizations who currently do not buy within a given category begin to do so at the level of the current top 20% capture in each spending category. The potential for upward EAP spending varies by category, but the areas of operating goods and supplies ($34.7 billion), inventory ($28.4 billion), computers and software ($13 billion) are the most prominent and perceived to be the most likely to be achieved. Growth projections suggest EAP spending could equal or surpass plastic purchasing cards Growth projections of EAP indicate that spending on this platform could eventually equal or surpass the amount of spending on plastic cards. Connecting with Suppliers Ninety-one percent of respondents had engaged in an effort to enlist suppliers to accept EAP payment. Respondents indicate that in 2015 they paid about 183 suppliers with EAP, which comprised (on average) 17% of the organization s supplier base. Eighty-seven percent of respondents indicated that the number of suppliers paid by EAP had increased over the past two years (on average, by 21%) Electronic Accounts Payable Benchmark Survey Results Executive Summary 12

13 Sixty-one percent of organizations rely on their bank or EAP provider to conduct most of the key steps to encourage suppliers to accept EAP, while 36% handle the task within their own organization, and 3% engage the services of a third party. Twenty-four percent of respondents report that senior leadership reached out to suppliers about EAP acceptance. 87% Of respondents report the number of suppliers paid with EAP has increased over the past two years Thirty percent of respondents report that their organization motivates supplier EAP acceptance by altering payment terms, including shortening the time to payment when EAP is used. Sixty-eight percent of respondents have suppliers that receive a lower large ticket interchange rate. A small segment of respondents (7%) require EAP acceptance for new vendor contracts. Sixty-four percent of organizations regularly revisit the topic of EAP acceptance with suppliers who resist payment in this manner. Those that revisit the topic report increased EAP spending and greater supplier acceptance. Only 24% of respondents are satisfied or very satisfied with the current level of supplier acceptance, while another 46% are as yet neutral on the issue. Satisfaction with the level of supplier acceptance of EAP is clearly tied to the organization s satisfaction with its enlistment effort. Forty-four percent of respondents estimate that EAP spending would double if all suppliers that they desire to pay with EAP accepted payment in this manner. Collectively, if all suppliers that respondents desire to pay with EAP accepted payment in this manner then current spending of $65 billion per year would increase to $112 billion annually. Merchant fees (e.g., negotiated interchange rate) are the predominant reason for supplier reluctance to accept EAP. About 25% of respondents reported that they had at least one supplier assess a surcharge for EAP payment. However, the percentage of suppliers assessing a surcharge for EAP payment is very low---on average only 2% of EAP-accepting suppliers Electronic Accounts Payable Benchmark Survey Results Executive Summary 13

14 Supplier Acceptance: Drivers and Impact EAP spending is heavily affected by the level of supplier acceptance. Organizations that have a higher percentage of their supplier base accepting payment by EAP report (a) significantly higher EAP payments, (b) a wider array of goods and services paid for with EAP, and (c) a significantly higher percentage of transactions (of all dollar values) paid with EAP. Organizations that have a higher percentage of their supplier base accepting EAP payment are more likely to (a) identify suppliers for EAP payment based on their volume of activity with the suppliers, (b) frequently revisit the topic of EAP payment with suppliers who resist the EAP acceptance, (c) report that senior leadership reached out to suppliers about EAP payment, and (d) have a higher percentage of their supplier base receiving a lower large ticket interchange rate. Organizations with a higher percentage of their supplier base accepting EAP payment are more satisfied with the overall level of supplier acceptance, more likely to report that EAP spending increased over the past two years, and more likely to expect EAP spending to increase further over the next five years. 24% Of respondents are satisfied or very satisfied with the current level of supplier acceptance Best Practice: Spending, Goals, and Strategy Eighty-two percent of EAP spending was conducted by only 20% of the respondent base. We define best practice (BP) EAP programs as those that report at least one top quartile (and no bottom quartile) metric across five key performance measures, including (1) monthly EAP spending per employee, (2) EAP spending as a percent of annual sales revenue (or budget), (3) the percentage of under $2,500 transactions paid by EAP, (4) the percentage of $2,501 to $10,000 transactions paid by EAP, and (5), the percentage of $10,001 to $100,000 transactions paid by EAP. The actions, decisions, choices, and policies of this group define the core of best practices and are compared against needs improvement (NI) programs of similar size (based on employee count). A NI EAP program has at least one of the five performance metrics in the bottom quartile (and none in the top quartile). Organizations with BP programs report nearly seven times higher average monthly EAP spending ($3.5 million versus $469,615) compared to NI programs. BP programs report an average EAP transaction amount that is 27% higher than the NI group ($5,463 versus $4,306) Electronic Accounts Payable Benchmark Survey Results Executive Summary 14

15 EAP spending per employee in the BP group is $555 per month, but only $72 among NI counterparts The vast majority of both BP and NI organizations use plastic purchasing cards, reflecting the market s embrace of a card technology toolkit with multiple options to address different payment needs. Best Practice Programs are more likely to use multiple EAP options A higher percentage of the BP group has a payment strategy which calls for the use of different payment methods (check, ACH, EAP, p-card) under different conditions. BP programs are more likely than NI counterparts to use more than one type of EAP option (virtual cards, single-use accounts, and buyer-initiated payments). Best Practice: EAP Purchase Behavior BP organizations are more likely than their NI counterparts to use EAP to pay for inventory (61% versus 37%), infrastructure (29% versus 11%), construction materials and capital assets (39% versus 21%), operating goods and supplies (79% versus 61%), and office equipment and supplies (71% versus 66%). BP organizations are more likely than their NI counterparts to use EAP to pay for services, including transportation and delivery (36% versus 24%), education and training (43% versus 26%), media and advertising (39% versus 29%), insurance (18% versus 5%), mail delivery (25% versus 8%), lease and rental payments (36% versus 13%), temporary help (29% versus 11%), and printing and duplicating (39% versus 24%). Best Practice: Advancing Supplier Acceptance BP EAP programs are significantly more likely than their NI counterparts (95% versus 80%, respectively) to have engaged in an effort to enlist suppliers for EAP acceptance. Best Practice Programs almost always engage in an effort to enlist supplier acceptance of EAP BP EAP programs are more likely than NI counterparts to have had members of their organization conduct most of the key steps to encourage suppliers to accept EAP and less likely to have had that responsibility delegated to their bank, EAP provider, or a third party. BP EAP programs are significantly more likely than NI counterparts (34% versus 21%, respectively) to have had senior leadership reach out to suppliers regarding EAP acceptance Electronic Accounts Payable Benchmark Survey Results Executive Summary 15

16 Seventy-seven percent of BP EAP programs report that their supplier(s) receive a lower large ticket interchange rate (as opposed to 55% among NI organizations). BP EAP programs pay significantly more suppliers with EAP than their NI counterparts. On average, 21% of the BP supplier base is currently paid with EAP. By contrast, only 9% of the NI supplier base is currently paid with EAP. Best Practice Programs are more likely to report senior leadership reached out to suppliers about EAP acceptance Compared to BP programs, NI EAP programs are significantly more dissatisfied (30% versus 17%) or very dissatisfied (10% versus 3%) with the current level of supplier acceptance. Best Practice: Governance and Risk Management BP EAP-using organizations support greater commitment for EAP administration, with the average EAP administrator role being closer to a full-time commitment. BP EAP-using organizations are more likely than NI counterparts to support administrator attendance at user conferences to identify new ways to expand EAP spending and have an ongoing method of communicating information about the EAP program to the organization. BP organizations are more likely than NI counterparts to perceive EAP spending to be less susceptible to fraud than other payment methods, an outcome influenced by either issuerprovided insurance for fraudulent EAP use or per-transaction limits attached to EAP transactions, both of which are more likely at BP organizations. Best Practice: EAP Provider Relations Seventy-one percent of BP organizations have weekly or monthly contact (via phone call, site visit, , etc.) with their Account Manager. By contrast, only 40% of NI programs report a similar frequency of contact with their Account Manager. The BP group is significantly more likely to be very satisfied with their Account Manager (46% versus 23%). Best Practice Programs have a more active relationship with their provider s Account Manager The BP group is significantly more satisfied with provider service and support in EAP implementation, assistance in getting suppliers to accept EAP payment, and sponsorship of user conferences or other training programs Electronic Accounts Payable Benchmark Survey Results Executive Summary 16

17 Best Practice: Summary The philosophies and actions that separate BP from others include (1) leadership and strategy, (2) understanding of and focus on EAP benefits, (3) program management and control, (4) program policy choices, (5) supplier relations and acceptance of EAP payment, (6) use of expanded EAP toolkit, (7) provider selection, and (8) training and communications. Mechanics of EAP and Integration with Organizational Information Systems Most respondents transmit the EAP card number via secure (63%), followed by traditional (18%), fax/phone (9%), posting to a shared web portal (7%), or some combination of methods (3%). Thirty-two percent of respondents report complete auto-reconciliation of EAP payments to internal records and 26% report that they manually reconcile a small (less than 10%) percentage of their transactions. The most common reasons that EAP transactions are not automatically reconciled to organizational records are: (1) the vendor can charge a different price than anticipated, (2) the vendor refunds returned goods to the card number, (3) audit verification requirements, (4) internal systems limitations, (5) the vendor charges for shipping costs unknown at time of purchase, and (6) a low volume of activity. The majority (60%) of respondents report that data integration is important or very important to the growth of EAP spending. Further, 59% report that their EAP spending is completely or significantly integrated with their organizational accounting/erp system. EAP Governance and Risk Management Seventy-two percent of respondents report members of their organization being most responsible for setting up and implementing an EAP payment program. A smaller group of respondents report that their bank or EAP provider (25%) or a third party service provider (3%) is the party most responsible for EAP set-up and implementation. 61% Of respondents have a payment strategy which calls for the use of different payment methods under different conditions Sixty-one percent of survey respondents have a payment strategy which calls for use of different payment methods under different conditions. Within that strategy, Accounts Payable is most commonly charged with making the decision on when to use EAP Electronic Accounts Payable Benchmark Survey Results Executive Summary 17

18 Sixty-two percent of respondents formally review and audit the EAP spending approval process, 44% have issuer-provided insurance related to fraudulent EAP use, and 43% establish per-transaction limits on EAP transactions. When per-transaction limits are in place, the average limit is $23,000. EAP and Plastic Purchasing Cards: Integration and Advancement Eighty-nine percent of EAP-using organizations also use plastic purchasing cards. Sixty-eight percent of respondents state that EAP purchase are different from purchases made with plastic cards, a figure similar to that reported in 2014 and The most commonly cited differences between plastic card and EAP purchases is that EAP purchases are for a higher dollar amount (58%), from vendors with whom the organization conducts a high number of transactions (56%), for transactions that require additional approvals/controls prior to payment (51%), or for goods and services which are not allowed to be paid for by plastic purchasing cards (50%). Three-quarters of respondents assess that their EAP spending has had little or no impact on plastic purchasing card spending, a figure little changed from The majority of EAP-using organizations with plastic purchasing cards report above median level of spending on plastic purchasing cards (based on the data in our 2014 Purchasing Card Benchmark Survey Results). A comparison of similar-size organizations that only use plastic cards with organizations that additionally use EAP revealed that EAP-adopters engage in 12% less total average monthly spending on plastic cards ($1.4 versus $1.6 million). However, this is more than offset by $2.4 million in average monthly EAP spending, yielding a 140% overall improvement in combined spending on plastic and EAP. 75% Of respondents report EAP has had little or no impact on plastic purchasing card spending On the basis of a longitudinal analysis of fifty organizations before and after they adopted EAP, we found that plastic purchasing card programs at organizations that adopt EAP generally continue do well, particularly in organizations that maintain or increase the number of plastic cards available to employees. Ninety-six percent of respondents think EAP to be similarly, less, or significantly less prone to fraud or misuse than plastic cards Electronic Accounts Payable Benchmark Survey Results Executive Summary 18

19 Internal and External Fraud For purposes of this survey, fraud occurs when any unauthorized user charges goods or services to an EAP account. Fraud is broken down into two types: (a) external fraud-- defined as purchases by a third party who is not a member of the organization (such as an internet hacker or an unscrupulous merchant), and (b) internal fraud--defined as personal purchases by an employee who is not authorized to charge to the EAP account. The losses associated with internal and external fraud are relatively insignificant, accounting for % of EAP spending, or 0.05 basis points, which is the equivalent of $5 of fraud loss to the organization for every $1 million of EAP spending. Losses due to internal and external fraud as a percentage of EAP spending are very small in both the Corporate (0.0004%) and Government and Not-for-Profit (0.0008%) segments. Sixty-seven percent of EAP fraud incidents resulted in no reported loss to the organization. Moreover, the bulk of fraudulent EAP spending is concentrated in a very small percentage of organizations. In comparison to other payment methods, 65% (34%) of all respondents believe that EAP use is associated with significantly lower (similar) likelihood of fraudulent spending. Only 1% of respondents believe EAP to be associated with a higher likelihood of fraud. Concluding Thoughts In summary, this Report provides evidence of the rapid rise of EAP as a commercial payment tool and the value it is providing in the North American market. The report indicates that there is significant growth potential for EAP. Its impact on payment practices by those organizations that have adopted EAP has been extraordinary. Yet, for EAP to reach its potential EAP-using organizations and EAP providers must continue to push for greater supplier acceptance of EAP. Finally, please note that the Executive Summary points above are from the Main Report (Market Trends and Best Practice Program Choices) of the 2015 Electronic Accounts Payable Benchmark Survey Results. There are two other reports that complement the Main Report, to wit: EAP Program Profiles by Organization Type and Size and The Provider s Role in EAP Program Success. The former report provides benchmark data to evaluate EAP program statistics, broken down within corporate and Government and Not-for-Profit sectors. The latter report is an examination of customer satisfaction with and the importance of card provider activities (across economic, service and support, reporting, and data integration factors) and their influence on EAP program performance Electronic Accounts Payable Benchmark Survey Results Executive Summary 19

20 Chapter 1 Introduction, Definitions, and Description of Sample In December 2014, a 40-page web-based 2015 Electronic Accounts Payable Benchmark Survey was delivered to 3,970 separate organizations that were customers of one of nineteen major providers (including Bank of America Merrill Lynch, BMO, Bank of the West, BBVA Compass, Citibank, Comdata, Comerica, Commerce Bank, Electronic Funds Source, Fifth Third Bank, J.P. Morgan Chase, PNC Bank, Scotiabank, SunTrust, UMB, U.S. Bank, Wells Fargo, WEX, and Zions Bank. Additionally, two organizations (the National Association of Purchasing Card Professionals and the National Institute of Governmental Purchasing) apprised their members of survey availability. Eight hundred and seventy responses were received, resulting in a response rate of 22%. 1 All major EAP providing brands (American Express, MasterCard, and Visa) are represented in the survey response. 1 Occasionally, respondents may have given an incomplete response resulting in a different number of responses for different questions. Throughout this report, our analysis of any given question will be based on usable responses to each question. In addition, we have purged unusual outlier responses to specific questionnaire items when appropriate to facilitate a meaningful understanding of the data and made minor adjustments to 2012 data to match 2015 sample composition. Introduction, Definitions, 2015 Electronic Accounts Payable Benchmark Survey Results and Description of Sample 20

21 Defining Electronic Accounts Payable Electronic Accounts Payable (hereafter EAP ) is a relatively new application of card technology for commercial use. This survey defined EAP as non-plastic p-card accounts used to pay for goods and services after an invoice has been received for those goods or services. The essence of the EAP is a dynamically-adjustable account, meaning that the available credit on a card account is adjusted to match a specific transaction to be charged to a card number. Hence, after the transaction is completed the available line of credit on the card is of little or no value. As shown in Exhibit 1, there are two models of EAP program, which we describe as push and pull payment models. The pull model is so named because suppliers are required to input transaction data in order to pull the transaction through to its conclusion. Within the pull model, EAP has three major variations. Specifically, EAP can differ based on whether or not the virtual card number is constant or if the card number (and its associated credit line) is created specifically for a single transaction and then retired (e.g., a single-use account). Within the variation in which the card number is constant, a further distinction can be made regarding the identity of the party (buyer or seller) that will maintain possession of the card number. Buyers and sellers tend to have preferences about where the card number is housed. In some cases, buyers prefer the seller to house the card number so that it does not have to be communicated with every purchase. In other cases, sellers do not want to house the number and take on the associated responsibility for its security. The second model of EAP program is referred to as straight-through, push, or buyer-initiated payments (BIP). This payment option entails a card account that the buying organization charges on behalf of the vendor, resulting in funds being deposited (pushed) directly into the vendor s bank account. Chapter 3 will address the definitions and use of different types of EAP accounts in greater detail. Exhibit 1: EAP Models and Variations Introduction, Definitions, 2015 Electronic Accounts Payable Benchmark Survey Results and Description of Sample 21

22 Respondent Profile Exhibit 2 shows a breakdown of survey respondents by organizational type: 33% are Privately- Owned Corporations, 21% are Public Corporations, 15% are Not-for-Profit Organizations, 12% are City or County Governments, 9% are Colleges or Universities, 8% are School Districts, and 2% are Federal or State Government Agencies. Exhibit 2: Respondents by Organizational Type Exhibit 3 on the next page separates public and private corporations (which represent 54% of the total sample response as shown in Exhibit 2) into four size categories: 29% are Fortune 500-Size companies (annual sales revenue greater than or equal to $2 billion), 25% are Large Market companies (annual sales revenue greater than or equal to $500 million, but less than $2 billion), 39% are Middle Market companies (annual sales revenue greater than or equal to $25 million, but less than $500 million) and 7% are Small Market companies (annual sales revenue of less than $25 million). To minimize any potential for distortion due to the presence of smaller organizations in the sample, hereafter all figures and exhibits in this Report exclude Small Market corporations and government and not-for-profit entities with annual budgets below $25 million. Information about EAP use at these organizations is discussed in the Program Performance: Small Organizations chapter of Report 2 (Program Profiles by Organization Type and Size). Introduction, Definitions, 2015 Electronic Accounts Payable Benchmark Survey Results and Description of Sample 22

23 Exhibit 3: Corporate Respondents by Size Fortune 500-Size Large Market Middle Market Small Market 29% 25% 39% 7% F o r t u n e 500 Corporate respondents represent a wide range of industries. Exhibit 4 breaks down the corporate respondents by industry using Standard Industrial Classification (SIC) codes. The Exhibit shows that the response pool is well-distributed across different industries. Manufacturing is the largest single industry segment (29%). No single SIC code within manufacturing dominates this category. Exhibit 4: Corporate Respondents by Industry Introduction, Definitions, 2015 Electronic Accounts Payable Benchmark Survey Results and Description of Sample 23

24 The sample composition is reflective of an emerging technology, with respondents reporting that they have been using EAP for (on average) three years and 4 months. Exhibit 5 breaks down the respondent base by the length of time that an EAP program has been in place. The Exhibit shows that 13% of respondent programs are less than one year old, 34% are between 1 and 2 years old, 24% are between 3 and 4 years old, and 29% are 5 or more years old. Exhibit 5: Age of EAP Program Connection to 2012 and 2014 Reports Throughout this report, we will selectively make comparative references to two previous RPMG Research Corporation reports--the 2012 Electronic Accounts Payable (EAP) Benchmark Survey Results and the 2014 Purchasing Card Benchmark Survey Results. 2 The 2012 EAP Benchmark Survey Results were obtained from a survey targeted to EAP and purchasing card users; the 2014 Purchasing Card Benchmark Survey inquired about EAP use in a survey primarily targeted at organizations that used plastic purchasing cards. In our 2014 Purchasing Card Benchmark Survey Results, we reported that EAP spending accounted for 20% of total purchasing card spending (inclusive of spending on ghost accounts, cardless accounts, plastic cards, and EAP) of $245 billion, or about $49 billion. Further, based on survey responses, we estimate that about 29% of purchasing card-using organizations have adopted EAP. The purpose of our current report is to gain further insight into the nature of EAP spending and to identify and understand current market trends on the use of EAP. Conclusion A broad spectrum of organizations is represented in the final sample for analyses of EAP use in both Corporate and Government and Not-for-Profit segments. Though most EAP programs are relatively new, the respondent pool includes a diverse range of experience with EAP. Finally, respondent use of different EAP models creates an opportunity to gain additional insight into the diversity of use of this payment technology. 2 Copies of these previous studies are available at Introduction, Definitions, 2015 Electronic Accounts Payable Benchmark Survey Results and Description of Sample 24

25 Chapter 2 EAP Goals and Comparative Advantage Before we analyze the spending and management of EAP accounts, we begin with the goals that respondent organizations have for their EAP programs and a comparison of the perceived benefits of EAP as compared to other payment mechanisms. Respondent Goals for EAP Exhibit 6 presents a rating of the importance respondents place on various financial, process, and control aspects of EAP technology. All ratings are on a 5-point scale of importance, where 1 is unimportant and 5 is very important. Overall, the Exhibit shows two preeminent goals for EAP, to wit: (a) maximize rebates and incentives (4.56) and (b) reduce the number of checks written (4.45). These two goals are similar to the two primary EAP goals in 2012 (obtain rebate and incentives for the organization and reduce reliance on checks). Improve Process Efficiency Respondents assign high importance to all the goals relating to process efficiency. Thus, Exhibit 6 shows that three of the four most important EAP goals are to (a) reduce the number of checks written (4.45), (b) increase organizational efficiency associated with payment to suppliers (4.05), and (c) simplify the process for paying suppliers (4.02). EAP Goals and 2015 Electronic Accounts Payable Benchmark Survey Results Comparative Advantage 25

26 Improve Control and Transparency Respondents assign significant importance to two goals relating to transparency of and control over EAP spending, including the improved tracking of payments to suppliers (e.g., no checks lost in the mail) (3.77) and the reduced potential for waste, fraud, and misuse (3.73). Other goals of relatively lower importance associated with greater transparency of and control over spending include obtaining data that is not consistently provided with plastic cards (3.08) and improved compliance with contractual terms (e.g., identifying discounts to be received if spending rises above a threshold) (2.93). Generating Financial Benefit Financial benefits of EAP receive significant attention in the marketplace. And, as noted above, respondents consider the maximization of rebates and incentives as the most important goal for their EAP programs. Another significant financial goal of respondent organizations for their EAP programs is the improvement in cash flow by extending time to payment (3.51). Other financial benefits of relatively lower importance are avoiding late fees by faster (EAP) payment (3.07), obtaining discounts by faster payment (3.00), consolidating spending data across different business units to support discount discussions (2.91), and reducing currency exchange costs associated with purchasing goods and services from vendors outside of North America (1.71). Expanding Payment Options Exhibit 6 also shows that the ability to create a new payment option within a larger payment strategy for the supplier base (3.85) is of significant importance to EAP users. The EAP option also supports other benefits, including the ability to purchase goods and services that the organization would not buy with plastic purchasing cards (2.65) or purchase goods and services of higher dollar value (2.56). The relatively low emphasis placed by respondents on the ability of EAP to extend the reach of card-based payments represents an important opportunity of education and awareness in the market. Yet, as will be shown in Chapter 18 of this Report, 68% of respondents use EAP to purchase goods and services that are different from plastic card purchases (a figure up from 65% in 2012). The purchases are different most frequently in that they are of a higher dollar value. Furthermore, 75% of current respondents report that their EAP spending has had little or no impact on plastic purchasing card spending (a figure that is similar to survey responses since 2009). Purchasing goods and services of higher dollar value is a defining element of EAP programs. As will be shown in Chapter 3, the current average EAP transaction amount is $4,842, a figure that is over 15 times higher than the average plastic purchasing card transaction (of $321) and about twice as high as the average per-transaction spending limit for plastic purchasing card transactions ($2,460) as reported in our 2014 Purchasing Card Benchmark Survey Results. EAP Goals and 2015 Electronic Accounts Payable Benchmark Survey Results Comparative Advantage 26

27 Exhibit 6: EAP Program Goals EAP Goals and 2015 Electronic Accounts Payable Benchmark Survey Results Comparative Advantage 27

28 Comparing EAP to Traditional Payment Methods Exhibits 7(a) and 7(b) present the comparative value of EAP over traditional methods with respect to general payment characteristics. The Exhibits present the payment method selected by the highest percentage of respondents as the payment method most preferred to address specific payment criteria (Exhibit 7(a)) or to enable the organization to manage and control spending (Exhibit 7(b)). Exhibit 7(a) shows EAP is the most preferred of four payment options (EAP, checks, ACH, and wire transfers) when considering: incentives/rebates for use (with 81% identifying EAP as the most preferred payment method), the amount of information obtained about goods/services purchased (59%), the security of payment (53%), the likelihood of an error, correction, of rework to complete payment (52%), per-transaction charges (cost) (49%), the quickness with which payment can be made (48%), the avoidance of credit checking activity (43%), training requirements (43%), and technology investment required (38%). The preference for EAP with respect to incentives and rebates reflects the large impact that higher dollar spending has on provider incentive structures. And, while other payment methods may be subject to explicit transaction fees paid by the buyer, EAP has no such charges. Further, respondents most frequently prefer the technology of EAP when considering security, training, and investment requirements. Preferred payment methods are different when other payment criteria are considered. ACH, for example, is the most preferred when considering supplier preferences (48%) and bank fees (44%). 3 Checks are the most preferred option when considering the ease of setting up suppliers for transactions (45%), acceptance in North America (39%), and the ease with which refunds/returns can be processed (49%). Finally, wire transfers are the most preferred option with respect to global acceptance (45%). 3 EAP fees, including one-time implementation fees, fees for not meeting certain minimum spending thresholds, reporting fees, services fees, and per transaction fees, were second most preferred among the options. EAP Goals and 2015 Electronic Accounts Payable Benchmark Survey Results Comparative Advantage 28

29 Exhibit 7(a): Most Preferred Option Based on Criteria for Payment EAP Goals and 2015 Electronic Accounts Payable Benchmark Survey Results Comparative Advantage 29

30 Comparing EAP to Other Methods: Control and Compliance Organizations have been under intense pressure in the last decade to exercise greater control over their financial activities. Tighter control would include the buyer s ability to transmit remittance information and track supplier receipt of payment, integrate payment data with organizational software, control the timing of payment, and resolve disputes over payment. Exhibit 7(b) shows that EAP is the most preferred of four payment options when considering the ability of the organization to: track supplier receipt of payment (57%), transmit remittance information (48%), control spending (48%), and integrate with organizational software (40%). An advantage of EAP is the buyer s ability to identify when and where the payment was made to the supplier, thus reducing time spent answering questions about payment status or canceling and reissuing lost checks. Further, EAP solutions enable a supplier to either access a portal for the retrieval of remittance advice information or provide for the transmission of such information via other formats such as or fax. The integration of EAP with organizational software has been less problematic than other payment tools, an advantage born of the fact that traditional payment processes and technology are largely unchanged by EAP. By contrast, ACH was identified most frequently as the most preferred when considering the organization s ability to control the timing of settlement (44%). Finally, check payment was selected as most preferred with respect to resolving disputes about payment (44%). EAP Goals and 2015 Electronic Accounts Payable Benchmark Survey Results Comparative Advantage 30

31 Exhibit 7(b): Most Preferred Option Based on Enablement of Organizational Ability to Arguably the high degree of respondent preference for EAP in Exhibits 7(a) and 7(b) could be expected from a sample of organizations that has already committed to its use. Notwithstanding, we believe that respondents recognize their preference for other payment options in relation to selected payment criteria and with respect to the ability to control the timing of settlement or resolution of payment disputes. Conclusion Respondents report two primary goals for EAP use: financial incentives and a reduction in the number of checks. Other important goals relate to organizational control over spending and working capital float. Respondents prefer EAP to other payment options (checks, ACH, wire transfers) across a wide variety of payment criteria, including financial incentives for use, security of payment, the amount of information obtained about goods/services purchased, per-transaction charges, the quickness with which payment can be made, training requirements, the avoidance of credit checking activity, and technology investment required. EAP is the also the preferred payment option when considering the ability of the organization to track supplier receipt of payment, transmit remittance information, control spending, and integrate with organizational software. EAP Goals and 2015 Electronic Accounts Payable Benchmark Survey Results Comparative Advantage 31

32 Chapter 3 EAP Spending Norms The purpose of this chapter is to examine current Electronic Accounts Payable (EAP) spending practices and benchmark data. In particular, the chapter examines (a) monthly EAP spending norms and the percentage of transactions currently paid with EAP, (b) the percentage of respondents using, as well as the percentage of EAP spending and transactions conducted on, various modes of EAP payment (e.g., single-use, virtual, BIP), (c) the average ticket for EAP transactions, (d) the typical highest amount paid by respondents in an EAP transaction, and (e) a breakdown of EAP spending by category of purchase Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 32

33 EAP Spending Norms Exhibit 8 presents EAP spending norms for all respondents to the 2015 EAP Benchmark Survey. The Exhibit shows that average monthly EAP spending is $2,550,063 at the beginning of 2015, up from $1,070,751 at the beginning of 2012 (the year of our first survey dedicated to EAP use). Likewise, median monthly spending at the beginning of 2015 is $550,000, up from $168,750 at the beginning of The difference in the average spending over that three-year period (a 138% cumulative increase) would represent, on average, a 46% increase per year over the past three years. The reasons for the spending growth are discussed in more detail later in this report, including increased buyer and supplier acceptance, the targeting of vendors for EAP payment, the relative advantages of EAP over other payment methods (as shown in Chapter 2) and a quick ramp-up of EAP spending commonly observed during the early years after adoption. The Exhibit indicates that the average EAP transaction at the beginning of 2015 is $4,842, up from $2,359 in Average monthly EAP spending per employee is $258, up from $136 in Further, on average, EAP spending is equal to 58% of total purchasing card spending by the organization (including plastic, ghost, cardless, and EAP combined), up from 49% at the beginning of Finally, Exhibit 8 shows that organizations currently utilize EAP to pay for, on average, 17% of their transactions of $2,500 or less, 21% of their $2,501 to $10,000 transactions, 18% of their $10,001 to $100,000 transactions, and 8% of their $100,001 to $1 million transactions. These figures represent an improvement in the capture of transactions under $2,500 (from 14% in 2012 to 17% in 2015), between $2,500 and $10,000 (from 18% in 2012 to 21% in 2015), and between $10,001 to $100,000 transactions (from 17% in 2012 to 18% in 2015). The 2015 EAP Benchmark Survey response also indicates that 8% of transactions between $100,001 and $1 million were paid with EAP (a data point not collected in previous surveys). Monthly spending norms by size of corporation or type of Governmental or Not-for-Profit entity will be shown in the companion report to this study entitled, Program Profiles by Organization Type and Size Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 33

34 Exhibit 8: Organizational and EAP Monthly Spending Statistics, 2012 and 2015 (all numbers are averages unless otherwise noted) As of Beginning of Year Organizational Statistics Number of employees 7,868 9,889 Age of program (in years) EAP Spending Metrics Average monthly EAP spending $1,070,751 $2,550,063 Median monthly EAP spending $168,750 $550,000 Monthly spending per employee $136 $258 Spending per-transaction $2,359 $4,842 Percent of total purchasing card spending on EAP 49% 58% Percent of Transactions Paid with EAP Transactions of $2,500 or less 14% 17% Transactions between $2,501 and $10,000 18% 21% Transactions between $10,001 and $100,000 17% 18% Transactions between $100,001 and $1 million N/A 8% Respondent Use of Different EAP Models The first Chapter of this report described two models of EAP implementation (push and pull payments). Within the virtual card variation of the pull model, we noted that when cards numbers are not rotated the maintenance of and responsibility for the card number could be located with either the buyer or seller. Consequently, our survey asked respondents about their use of different models of EAP implementation, described as: Virtual accounts maintained by the supplier-- Account number assigned to a specific supplier and held in trust by that supplier, who charges the account to receive payment for approved invoices. Virtual accounts maintained by the buyer-- Account number is assigned to a specific supplier, but not held in trust by that supplier. The account number is transmitted to and charged by the supplier at time of payment. Single-use or a rotating pool of accounts (SUA)--In this arrangement, a randomly generated account number is transmitted to and charged by the supplier at the time of payment Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 34

35 Respondents could also indicate their use of straight-through, buyer-initiated payment (BIP), or push payment, option. The BIP option entails a card account that the buying organization charges on behalf of the vendor, resulting in funds being deposited in the vendor s bank account. This method is the only one in which no action is required on the part of the supplier (other than agreeing to card payment terms) to be paid via card. Exhibit 9 breaks down the respondent base by the type of EAP model(s) used, showing that 39% of respondents use only virtual cards, 4 20% use only single-use accounts, and 7% use only buyer-initiated payments. Of organizations that use more than one EAP model, 15% use a combination of virtual accounts and single-use accounts, 8% use a combination of virtual accounts and BIP, 4% use a combination of single-use accounts and BIP, and 7% report using all models of EAP. Exhibit 9: Electronic Accounts Payable Models in Use 4 Twenty percent of respondents only use virtual accounts maintained by the supplier, 11% of respondents only use virtual accounts maintained by the buyer, and 8% use a combination of virtual accounts (maintained by both buyer and seller). We combine these different uses of virtual accounts for analysis Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 35

36 Exhibit 10 connects the percentage of respondents that use a particular configuration of EAP payment options with the percentage of transactions paid with that configuration. The Exhibit shows that: 39% of respondents use only virtual accounts (either maintained by the supplier, the buyer, or both), accounting for 32% of total EAP spending, 28% of total EAP transactions, and an average transaction amount of $5,025, 20% of respondents use only single-use accounts, accounting for 13% of total EAP spending, 9% of total EAP transactions, and an average transaction amount of $5,892, 7% of respondents use only BIP, accounting for 8% of total EAP spending, 4% of total EAP transactions, and an average transaction amount of $8,416, 15% of respondents use a combination of virtual and single-use accounts, accounting for 18% of total EAP spending, 25% of total EAP transactions, and an average transaction amount of $3,125, 8% of respondents use a combination of virtual accounts and buyer-initiated payments, accounting for 13% of total EAP spending, 18% of total EAP transactions, and an average transaction amount of $3,230, 4% of respondents use a combination of single-use accounts and buyer-initiated payments, accounting for 3% of total EAP spending, 3% of total EAP transactions, and an average transaction amount of $3,979, and 7% of respondents use a combination of virtual accounts, single-use accounts, and buyer-initiated payments, accounting for 13% of total EAP spending, 13% of total EAP transactions, and an average transaction amount of $4,460. Thus, across all respondents, virtual accounts (either alone or in combination with other accounts) are in use at 69% of respondent organizations, single-use accounts are in use at 46% of respondent organizations, and buyer-initiated payments are in use at 26% of respondent organizations. And, it appears that respondents with multiple EAP options account for a higher percentage of spending in comparison to their proportionate use of EAP. In other words, respondents using one type of EAP account collectively represent 66% of the response but 53% of total EAP spending. Contrariwise, organizations with multiple EAP options account for 34% of the response pool but 47% of total EAP spending Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 36

37 Exhibit 10: Average Transaction Amount, the Percentage of Respondents Using, and Spending and Transactions by Configuration of EAP EAP Configuration % of Respondents Using Percentage of Total EAP Spending Percentage of Total EAP Transactions Average Transaction Amount Virtual accounts* 39% 32% 28% $5,025 Single-use account only 20% 13% 9% $5,892 Buyer-initiated payment only 7% 8% 4% $8,416 Combination of virtual account(s) and single-use accounts 15% 18% 25% $3,125 Combination of virtual account(s) and buyerinitiated payments 8% 13% 18% $3,230 Combination of single-use and buyer-initiated payments 4% 3% 3% $3,979 Combination of all payment models 7% 13% 13% $4,460 * Virtual accounts may be maintained by the supplier only, maintained by the buyer only, or a combination of the two. Organizations with multiple EAP options are outperforming their single EAP option counterparts Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 37

38 Dollar Value of EAP Transactions In Exhibit 8 of this chapter, we identified the average EAP transaction amount as $4,842. Exhibit 11 breaks down the percentage of EAP transactions paid by varying dollar amounts. The Exhibit shows that, on average, 47.4% of a respondent s EAP transactions are for $2,500 or less, 19.8% are between $2,501 and $5,000, 15.2% are between $5,001 and $10,000, 14.3% are between $10,001 and $100,000, and 3.3% are over $100,000. Exhibit 11: Dollar Amount of EAP Transactions As discussed later in this report, many organizations opt to increase the dollar value of payment activity with EAP. Exhibit 12 on the next page shows the highest transaction amount in the past year as provided by respondents, broken down by the high, median, and top and bottom quartile figures. The Exhibit shows that one-half of all respondents had used EAP to pay for a single purchase of a good or service in excess of $125,000 in the past year; one-quarter of respondents had used EAP to pay for a single purchase of a good or service of $400,964 or more in the past year. The largest single purchase among survey respondents in the past year was for $2,500,000. The Exhibit points to both penetration of EAP into higher dollar categories than a plastic purchasing card and a significant opportunity to expand the use of EAP for payment of much higher ticket purchases Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 38

39 Exhibit 12: Highest Dollar Value of EAP Transactions in Past Year 2015 Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 39

40 Capture of Transactions Exhibit 13 on the next page presents the percentage of transactions (of varying dollar amounts) currently paid with EAP, other card accounts, checks, ACH, and wire transfers. The bottom of the Exhibit shows that, on average, 17% of transactions of $2,500 or less, 21% of transactions between $2,501 and $10,000, 18% of transactions between $10,001 and $100,000, and 8% of transactions between $100,001 and $1 million are paid with EAP by the response group. The percentage of transactions paid with other cards decreases as the dollar amount of the transaction increases; hence, other cards are used to pay for 27% of transactions of $2,500 or less, 13% of $2,501 to $10,000 transactions, 6% of $10,001 to $100,000 transactions, and 3% of $100,001 to $1 million transactions. By contrast, the percentage of transactions paid by check, ACH, and wire transfer increase as the dollar value of the transaction increases. Thus, checks, ACH, and wire transfers account for 41%, 13%, and 2% of transactions of $2,500 or less, respectively, but account for 55%, 24% and 10% of transactions between $100,001 and $1 million, respectively. Evaluating Capture of Low Value Transactions. In reviewing Exhibit 13 it is important to note that 11% of respondents to the 2015 EAP Benchmark Survey do not have plastic cards at all. Further, of those respondents that have plastic cards, the percentage of employees given plastic cards (9.2%) is lower than that of a typical purchasing card program (which is 11.4%, as per the 2014 Purchasing Card Benchmark Survey Results). Consequently, the percentage of under $2,500 transactions paid with EAP and other cards (44%) in Exhibit 13 is lower than the combined purchasing card capture (including plastic, EAP, cardless, and ghost accounts) reported in the 2014 Purchasing Card Benchmark Survey Results (53%). 5 Our data illustrates an opportunity to increase capture of low-dollar transactions by introducing purchasing cards to EAP customers that do not use them and encouraging a wider distribution of cards throughout the employee base. Contrariwise, the percentage of $2,501 to $10,000 transactions paid with EAP and other cards (34%) is higher than that reported in the 2014 Results (32%). Evaluating Capture of Higher Value Transactions. The use of EAP continues to increase for higher value transactions. Specifically, our 2014 Purchasing Card Benchmark Survey reported that 13% of all $10,001 to $100,000 transactions were paid with card technology (plastic, ghost, cardless, or EAP). Our 2015 EAP Benchmark Survey shows that the needle is higher for EAP-using organizations, with respondents reporting an average capture of 24% of $10,001 to 100,000 transactions, with the bulk of those transactions (18%) directed to EAP. Likewise, 11% of transactions from $100,001 to $1 million are paid with EAP or other cards, with most (8%) being paid with EAP. 5 In addition, only 18% of the 2014 Purchasing Card Benchmark Survey response used EAP, but 99% respondents used plastic cards. Consequently, the capture of low dollar purchases on other cards in the 2014 survey is naturally higher than that reported here for the 2015 EAP Benchmark Survey response Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 40

41 Exhibit 13: Percentage of Transactions Paid by Payment Mode, by Dollar Value of Transactions Briefly describe any action your organization has taken that has had a significant positive impact on EAP spending at your organization. Our organization takes the approach to capture spend at the cardholder level. If the opportunity isn't captured at cardholder level then we will try to capture it at the accounts payable level with EAP spend. Senior Accountant Large Market Manufacturer 2015 Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 41

42 EAP Spending by Category of Purchase Exhibit 14 on the next page presents a pie chart that breaks down EAP by dollars spent. The Exhibit shows that: 47% of EAP spending is for operating expenses, including: o a significant component (29.4%) for operating goods and supplies which was defined in the survey as general maintenance, industrial supplies, lab supplies, shop supplies, uniforms, fuel, tools, and other goods, o 9.5% for computer and mobile hardware, software, and peripherals, and o 8.1% for office equipment and supplies. 21.8% of EAP spending is for assets, including: o a significant component (17.8%) for inventory, and o 4.0% for construction materials and capital assets. 14.4% of EAP spending is for professional services, including: o 7.4% for telecommunications and other utilities (e.g., water, sewer, electric), o 5.5% for professional services (defined to include engineering, architectural, legal, accounting, medical, and consulting services), and o 1.5% for education and training. 12.3% of EAP spending is for business services, including: o 3.6% for contractual repair and maintenance services (e.g., general repairs, maintenance, electrical contractor, carpentry, HVAC, roofing, and plumbing), o 3.2% for media and advertising services, o 1.9% for mail and other delivery services, o 3.6% for other business services (including catering/cafeteria/food service, insurance, lease/rental payments, printing and duplication, and temporary help). 4.5% of EAP spending is for travel and other expenses. Fortune Briefly describe any action your organization has taken that has had a significant positive impact on EAP spending at your organization. Procurement is now involved and including EAP as a means of payment while negotiating contracts. AP Manager 500-Size Manufacturer 2015 Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 42

43 Exhibit 14: EAP Spending by Category of Goods and Service Thus, in terms of dollars, respondents report that 47% of EAP payments are for operating expenses (including operating goods and supplies, office equipment and supplies, and computer-related hardware and software) and about 22% for assets (primarily inventory). The remainder of EAP payments are spread across a wide variety of services (e.g., professional service, education and training, contractual repair and maintenance). Global Use of EAP Six percent of respondents report that their organization pays suppliers outside of the U.S. and Canada with EAP. The average annual spend outside of North America by this small group is $19,000. Sixty-seven percent of the organizations paying with EAP outside of North America are corporations (predominantly Fortune 500-Size and Large Market). The regions with the most EAP-paid suppliers are Europe and Mexico Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 43

44 Conclusion Survey responses indicate that average monthly EAP spending is $2.5 million, up from $1 million per month at the beginning of An average EAP transaction is currently $4,842, up from $2,359 at the beginning of One-half of all respondents had used EAP to pay for a single purchase of a good or service in excess of $125,000 in the past year. Monthly EAP spending per employee is $258, up from $136 at the beginning of Across all respondents, virtual accounts are in use by 69% of respondents, single-use accounts are in use by 46% of respondents, and buyer-initiated payments are in use by 26% of respondents. Organizations with multiple EAP options account for a higher percentage of total EAP spending. Specifically, the 34% of respondent organizations with multiple EAP options account for 47% of EAP spending. In terms of the capture of payment activity, organizations are using EAP to pay for, on average, 17% of their $2,500 or less transactions, 21% of their $2,501 to $10,000 transactions, 18% of their $10,001 to $100,000 transactions, and 8% of their $100,001 to $1 million transactions. In terms of dollars, respondents report that 47% of EAP payments are for operating expenses (including operating goods and supplies, office equipment and supplies, and computer-related hardware and software) and about 22% for assets (primarily inventory). The remainder of EAP payments are spread across a wide variety of services (e.g., professional service, education and training, and contractual repair and maintenance). Li Change requires innovation, and innovation leads to progress. Keqiang 2015 Electronic Accounts Payable Benchmark Survey Results EAP Spending Norms 44

45 Chapter 4 EAP Market Size and Spending Growth Anecdotal discussions and past research has indicated that use of electronic accounts payable (EAP) to pay for goods and services quickly changes the payment landscape of an organization. This chapter focuses on a portrait of the overall past and future growth and change in EAP spending across the North American marketplace. Additional information on the past and future growth and change in EAP spending by Corporations (Fortune 500-Size, Large Market, and Middle Market) and Government and Not-for-Profit organizations (State Agencies, City and County governments, Colleges and Universities, School Districts, and Not-for-Profit entities) is contained in the companion report, Program Profiles by Organization Type and Size. EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 45

46 Age of Program and EAP Spending Past and future EAP program growth may be expected to vary based on the age of the EAP program. Thus, as we approach an examination of growth rates, it is important to understand the EAP spending of the current sample on the basis of how long EAP has been in use. Exhibit 15 shows that new adopters (EAP programs less than one year old), which comprise 13% of the response, drive 5% of total EAP spending. Organizations that have been using EAP for 1-2 years (which comprise 34% of the response) account for 29% of total EAP spending and organizations that have been using EAP for 3-4 years (which comprise 24% of the response) account for 20% of total EAP spending. The organizations with the greatest experience with EAP (those with five or more years, comprising 29% of the response) account for 46% of total EAP spending Exhibit 15: EAP Total Spending by Age of Program Large Briefly describe any action your organization has taken that has had a significant positive impact on EAP spending at your organization. Continuous evaluation of our check spending to convert to EAP. Accounts Payable Analyst Market Utility EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 46

47 EAP Spending Growth in the Past Year As shown in Exhibit 16(a), the vast majority of EAP-using organizations (71%) report growth and 19% report no change in EAP spending over the past year (between 2014 and 2015), a positive outcome similar to that which we reported in ,7 Exhibit 16(a): Type of Change in EAP Spending between 2014 and 2015, All Respondents Exhibit 16(b) on the next page reveals the impact of program age on the respondent organization s EAP growth experience over the past year. Specifically, EAP spending growth over the past year is reported by 100% of new programs, 70% of programs that are 1-2 years old, 65% of programs 3-4 years old, and 57% of programs that are 5 or more years old. Conversely, no change (a decrease) in EAP spending over the past year is reported by 19% (11%) of programs that are 1-2 years old, 23% (12%) of programs 3-4 years old, and 29% (14%) of programs 5 or more years old. 6 The 2012 EAP Benchmark Survey examined spending change in a two-year period (between 2009 and 2011). Given the longer time frame, the 2012 survey had 82% reporting spending growth, 12% reporting no change, and 6% reporting a decrease in EAP spending. The average age of the program in 2012 was 2.9 years compared to 3.6 years in The changes in EAP spending between 2014 and 2015 as shown in Exhibits 16(a), 16(b), 17(a), and 17(b) are based on a comparison of the respondent s current EAP spending response (given on or about the survey date of January 2015) to their response to an inquiry for average monthly spending one year ago (which chronologically would mean on or about January 2014). EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 47

48 Exhibit 16(b): Type of Change in EAP Spending between 2014 and 2015, by Age of EAP Program Past EAP Spending Growth Rates From our previous surveys on EAP use we know that, on average, new adopters tend to grow their EAP spending at a faster rate for the initial year or two. Given this historic pattern, there are at least two ways to measure growth in EAP spending. The first is to consider the growth of EAP spending by organizations that have been using EAP throughout the period in question (a card equivalent of same store sales growth used in retailing). The second way to measure growth is to include the new spending that is occurring by organizations that adopt EAP in the period in question. Exhibit 17(a) shows that EAP spending grew by 33% between 2014 and 2015 when new adopters are included in the growth calculation. When new adopters are removed, the growth rate over the past year is 28%. Exhibit 17(a): EAP Annual Spending Growth Rate, 2014 to 2015 EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 48

49 As noted earlier, the EAP spending growth rate is also affected by the age of the program. Exhibit 17(b) indicates that the annual growth rate of EAP spending over the past year declined with increases in the age of the program. Specifically, programs that are 1-2 years old report EAP growth of 57% over the past year, while EAP spending among programs 3-4 years old (five or more years old) grew by 18% (14%). Growth of new adopters cannot be measured since at the beginning of 2014 they had zero spending. Exhibit 17(b): EAP Spending Growth Rate from 2014 to 2015 (without New Adopters), by Age of EAP Program Exhibit 18 on the next page presents the growth of EAP spending in relation to spending reported on plastic purchasing cards by respondents to the 2015 EAP Benchmark Survey, broken down by the length of time that EAP has been in use. The Exhibit shows that EAP spending ramps up quickly in comparison to plastic purchasing card spending, increasing from 57% of plastic spending for respondents with programs less than 1 year old to 123% (177%) of plastic card spending by respondents that have used EAP for 1-2 years (3-4years). Total EAP spending by organizations that have used EAP for five or more years is, on average, nearly double the level of plastic card spending in EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 49

50 Exhibit 18: EAP Spending in Comparison to Spending on Plastic Cards, by Age of Program 198% 177% 123% 57% Less than 1 year 1-2 years old 3-4 years old Five or more years old Expectations about Future EAP Spending Exhibit 19 shows that the vast majority of respondents (72%) expect EAP spending to increase over the next five years. In fact, the percentage of respondents expecting future growth in EAP spending is similar to the percentage that experienced EAP growth over the past year (71% as shown in Exhibit 16(a) earlier). Further, 20% of respondents expect no change in future EAP spending while only 8% anticipate a decline. Exhibit 19: Type of Change Expected in EAP Spending , All Respondents EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 50

51 Exhibit 20 shows the impact of program age on expectations about changes in future EAP spending by respondents in Similar to the pattern shown in Exhibit 16(b), Exhibit 20 indicates that as organizational EAP programs age, the expected future spending on EAP declines. Thus, 93% of organizations that have used EAP for less than 1 year expect increased future EAP spending over the next five years, while 76% (66%) of organizations that have used EAP for 1-2 (3-4) years expect increased future EAP spending by Sixty-two percent of organizations that have used EAP for five or more years expect increased future EAP spending by Our data suggests that while the majority of organizations continue to find new opportunities to use EAP, many others struggle to penetrate EAP further in their organizations payment outlays. There is an opportunity in the marketplace to learn about strategies to expand EAP use and benefits over time. Exhibit 20: Expectations about EAP Spending Change by 2019, by Age of EAP Program EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 51

52 Future EAP Spending Growth Rates Past respondents to the EAP Benchmark Survey have tended to be conservative in their estimation of the future growth of EAP spending. In 2012 for example, respondents reported an expected EAP spending growth rate of 8% per year, even though their year-over-year growth rate at that time was 33%. With that caveat, Exhibit 21 shows that EAP spending is expected to increase across the sample by 13% over the 2014 level in 2015, by 39% over the 2014 level by 2017, and by 70% over the 2014 level by Exhibit 21: Respondent-Projected Growth Rates for EAP Spending, by Age of EAP Program and in Total * EAP growth rate from the end of 2014 to the end of Less than One Year Old 1-2 Years Old 3-4 Years Old Five or More Years Old Growth by Current Users Overall Growth Rate (including New Adopters of EAP) % 11% 10% 5% 11% 13% % 24% 23% 10% 23% 26% % 37% 36% 14% 35% 39% % 54% 52% 20% 51% 55% % 71% 67% 26% 66% 70% * Currently, we estimate that 29% of all purchasing card-using organizations use EAP. Based on past relationships between growth rates with and without new adopters, we estimate that new entrants to EAP use will increase the overall growth rate by 18% in 2015 (pushing the native growth rate of 11% to 13%). Thereafter, we anticipate that the increase in the growth rate due to new entrants will decline by 3% each year as the percentage of organizations adopting EAP naturally declines. Future EAP Spending Given the expected changes in EAP spending shown in Exhibit 21, Exhibit 22 on the next page presents the overall estimation of current and future EAP spending in North America from the end of 2013 through the end 2019 and how that spending relates to overall purchasing card program spending. The Exhibit indicates that EAP spending was estimated at $49 billion in 2013 (accounting for 20% of all purchasing card spending), rose to $65 billion by the end of 2014, and is expected to rise about 14% per year to $110 billion by 2019 (accounting for an estimated 25% of all purchasing card spending at that time). This projection is subject to a variety of caveats, not the least of which are unanticipated changes in the pace of economic growth, changes in payment technology and/or the pricing thereof, supplier acceptance of EAP, and respondent preferences for the use of other card platforms for purchases. 8 By comparison, the 2014 Purchasing Card Benchmark Survey Results predicted that traditional purchasing card spending (plastic cards and ghost and cardless accounts) would grow by, on average, 9% per year (or 45% between 2014 and 2018). EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 52

53 Exhibit 22: Current and Projected EAP Spending (in $ billions) and EAP Spending as a Percentage of Total Purchasing Card Spending * $101 $110 $90 $82 $73 $65 $49 23% 24% 24% 25% 25% 25% 20% * Annual spending in 2013 is based on the 2014 Purchasing Card Benchmark Survey Results, which indicated that EAP accounted for 20% of all purchasing card spending (on all platforms, including plastic, ghost, cardless, and EAP), or $49 billion. Estimated EAP spending in 2014 ($65 B) is based on growth reported in Exhibit 17(a) (33% from prior year reported). Spending growth rates for subsequent years are shown in Exhibit 21. Calculations of EAP spending as a percentage of total purchasing card program spending assume a 9% growth (45% over 5 years) for traditional purchasing cards (plastic, ghost, cardless) as predicted in our 2014 report. Reasons for Expected Increases in EAP Spending Exhibit 23 on the next page presents the reasons identified by respondents for projected increases in EAP spending. The Exhibit indicates that there are three dominant rationale for expected growth in EAP spending, including efforts to target vendors for EAP payment (76%), improvements in supplier acceptance of EAP payment (42%), and efforts to target high-dollar transactions for EAP payment (32%). A second tier of growth rationale, less commonly noted, includes (a) an increase in the overall purchasing budget (19%), (b) efforts to target commodities for EAP payment (17%), and (c) an expansion of the types of goods and services that can be paid for with EAP (16%). Other rationale for growth, far less commonly noted, include (a) changes in organizational incentives for EAP use (13%), and (b) enactment or improved enforcement of policies requiring EAP use (12%). Though 72% of respondents expected EAP spending to increase, we noted in Exhibit 19 that 8% anticipate decreased EAP spending over the next five years. There were two major reasons for that prognostication given: (a) weaker supplier acceptance of EAP payment (59%), and (b) greater use of alternative payment methods (41%) such as ACH, checks, and wire transfers. EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 53

54 Exhibit 23: Reasons for Expected Increase in EAP Spending EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 54

55 Conclusion The rate of EAP growth has been consistent and positive since its emergence as a tool to improve the efficiency of the procure-to-pay process. Across the entire sample, 71% of respondents report increased payment with EAP over the past year. Average organizational payments with EAP increased 33% between 2014 and Going forward, respondents expect future EAP spending to grow by 70% over the next five years (about 14% per year), which stands as a marked contrast from growth expectations for traditional purchasing cards (where the five year growth rate expectation was about 9% per year over the time frame as per the 2014 Purchasing Card Benchmark Survey Results). The three major reasons for expected growth in EAP spending include efforts to target vendors for payment by EAP, improvements in supplier acceptance of EAP payment, and efforts to target high-dollar transactions for EAP payment. Collectively, EAP spending in North America is estimated to be $65 billion in This figure is projected to rise to $110 billion by The pattern of EAP spending reflects an ongoing evolution from older payment methods such as checks, ACH, and wire transfers, with the growth of spending on EAP rising faster than either GDP or traditional purchasing card spending. Not surprisingly and as with most new technologies, it is noted that both past and future expectations of EAP spending growth are influenced by the relative newness of the use of EAP. Specifically, we report that the rate of past and expected future EAP spending growth declines with increases in the age of the EAP program. EAP Market Size 2015 Electronic Accounts Payable Benchmark Survey Results and Spending Growth 55

56 Chapter 5 EAP Benefits Use of electronic accounts payable (EAP) is a choice made by each organization based on its suitability for their purposes after consideration of costs and benefits. A wide variety of anecdotal commentary exists about the benefits of EAP, including: the unique value of EAP as a payment option, the quick ramp-up of spending, yielding improved cash flow, financial incentives for use from EAP provider, avoidance of check fraud or lost checks, a streamlined, simplified reconciliation process, better control of payment timing, enhanced security of payment, and enhanced visibility of spending. Suppliers benefit from better terms of acceptance (e.g., lower large ticket interchange rates), maintenance of preferred vendor status, and increased sales revenue. As with other card products, the supplier can also be liberated from credit checking, billing, and receivables management activities as well as benefitting from a significant reduction in credit risk Electronic Accounts Payable Benchmark Survey Results EAP Benefits 56

57 Chapter 5 focuses on the EAP-using organization s assessment of the key benefits associated with EAP use, including (a) savings generated from improvements in the administrative activities to process and pay for an invoice, (b) the time value of improved cash flow, and (c) the financial incentives associated with EAP. Linkage of EAP and Payment Strategy EAP is one payment method among a variety of options available to an organization. For some organizations, the use of EAP may be situation or supplier-specific, with little consideration of a larger payment strategy or goals. However, 61% of respondents to the 2015 EAP Benchmark Survey indicated that their organization has a payment strategy which calls for the use of different payment methods (e.g., EAP, purchasing card, ACH, check, wire transfer) under different conditions. 61% have a payment strategy which calls for the use of different payment methods under different conditions Quick Ramp-up of EAP Program How long it takes an organization to ramp up its EAP program to a fully implemented state can influence the assessment of EAP value. Exhibit 24 shows that 63% of respondents had fully implemented their EAP program in less than one year. Cumulatively, 89% had fully implemented their EAP program within 1-2 years of adoption. Only 11% of respondents report longer than two years to full EAP program implementation. On average, it takes about 13 months to full implementation. Exhibit 24: Time to Full EAP Implementation 2015 Electronic Accounts Payable Benchmark Survey Results EAP Benefits 57

58 Transaction Cost Savings A typical purchasing process includes the cost of activities associated with Sourcing: activities to assign requisition to buyer, consolidate requisitions for similar goods, define supplier selection criteria, identify and evaluate potential suppliers, request and receive quotes from suppliers, evaluate quotes, select suppliers for final negotiations, conduct negotiations, evaluate final offers, award contract, and quantify saving). Purchasing: activities to identify need for purchase, specify requirements for purchase and create requisition, request approval(s) of requisition, create PO, issue PO to supplier, administer any PO changes/cancellation. Invoice and payment processing: activities to receive and check ordered items, input information about received goods, receive/sort invoices, create invoice from internal PO, match PO to receiving document and invoice, resolve receiving errors, respond to payment status queries, resolve pricing errors, approve disbursement, disburse funds, file/archive all purchase-related documentation, reconcile disbursement to bank records. In our 2014 Purchasing Card Benchmark Survey Results, we reported the end-to-end cost of the traditional process to acquire and pay for goods (including sourcing, purchasing, and invoice and payment processing) was $ This cost has been dissected into $27.27 for sourcing, $31.44 for purchasing activities, and $31.49 for invoice and payment processing. 9 Unlike purchasing cards, EAP does not reduce or eliminate sourcing or purchasing activities, but does impact invoice and payment processing activities. To understand whether any invoice processing and payment cost savings exist with EAP, we asked respondents to compare the cost of an EAP transaction to the cost of a traditional check payment, including the cost of activities to (a) input data into accounting records, (b) generate payment instructions, (c) file documents, (d) generate and transmit payment, and (e) reconcile transaction activity to bank records. Consistent with our 2012 Purchasing Card Benchmark Results, Exhibit 25 shows that respondents estimate the traditional check payment cost for invoice and payment processing to be $31. By contrast, respondents indicated the average cost of EAP invoice processing and payment to be $9, yielding a $22 per-transaction cost savings each time an EAP payment is made. This outcome is consistent with the high importance respondents assigned to the organization s efficiency-oriented goals for EAP as shown in Exhibit 6 in Chapter 2 (e.g., to reduce the number of checks written, increase organizational efficiency associated with payment of suppliers, and simplify the process for paying suppliers). 9 Dissection of procure-to-pay process costs are based on an analysis presented in RPMG 2012 Purchasing Card Benchmark Survey Results (Exhibit 39) Electronic Accounts Payable Benchmark Survey Results EAP Benefits 58

59 Exhibit 25: Transaction Costs of EAP versus Traditional Invoice Processing and Payment Improvements in Working Capital The date of purchase, the timing of the EAP payment by the buyer, the timing of EAP billing (i.e., the billing cycle) by the EAP providers, and the grace period (i.e., the number of days after the end of the billing cycle before payment is due) combine to determine the amount of float for the card-using organization. Float is the length of time between the date a purchase is made and the date the payment is made. Higher float enables an organization to extract greater returns and value on its working capital. Timing. One aspect of the buyer-supplier relationship that affects float is the timing of the payment made by EAP. Exhibit 26 on the next page presents the timing norms for payment, showing that payment with EAP occurs at many points, with 12% paying with EAP upon receipt of invoice, 30% paying between 2 and 15 days from receipt of invoice, 50% paying between 16 and 30 days from receipt of invoice, 6% within 31 to 45 days from receipt of invoice, and 2% paying more than 45 days after receipt of invoice. On average, the EAP account is charged 21 days after the invoice is received from the vendor Electronic Accounts Payable Benchmark Survey Results EAP Benefits 59

60 Exhibit 26: Timing of EAP Payment to Suppliers The grace period. A second component of float is the grace period (the number of days after the end of the billing cycle before payment is due to the EAP provider). Exhibit 27 shows that 30% of respondents pay their EAP provider less than 10 days after the billing cut-off date; 15% pay 10 days after the billing cutoff date, 27% pay 15 days after the billing cutoff date, 27% pay 30 days after the billing cutoff date, and 1% pay more than 30 days after the billing cutoff date. The average realized grace period between billing cycle cut-off date to due date is 15.3 days. Exhibit 27: EAP Payment Realized Grace Period for Payment to EAP Provider 2015 Electronic Accounts Payable Benchmark Survey Results EAP Benefits 60

61 Float Time. To determine the benefit of float driven by EAP use, we make a few simple assumptions building on survey responses. First, the EAP payments for purchases are made uniformly throughout the month. Second, all EAP purchases are paid (to the EAP provider) at the end of the billing cycle and grace period. Exhibit 28 summarizes the average time elapsed (a) from the purchase date to the date the charge is made to the EAP account, (b) from the EAP charge date to the date of the EAP provider invoice for charges made during the billing period, 10 and (c) the grace period for payment of EAP charges to the EAP provider. The Exhibit shows that, based on the norms regarding the timing of EAP charges, EAP provider grace periods, and a typical supplier invoice due date, an organization gets a total of 51 days of float time. Exhibit 28: Summary of EAP Payment Cycle Time Using the average monthly EAP spending of $2,550,063 (presented in Chapter 3) and applying a simple multiple for 51 days of accounts payable -- there is additional working capital of $4.3 million made available (or a reduction in working capital need by $4.3 million) due to the use of EAP. Assuming that the organization can generate a 5% annual return on its working capital, a typical organization with average monthly EAP spending of $2,550,063 will yield, on average, about $216,755 of additional yearly cost savings (effectively a 0.7% saving on total annual purchases) due to working capital float facilitated by invoice due dates, the time gap between payment by EAP and billing from the EAP provider (average daily credit balance), and the payment grace period. The length and benefit of float will vary for each organization based upon the amount of EAP spending and the invoice terms and conditions (which tend to vary by industry and organization). 10 In a simple scenario, the average monthly spending of $2,550,063 translates into $85,002 of payments each day. Day 1 payments will not be billed by the EAP provide for at least 30 days (not including grace period) or at the end of the billing cycle. Day 2 payments will not be billed for at least 29 days, and so on. Thus, on average, the EAP payments made in a month are not billed for 15 days Electronic Accounts Payable Benchmark Survey Results EAP Benefits 61

62 Financial Incentives from EAP Exhibit 29 summarizes several facts regarding financial incentives related to EAP spending. Eighty-five percent of respondents indicate that they had received a rebate associated with their EAP spending in the past year. Only a minority (3%) of respondents shared any portion of their rebate with their suppliers paid by EAP. 85% Received a rebate from EAP spending in the past year Further, among organizations that are offered early payment discounts by vendors (about 25% of respondents), more than half (55%) continue to receive that discount even when the invoice is paid with EAP. Exhibit 29: Rebate Receipt, Method of Determination, and Sharing with Suppliers 2015 Electronic Accounts Payable Benchmark Survey Results EAP Benefits 62

63 Exhibit 30 provides a closer look at the organizational and EAP spending habits of organizations that received or did not qualify for a rebate in the past year based on their EAP spending. The Exhibit shows that organizations that received a rebate related to EAP spending are over 4 times larger (in terms of headcount) than organizations that did not receive an EAPbased rebate. Further, in comparison to organizations that did not qualify for a rebate, organizations that received a rebate: report average EAP spending 11 times higher ($3.1 million versus $278,467) and median spending that is 4 times higher ($1 million versus $250,000), report monthly EAP spending per employee that 154% higher ($282 versus $111), and report an average EAP transaction amount that is 84% higher ($5,265 versus $2,866). Exhibit 30: Organizational and EAP Spending Statistics, by Organizations Receiving and Not Qualifying for a Rebate in the Past Year (all numbers are averages unless otherwise noted) Organizational Statistics Respondents that Received Rebate Associated with EAP Spending in the Past Year Respondents that Did Not Qualify for a Rebate Associated with EAP Spending in Past Year Percent Difference Number of employees 11,103 2, % Age of program (in years) % EAP Spending Metrics Average monthly EAP spending $3,135,109 $278, % Median monthly EAP spending $1,019,582 $250, % Monthly spending per employee $282 $ % Spending per-transaction $5,265 $2,866 84% 2015 Electronic Accounts Payable Benchmark Survey Results EAP Benefits 63

64 It is apparent in Exhibit 30 that size matters in terms of obtaining rebates, but what differences exist between similar-organizations that qualify or do not qualify for a rebate? Exhibit 31 on the next page provides a closer look at the organizational and EAP spending habits of similar-size organizations (both with, on average, about 2,500 employees) that received or did not qualify for a rebate in the past year based on their EAP spending. In comparison to organizations that did not qualify for a rebate related to EAP spending, organizations that received a rebate: report average monthly EAP spending almost four times higher ($1.1 million versus $278,467) and median monthly spending that is two times higher ($500,000 versus $250,000), report 291% higher monthly EAP spending per employee ($434 versus $111), and report an average EAP transaction amount that is 66% higher ($4,753 versus $2,866). Further, the Exhibit shows that organizations that received a rebate in the past year: place significantly greater importance on goals to improve cash flow by extending time to payment (3.50 versus 3.00 on a 5 point importance scale) and to maximize rebates and incentives (4.57 versus 3.91), are more likely to use EAP to pay for a variety of assets, including computers and software, operating goods and supplies, and inventory, are more likely to have engaged in an effort to enlist suppliers for EAP acceptance (93% versus 80%) and, in fact, currently pay a higher number of suppliers with EAP (180 versus 123) and are more likely to be satisfied or very satisfied with the current level of supplier acceptance (29% versus 17%), are significantly more likely to have at least one supplier receiving a lower larger ticket interchange rate (71% versus 40%), are more likely to communicate at least monthly with their card provider s Account Manager (55% versus 31%) and are more likely to be satisfied or very satisfied with their Account Manager (81% versus 60%), and are more likely to project increased EAP spending over the next five years (91% versus 76%). Some differences between organizations receiving and not qualifying for a rebate raise chicken or the egg questions. For example, does the frequency of Account Manager contact help to improve organizational EAP spending or do Account Managers pay greater attention to clients that are spending more with EAP? Notwithstanding, it is clear that rebates are associated with significant spending motivated by specific goals and associated with a wider range of purchases across a broader supplier base Electronic Accounts Payable Benchmark Survey Results EAP Benefits 64

65 Exhibit 31: Organizational and EAP Spending Statistics, by Similar-Size Organizations Receiving and Not Qualifying for a Rebate in the Past Year (all numbers are averages unless otherwise noted) Organizational Statistics Respondents that Received Rebate Respondents that Did Not Qualify for a Rebate Percent Difference Number of employees 2,512 2,506 0% Age of program (in years) % EAP Spending Metrics Average monthly EAP spending $1,089,468 $278, % Median monthly EAP spending $500,000 $250, % Monthly spending per employee $434 $ % Spending per-transaction $4,753 $2,866 66% Importance of Goals (where 5=very important; 1=unimportant) Improve cash flow by extending time to payment % Maximize rebates and incentives for the organization % Span of Purchases Percent Using EAP to Pay for Computer/mobile hardware, software/peripheral 56% 42% 33% Operating goods and supplies 79% 33% 139% Inventory 56% 33% 70% Supplier Relations Percent that engaged (either themselves or an entity on their behalf) in an effort to enlist suppliers for EAP acceptance 93% 80% 16% Number of suppliers currently paid with EAP % Percent that have suppliers receiving a lower large ticket interchange rate 71% 40% 78% Percent satisfied or very satisfied with level of supplier acceptance 29% 17% 71% Provider Relations Account Manager communicates with organization (via phone call, site visit, ) at least monthly 55% 31% 77% Percent satisfied or very satisfied with their Account Manager 81% 60% 35% Future Growth Organizations expecting an increase in EAP spending over next five years 91% 76% 20% 2015 Electronic Accounts Payable Benchmark Survey Results EAP Benefits 65

66 Significance of Financial Incentives to the EAP Value Proposition As reported earlier in this chapter, the vast majority of respondents indicate that their EAP spending ramped up quickly and generated (a) transactional cost savings related to invoice processing and payment, (b) additional working capital float, and (c) a financial incentive stream to the business. Further, in Exhibit 7(a) of Chapter 2 we reported that respondents identify EAP as the preferred method of payment when considering the security of payment, the amount of information obtained about goods/services purchased, per-transaction charges, the quickness with which payment can be made, training requirements, the avoidance of credit checking activity, and the technology investment required. In Exhibit 7(b) of Chapter 2 we showed that EAP was the most preferred payment option with regard to tracking supplier receipt of payment, transmitting remittance information, controlling spending, and integrating with organizational software. Notwithstanding the benefits recognized by respondents, the relationship between the provider and the EAP-using organization can sometime (myopically) be limited to incentives and rebates. This reality is reflected in Chapter 2 where we report that respondents consider the maximization of rebates and incentives as the most important goal for their EAP programs and examined further in the companion report entitled The Card Provider s Role in EAP Program Success. Other Financial Considerations Affecting EAP Value The current evaluation of EAP benefits is influenced by the prevailing low interest rates in North America. The lower interest rates reduce the value of extending the float time between the date of purchase and the payment date. It should be recognized that, when interest rate increase (a highly likely scenario), the value of float will increase significantly. Further, the value of EAP relative to other payment options (as discussed in Chapter 2) is based on multiple factors, including the information payload available about the transaction, the security of payment, cost structure, time to accomplish the payment, time and cost to set-up suppliers for acceptance, technology and training requirements, ability to integrate with other organizational systems, and supplier cooperation. As a compliment to other card-based payment technology, EAP is unique in that any risk associated with card number distribution to employees is minimized and purchase information data requirements are largely managed within existing organizational systems. The combination of economic benefit, risk reduction, and transaction detail make EAP an important addition to the card payment toolkit for higher value transactions Electronic Accounts Payable Benchmark Survey Results EAP Benefits 66

67 Conclusion The vast majority of respondents report that EAP generated transactional cost savings related to invoice processing and payment, additional working capital float (and related benefits), and a financial incentive stream to the business. Moreover, when early payment discounts are promised by vendors, more than half of the buying organizations continue to receive them even when they pay with EAP. In general, larger organizations with higher EAP spending are more significantly more likely to report receiving an EAP-based rebate. Notwithstanding, there are unique differences between similar-size organizations that receive or do not qualify for a rebate. Specifically, in comparison to organizations that did not qualify for a rebate related to EAP spending, similar-size organizations that received a rebate report total average monthly EAP spending and monthly EAP spending per employee almost four times higher. Rebate receiving organizations (a) bought a wider array of goods and services, (b) paid a larger number of suppliers with EAP, (c) are more likely to have suppliers receiving a lower larger ticket interchange rate, and (d) are more satisfied and communicate more frequently with their card provider s Account Manager. Consequently, rebate-receiving organizations are more optimistic about increases in future EAP spending. The value of EAP includes many other benefits (some yielding indirect financial advantage), including the information payload available about the transaction, the security of payment, cost structure, time to accomplish the payment, time and cost to set-up suppliers for acceptance, technology and training requirements, ability to integrate with other organizational systems, and supplier cooperation Electronic Accounts Payable Benchmark Survey Results EAP Benefits 67

68 Chapter 6 EAP Growth Potential The purpose of this chapter is to identify areas of growth potential for EAP. Increasing Use of EAP Earlier in this Report (Exhibit 14) we identified how EAP dollars were distributed across categories of goods and services. Specifically, we reported that 47.0% of EAP spending was for consumables (non-durable goods such as computers and related equipment, office supplies, and operating expenses), 21.8% was for assets (in particular, inventory), 14.4% for professional services, 12.3% was for business services, and 4.5% for travel and other expenses. Exhibit 32 on the next page indicates that the use of EAP increased between 2012 and 2015 as a means to pay for most categories of goods and services. The key highlights of Exhibit 32 include increases in the use of EAP to pay for operating goods and supplies (going from 48% in 2012 to 69% in 2015), inventory (going from 39% in 2012 to 49% in 2015), professional services (going from 26% in 2012 to 44% in 2015), and other utilities (going from 23% in 2012 to 37% in 2015) Other utilities would include any utility other than telecommunications (already listed in the questionnaire) Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 68

69 Exhibit 32: Percent of Organizations that Use EAP to Pay for Goods and Services, by Category* Consumables 2012 Percentage of Organizations that Use EAP to Pay for Percentage of Organizations that Use EAP to Pay for... Computer/mobile hardware, software, and peripherals 62% 63% Office equipment and supplies 69% 69% Operating goods and supplies a 48% 69% Assets Construction materials and capital assets b 36% 29% Inventory 39% 49% Services Catering/cafeteria/food service 30% 41% Contractual repair and maintenance c N/A 44% Insurance N/A 12% Lease and rental payments 36% 23% Mail delivery 21% 16% Media and advertising 33% 37% Printing and duplication 36% 36% Temporary help 15% 17% Transportation (delivery of goods) 31% 27% Education and training N/A 32% Professional services d 26% 44% Telecommunications services 27% 37% Other utilities 23% 37% Travel and Other Travel 31% 33% Other N/A 22% * Items are labeled N/A (not available) if a question about purchases in this category was not asked in the 2012 EAP Benchmark Survey. a Specified in survey to include general maintenance, industrial supplies, lab supplies, shop supplies, uniforms, fuel, tools, and other goods. b In 2012 this was defined as two categories capital assets (38%) and construction materials (34%). We use the average for the combined category. c Specified in survey to include items such as general repairs, maintenance, electrical contractor, carpentry, HVAC, roofing, and plumbing. d Specified in survey to include items such as engineering, architectural, legal, accounting, medical, and consulting services Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 69

70 Current EAP Spending and Upward Potential Exhibit 33, Column A on the next page distributes the estimated $65 billion of current EAP spending (see Exhibit 22) across the spending categories (as presented in Exhibit 14). Column B presents the EAP capture in each category (i.e., the percentage of total spending in each spending category currently paid with EAP). Column B shows that the highest percentage of category spending currently paid with EAP is travel (52%), telecommunications (41%), office equipment and supplies (37%), operating goods and supplies (34%), mail delivery (34%), temporary help (32%), transportation for delivery of goods (32%), and catering/food service (31%). For some key spending categories (e.g., operating goods and supplies, office equipment, computers), penetration (as shown in Exhibit 32) is higher than capture, indicating a significant growth opportunity for EAP spending. In order to get an assessment of the opportunity, we use benchmarks that are practical and currently attained by a significant percentage of respondents. Column C presents the top 20% level of EAP spending capture. Column C shows that the top 20% level of EAP spending capture within a category is significantly higher than the average in every category, usually twice-fold. Column D presents an estimate of what EAP spending could be if all organizations currently using EAP to pay for goods and services within a given category used EAP like a top 20% respondent. In other words, Column D presents the achievable spending potential if all organizations used EAP more frequently in categories of goods and services which they already pay for with EAP. The amount by which current EAP spending could be increased is calculated by dividing current EAP spending within a category by the percentage of spending currently paid with EAP in that category and then multiplying that number by the top 20% level of spending captured on EAP. For example, for operating goods and supplies the average capture is 34% while the top 20% level of capture is 66%. Multiplying the $19.1 billion of current spending in the category by 66%/34% results in total potential of $37.1 billion, or an opportunity for $18 billion of growth in the category. Thus, each row of Column D presents the potential for spending in a given category. The summed total of achievable spending potential in Column D indicates that EAP spending can reach $126.2 billion by realizing a top 20% level spending across the categories, or approximately a doubling over current spending levels Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 70

71 Exhibit 33: Current and Potential EAP Spending Opportunities* Consumables (a) Current EAP Spending (in $ billions) (b) Current Percentage of Category Spending Paid with EAP (c) EAP Capture in Category by Top 20% Respondent s (d) Potential Spending if All EAP Users Paid with EAP Like the Top 20% (in Those Categories They Currently Pay for with EAP) (in $ billions) (a/b)*c Computer/mobile hardware, software, and peripherals $6.2 22% 43% $12.1 Office equipment and supplies $5.3 37% 75% $10.7 Operating goods and supplies $ % 66% $37.1 Assets Construction materials and capital assets $2.6 20% 50% $6.5 Inventory $ % 44% $19.6 Services Catering/cafeteria/food service $0.9 31% 75% $2.2 Contractual repair and maintenance $2.3 21% 42% $4.5 Insurance $0.2 22% 50% $0.5 Lease and rental payment $0.3 22% 55% $0.7 Mail delivery $0.3 34% 56% $0.5 Media and advertising $2.1 26% 59% $4.7 Printing and duplication $0.4 25% 59% $0.9 Temporary help $0.4 32% 56% $0.7 Transportation (delivery) $1.0 32% 68% $2.1 Education and training $1.0 29% 58% $2.0 Professional services $3.6 19% 32% $6.0 Telecommunications $3.4 41% 93% $7.7 Other utilities $1.4 30% 52% $2.5 Travel and Other Travel $1.5 52% 95% $2.7 Other $1.4 30% 52% $2.5 Total $65.0 $126.2 * For descriptions of the types of goods and services within a category, see footnotes to Exhibit Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 71

72 Expanding the Reach of EAP: A Potential for EAP Spending Exhibit 33 presented EAP spending potential if all EAP users that currently buy within a given category upped their spending in that category to capture a top 20% level of spending. In so doing, overall market spending of $65 billion would be expected to increase to $126.2 billion. Exhibit 33 is a conservative estimate inasmuch as it assumes that organizations not currently buying in a given spending category will never start buying in that category. Exhibit 34 extends our examination of EAP spending opportunity by deeming that all EAP-using organizations acquired goods and services in every spending category. Thus, Column D of Exhibit 34 computes potential market spending by assuming that all current EAP-using organizations would use EAP to pay for goods and services within all categories and do so at the top 20% level of capture in that category. To accomplish this, the figures in Column C are derived by dividing the estimate of potential market spending from Column A (also shown in Column D of Exhibit 33) by the percentage of respondents that pay for goods and services within the category (Column B). For example, potential spending on operating goods and supplies of $37.1 billion (Column A) assumes only 69% of respondents (Column B) use EAP for payment. If we divide the $37.1 billion by 69% we will get an estimate of the potential EAP spending for operating goods and supplies ($53.8 billion as shown in Column C) if 100% of EAP-using organizations paid for these goods at the top 20% level of capture in the category. Across categories, Exhibit 34 indicates that total EAP spending could increase by $206 billion (going from the current level of $65 billion to $271 billion) if all current EAP-using organizations paid with EAP across all categories and increased their EAP capture of spending in each category to its top 20% benchmark level. One may argue that the opportunity to reach the top 20% level of capture may not be equally likely for each spend category. Column E of Exhibit 34 summarizes respondent assessments of the likelihood of reaching potential spending in each category. 12 The column indicates that the respondents assessment of the likelihood of capturing spending potential is highest in those areas where EAP spending is currently most common (e.g., office equipment and supplies, operating goods and supplies), and lowest in categories less frequently paid for with EAP (e.g., insurance, temporary help, and lease payments), and moderate for in-between areas (e.g., contractual repair and maintenance services, professional services, and education and training). 12 The assessment is based on the percentage of respondents that positively affirm that there is significantly more EAP spending potential in this category. A spending category is designated with a high likelihood of reaching EAP spending potential if a high percentage (top 25%) of respondents positively affirm that there is significantly more EAP spending potential within the category, thereby indicating that the upward potential in the category is widely recognized. Spending categories are designated with a low likelihood of reaching potential if a low percentage (bottom 25%) of respondents affirm that significantly more spending potential exists. Spending categories are designated with moderate likelihood if they do not fall in the high or low likelihood categories. In other words, if relatively more (fewer) respondents see upward potential in a category, we deem the category as more (or less) accessible to EAP purchase Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 72

73 Column E also highlights an important purchasing behavior. As respondents become more accustomed to paying for specific types of goods and services by EAP, they are more willing to expand their use of EAP to further penetrate in the category. Thus, to grow EAP spending in a low capture category, it will be important to foster greater user comfort with spending in those categories and to display the value of increased use of EAP to pay for goods and services in those categories. Neil We predict too much for the next year and yet far too little for the next ten. Armstrong 2015 Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 73

74 Exhibit 34: Potential EAP Spending Assuming Top 20% Level Capture of Spending in All Categories by All EAP Users* (a) Potential Spending if All EAP Users Paid with EAP Like Top 20% (in Those Categories They Currently Pay for with EAP) (in $ billions) (b) Percentage of Users Using EAP to Pay for Goods or Services in Category (c) Potential Spending if All Users Paid with EAP in All Categories Like Top 20% Programs (a)/(b) (d) Increase in EAP Spending Possible over Current Level (c)-column (a) of Exhibit 33 (e) Likelihood of Reaching Potential Spending Consumables Computer/mobile hardware, software, and peripherals $ % $19.2 $13.0 High Office equipment and supplies $ % $15.5 $10.2 High Operating goods and supplies $ % $53.8 $34.7 High Assets Construction materials and capital assets $6.5 29% $22.4 $19.8 Moderate Inventory $ % $40.0 $28.4 High Services Catering/cafeteria/food service $2.2 41% $5.4 $4.5 Moderate Contractual repair and maintenance $4.5 44% $10.2 $7.9 Moderate Insurance $0.5 12% $4.2 $4.0 Low Lease and rental payment $0.7 23% $3.0 $2.7 Low Mail delivery $0.5 16% $3.1 $2.8 Low Media and advertising $4.7 37% $12.7 $10.6 High Printing and duplication $0.9 36% $2.5 $2.1 High Temporary help $0.7 17% $4.1 $3.7 Low Transportation (delivery) $2.1 27% $7.8 $6.8 Moderate Education and training $2.0 32% $6.3 $5.3 Moderate Professional services $6.0 44% $13.6 $10.0 Moderate Telecommunications $7.7 37% $20.8 $17.4 Moderate Other utilities $2.5 37% $6.8 $5.4 High Travel and Other Travel $2.7 33% $8.2 $6.7 Low Other $2.5 22% $11.4 $10.0 Low Total $126.2 $271.0 $206.0 * For descriptions of the types of goods and services within a category, see footnotes to Exhibit Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 74

75 Summarizing the Potential for EAP Spending Exhibit 35 on the next page provides a visual summary of EAP spending growth potential assuming that all current EAP users pay for and goods and services within all categories at the top 20% level of EAP capture in that category. The Exhibit is broken down by category where the size of each ball represents the relative dollar value of the spending potential by subtracting the current North American spending within the category (Exhibit 33, Column A) from the Potential Spending if All Respondents Paid for All Categories Like Top 20% Programs (as shown in Exhibit 34 Column C), dispersed from left to right by the likelihood of reaching that potential. The upper right portion of the Exhibit shows primary opportunities are in areas where most respondents already see potential for greater EAP spending--in operating goods and supplies ($34.7 billion) and inventory ($28.4 billion). There are other notable opportunities that have a high likelihood of being attained, including computers and related equipment ($13.0 billion), media and advertising ($10.6 billion) and office supplies and equipment ($10.2 billion). Among categories with a moderate likelihood that spending can be shifted to EAP, construction materials and capital assets ($19.8 billion), telecommunication services ($17.4 billion), professional services ($10.0 billion), and contractual repair and maintenance services ($7.9 billion) are notable. Finally, significant opportunity exists in purchase categories with a lower likelihood that spending can be shifted to EAP, including other items ($10 billion), travel ($6.7 billion), insurance ($4.0 billion), temporary help ($3.7 billion), mail delivery services ($2.8 billion), and lease and rental payments ($2.7 billion). If all of the upward potential in spending shown in Exhibit 34 was paid by EAP, the North American market would grow by $206 billion (going from $65 billion to $271 billion annually). Primary opportunities for EAP spending growth are found in operating goods and supplies and inventory 2015 Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 75

76 Exhibit 35: Additional Opportunity for EAP Spending, Assuming Top 20% Level Capture of Spending in All Categories by All EAP Users The growth estimates shown in Exhibits 34 and 35 should not be considered an overreach inasmuch as they do not incorporate the amount by which EAP spending could increase if organizations that do not currently use EAP began to do so. A practical estimation of the potential for adoption can begin with an understanding of the purchasing card market since use of EAP is commonly combined with plastic purchasing cards as part of a commercial card payment toolkit. At present, we estimate that 29% of purchasing card users have adopted EAP. Thus, if the remaining 71% of purchasing card-using organizations adopted and used EAP, total EAP spending could rise to $934 billion ($271 billion / 29%), a 14-fold increase over today s spending. Exhibit 36 on the next page summarizes a broad look at potential EAP spending based on our survey response Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 76

77 Exhibit 36: Current and Potential EAP Spending in North America Comparing EAP to Purchasing Card Growth EAP and plastic purchasing cards have many similarities and some key differences that affect estimations of future growth. Plastic purchasing card use began around 1990 while the use of EAP began in earnest about 20 years later. In the first ten years, spending on plastic purchasing card went from zero to $40 billion and ten years later to $176 billion. The growth pattern of EAP spending is unique in its rapid ramp-up within the organization, but similar to traditional purchasing cards in other ways (e.g., affected by supplier acceptance). We note that EAP has moved from near zero in 2005 to an estimated $65 billion in Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 77

78 The left-most column of Exhibit 37 on the next page summarizes potential spending growth for all purchasing cards platforms as presented in our 2014 Purchasing Card Benchmark Survey and EAP growth from the current survey. The right column presents the growth potential for EAP as discussed in this chapter. Comparatively, the table shows: The potential for spending growth assuming all respondents that currently pay for a given category increase their spending in that category to capture at a top 20% level is greater for EAP than for purchasing card programs (with potential growth of 94% over current spending for EAP and 77% for purchasing card programs as a whole). The higher growth potential for EAP reflects the fact that, among other reasons, best practice use is less prominent or disseminated for this mode of payment. The potential for spending growth assuming all respondents pay for goods and services within all categories and at the top 20% level of capture is greater for EAP than for purchasing card programs (with potential growth of 317% over current spending for EAP and 156% for purchasing card program as a whole). The higher growth for EAP reflects the fact that, among other things, the penetration of EAP across a wider spectrum of purchases has not yet worked its way through the market. The practical estimation of the high end of market growth is also significantly greater for EAP inasmuch as the potential pool of new adopters is more substantial for EAP. Our 2014 Purchasing Card Benchmark Survey estimated conservatively that 60% of organizations that are likely to adopt purchasing cards have already done so; by contrast, we estimate that 29% of purchasing card-using organizations have adopted EAP. Hence, the most significant uptick in spending for EAP will be driven by increased adoption of EAP. 13 Consequently, our summary of responses in 2014 and 2015 present a potential market size of $934 billion for EAP and $932 billion for purchasing card programs as a whole, respectively. It is important to understand that these two estimates do overlap at points. Our 2014 estimate includes some EAP (18% of respondents to the 2014 Purchasing Card Benchmark Survey used EAP) and their estimated growth is built into the 2014 projection. Thus, total future potential market size (combining both purchasing cards and EAP) needs to net out approximately 20% to 25% of future purchasing card and EAP program spending, making the combined spending on both platforms closer to $1.6 trillion ($932B + $934B (25% of $932B)). 13 This number would be further increased by organizations adopting EAP that do not currently use purchasing cards. At present, this is a small segment of the market (e.g., 11% of the current sample). Thus, the practical estimation of the high end for EAP is conservative in this respect Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 78

79 Exhibit 37: Comparing Market Growth Potential of Purchasing Card to EAP Spending, 2014 and 2015 Growth Potential of All Purchasing Card Platforms from the 2014 Purchasing Card Benchmark Survey* EAP Growth Potential from the 2015 EAP Benchmark Survey ^ Item Spending estimate, current users $218 B $65 B Assuming all respondents who currently buy within a given category upped their spending in that category to capture a top 20% spend level Assuming all respondents buy goods and services within all categories and at the top 20% level of capture in that category Spending estimate, current and potential users $386 (77% over base year) $559 (156% increase over base year) $932 (328% over base) $126 (94% over base year) $271 (317% increase over base year) $934 (1337% over base) * The 2014 Purchasing Card Benchmark Survey projected spending across all purchasing card-based platforms (including plastic cards, ghost accounts, cardless accounts, and EAP). The $218B spending estimate above does not include an estimated $27B of travel spending that occurred on purchasing cards. If included, the total estimate of purchasing card spending in 2014 is $245B. Further, 18% of respondents to the 2014 Purchasing Card Benchmark Survey used EAP and accounted for an estimated $49 billion (20%) of total purchasing card-based spending a figure that we used in Exhibit 22 to represent EAP spending at the end of ^ Travel spending is included in 2015 EAP estimates, but is a de minimis figure. Conclusion The use of EAP increased between 2012 and 2015 as a means to pay for most categories of goods and services. Notwithstanding, notable growth opportunities remain. Based on respondent estimates of their current capture of category spending by EAP payment, spending could grow by $61 billion if current EAP users were to capture a higher percentage (a top 20% level of capture in each category) of the goods and services they already buy with EAP. Further, total EAP spending could grow by another $145 billion (going from $126 to $271 billion) if EAP-using organizations who currently do not buy within a given category begin to do so at the level of the current top 20% capture in each spending category. The potential for upward EAP spending varies by category, but the areas of operating goods and supplies ($34.7 billion), inventory ($28.4 billion), computers and software ($13 billion) are the most prominent and perceived to be the most likely to be achieved. Growth projections of EAP indicate that spending on this platform will eventually equal or surpass the amount of spending on plastic cards Electronic Accounts Payable Benchmark Survey Results EAP Growth Potential 79

80 Chapter 7 Connecting with Suppliers Supplier acceptance of payment by EAP is fundamental to the value proposition of the technology. This chapter analyzes trends in supplier acceptance of EAP payment and the actions taken by EAP-using organizations to identify and encourage supplier enablement and to have a positive impact on supplier enrollment. Further, this chapter focuses more broadly on customer satisfaction with the current level of supplier enablement and the potential growth in EAP spending tied to supplier acceptance. The Role of Suppliers EAP presents a financial value proposition to suppliers that differs from plastic cards. With EAP, suppliers are paid after the buyer receives (and approves) an invoice. Whether payment is made promptly after the receipt of the invoice or at a later date is a point of negotiation between the buying and selling organizations. For EAP programs to succeed, suppliers must recognize value or at least see no harm from acceptance of EAP as a payment tool. Because there is a charge for an EAP transaction (as with and comparable to other payment methods), not all suppliers will be willing to accept payment in this manner. Our survey responses reveal that some suppliers are not well-educated on the costs and benefits of EAP acceptance, unaware or unable to assess the financial benefits associated with early and certain payment or attain lower large ticket interchange rates. More importantly, suppliers sometimes fail to consider the value their customers place on EAP and the strength of their preference to do business with suppliers willing to accept EAP payment Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 80

81 Given the relative newness of EAP technology and how it differs from traditional card acceptance, the 2015 EAP Benchmark Survey asked a series of questions related to supplier acceptance, addressing (a) the number and percent of the supplier base paid with EAP, (b) key actions taken to encourage supplier acceptance, (c) the party responsible for promoting supplier acceptance, (d) incentives for supplier acceptance, and (e) EAP spending growth potential if all suppliers accepted EAP. Supplier Acceptance over the Past Two Years Our survey respondents indicated that in 2015 they paid about 183 suppliers with EAP, which comprised (on average) 17% of the organization s supplier base. 14 Eighty-seven of respondents indicated that the number of suppliers paid by EAP had increased over the past two years (on average, by 21%). Exhibit 38 presents a pie chart displaying the number of suppliers currently paid with EAP. The Exhibit shows that most programs have significant supplier participation, to wit: 21% pay 51 to 100 suppliers with EAP, 35% pay 101 to 500 suppliers with EAP, and 13% pay more than 500 different suppliers with EAP. By contrast 14% pay 26 to 50 suppliers with EAP and 17% pay less than 26 suppliers with EAP. Strategies to broaden EAP acceptance among suppliers and the impact of a wider EAP-accepting supplier base on EAP spending will be addressed in the next chapter of this report. Exhibit 38: Average Number of Suppliers Paid with EAP 14 The average number of suppliers paid (183) represents a weighted average of choices in specific size categories (as presented in Exhibit 38) Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 81

82 Understanding Increased Supplier Acceptance Ninety-one percent of respondents to the 2015 EAP Benchmark Survey indicated that their organization had engaged in an effort (either by itself or via a separate entity on its behalf) to enlist suppliers for EAP payment. When an organization engages in an effort to enlist suppliers to accept EAP payment, Exhibit 39 shows that 61% of 91% Engaged in effort to enlist suppliers for EAP payment organizations rely on their bank or EAP provider to conduct most of the key steps to encourage suppliers to accept EAP, while 36% handle those tasks within their own organization, and 3% engage the services of a third party. Exhibit 39: Entity the Conducted Most of the Key Steps to Encourage Suppliers to Accept EAP Exhibit 40 on the next page presents a summary of the methods by which organizations communicate with suppliers about EAP acceptance, indicating that phone calls are the most frequently used means of communication (87%), followed by (60%) and land mail (39%) Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 82

83 Exhibit 40: Methods by Which Organizations Contact Suppliers about EAP Acceptance* * Respondents could select more than one option. Thus, the bars will not sum to 100% Personal investments by senior leadership into managing process change can be very helpful to accomplishing a desired outcome. Twenty-four percent of respondents to the 2015 EAP Benchmark Survey report that their senior leadership has reached out to suppliers about EAP acceptance. Benjamin Would you persuade, speak of interest, not reason. Franklin 2015 Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 83

84 Incentivizing Suppliers Organizations may present EAP to suppliers in a variety of ways, from a tightly focused discussion solely intended to encourage EAP acceptance (without addressing other payment options) to a presentation of EAP acceptance within a larger strategy to identify the best payment options (including ACH, checks, plastic purchasing cards, and wire transfers) between the buyer and seller. Exhibit 41 shows that the majority of organizations are engaging in a tightly focused discussion about supplier acceptance of EAP payment (57%) rather than packaging EAP within a broader suite of payment options available between the buyer and seller (39%). There are three other methods of encouraging supplier acceptance, including (a) altering payment terms, (b) working with suppliers to obtain lower interchange rates for higher value purchases, and (c) requiring EAP acceptance in new vendor contracts. Each of these options will be examined below. In the next chapter, methods to broaden EAP acceptance among suppliers and their impact on EAP spending will be assessed. Exhibit 41: Description of Organizational Effort to Encourage Suppliers to Accept EAP Payment 2015 Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 84

85 Altering Payment Terms EAP-using organizations have been said to reevaluate payment timing norms as part of their desire to direct spending to that platform. In fact, 30% of respondents to the 2015 EAP Benchmark Survey report that their organization motivates supplier acceptance of EAP by altering payment terms. Based on an analysis of open-ended responses in the survey, the majority (68%) shorten the time to payment when using EAP (on average to 9 days), and a minority (32%) extend the date on which they will pay the supplier by other payment methods (on average to 59 days). Across all methods of motivating supplier acceptance (either by shortening time to pay with EAP or increasing time to payment by other methods), the average reduction in time to payment is 28 days. The tear out below captures some of the respondents sentiments about changing payment rules with suppliers. Please describe how your organization s payment terms have been altered to promote EAP transactions. If a supplier does not accept [EAP payment] their payment terms are pushed to net 60. AP Manager, Fortune 500-Size Corporation Standard terms are net 45 for anything other than EAP, but toying around to raising it to net 60. E-Payment Analyst, Not-for-Profit Organization Our net terms agreements for [EAP] payment are lowered 10 to 15 days. Manager, Large Market Corporation Expedited payment terms [for EAP] to net 15 days versus our standard net 45 days. Purchasing Manager, Not-for-Profit Organization We pay by check approximately days after the due date. For EAP payments, we pay on the due date. CFO, Middle Market Corporation We offer net 10 to EAP vendors. Director of Cash Management, University 2015 Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 85

86 Lower Interchange Rates EAP-using organizations may also work with their suppliers, banks, and brands to leverage lower interchange rates for large ticket items. In fact, Exhibit 42 shows 68% (32%) of the respondents to the 2015 EAP Benchmark Survey have (do not have) suppliers that receive a lower large ticket interchange rate. Forty percent of respondent organizations 68% Report suppliers receive a lower large ticket interchange rate indicate that the lower large ticket interchange rate extends to only 1% to 10% of their supplier base and 20% report that a lower large ticket interchange rate affects 11% to 30% of their supplier base. Only 8% of respondents indicate that lower large ticket interchange rates affect greater than 30% of their supplier base. Exhibit 42: Percentage of EAP-Accepting Suppliers that Benefit from Lower Large-Ticket Interchange Rates 2015 Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 86

87 Building Acceptance into Contracts In addition to changing terms and large ticket interchange benefits, a minority of organizational respondents (7%) require EAP acceptance for new vendor contracts, Follow-Up on Requests: Persistence Pays Off Some suppliers may be slow to change and thereby drive unnecessary costs and risk to their customers. Exhibit 43 summarizes organizational effort to revisit the EAP acceptance issue with reluctant suppliers. The Exhibit shows that 42% of EAP-using organizations bring up EAP acceptance annually with suppliers who continue to resist acceptance of payment in this manner; 17% bring up the issue more frequently, but 36% do not revisit the topic of EAP acceptance after the initial recruitment effort. Exhibit 43: Frequency with Which the Topic of EAP Acceptance is Revisited with Non-Accepting Suppliers The most frequent response to suppliers that do not accept EAP payment is generally one of accommodation, with 94% paying the supplier with another payment option---checks ( in 57% of cases), ACH (34%), and by purchasing card (3%). Only 6% of respondents will escalate from the non-acceptance decision to further negotiations and educational discussions with the supplier Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 87

88 Organizations that revisit the topic of EAP acceptance after the initial recruitment effort reap a reward for their persistence. In comparison to organizations that did not revisit the issue of EAP acceptance with their suppliers, organizations that did revisit the issue of EAP acceptance (at any time) report (a) paying a higher number of suppliers with EAP (201 versus 184), (b) paying a higher percentage of their supplier base with EAP (18% versus 14%), (c) are more likely to report an increase in the number of suppliers accepting EAP over the past two years (89% versus 75%), (d) are more likely to have increased EAP spending over the past two years (70% versus 67%), and (e) are significantly more likely to expect increased EAP spending over the next five years (87% versus 76%). When suppliers refuse to accept payment by EAP, organizations that revisit the issue (of EAP acceptance) simply pay by check or ACH in most cases. However, 13% of these organizations will further negotiate with supplier, focus on educating the supplier, or pay the supplier with a plastic purchasing card. Factors Driving Improved Acceptance Respondents were asked to provide an open-ended response to the query What aspect(s) of [the organization s] effort to enlist suppliers to accept EAP payment had the most positive impact on supplier enrollment? An analysis of the open-ended responses revealed that the factors with the most positive impact on supplier enrollment related either to (a) opening a dialogue with suppliers about the benefits of EAP payment, or (b) communicating the EAP payment terms that provide faster access to cash for suppliers (without risks associated with check payments). A minority of respondents pointed to the role that their EAP provider had in their acceptance campaign or training. A sample of responses is provided on the next page. German Those that would not hear must be made to feel. proverb 2015 Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 88

89 What aspect(s) of your effort to enlist suppliers to accept EAP payment had the most positive impact on supplier enrollment? The assistance of the provider to initiate communication with the supplier and the accelerated payment terms we offered. Program Manager, Card & Expense, Fortune 500- Size Corporation Getting the most current list of suppliers [accepting card payment from our provider]. Senior Accounting Coordinator, Middle Market Corporation Give them good instructions on how it will work. Controller, Middle Market Corporation Good communication tools used. Commercial Payments Executive, Large Market Corporation Management pushback on suppliers to pay via credit card. Support Analyst III, Fortune 500-Size Corporation Members of our organization reaching out to vendors. Vice President & Chief Financial Officer, Middle Market Corporation Personal conversations [with suppliers]. Executive Director Procurement Services, Not-for- Profit Organization One person dedicated to establishing enrollment. Senior Manager, Not-for-Profit Organization One-to-one direct contact; notified entire organization that we were pursuing this form of vendor payment. Not-for-Profit Organization Our communications with suppliers as well communications from EAP Bank. Senior Accountant, Large Market Corporation Payments received faster and more efficient. Manager, Large Market Corporation Suppliers now have options. If they cannot wait to be paid in 60 days, they can choose to enroll in EAP and be paid right away. Corporate Card Manager, Fortune 500-Size Corporation Running matches, knowing vendors who accept, targeting in phases. Treasury Manager & Card Program Manager, Fortune 500-Size Corporation Reduced payment terms. Treasury Manager, Middle Market Corporation Phone call campaigns. Shared Services Business Analyst, Large Market Corporation Senior staff involvement. SVP, Managing Director, Fortune 500-Size Corporation Shorten the payment terms (e.g. 45 days term) if they are willing to accept EAP Manager, Accounts Payable, Not-for-Profit Organization Speed of payment; reduction of paper check processing. Treasury & Insurance Manager, Middle Market Corporation Supplier control from payment application perspective as well as cash management for the supplier. Accounting Manager, Middle Market Corporation Personal phone call allowed us to truly identify AR contact to send s/payments [for processing]. Controller, Small Market Corporation Tell them they will receive their money faster with no chance of the check being lost in the mail. Accounts Payable Manager, Not-for-Profit Organization Focused on those most likely to accept. Global Controller, Middle Market Corporation 2015 Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 89

90 Assessment of the Effort to Enlist Suppliers Notwithstanding the increase in the average number of suppliers accepting EAP payment and the successful deployment of strategies and tactics by some organizations to increase supplier participation (described earlier), many respondents recognize room for improvement in the effort to on board suppliers for EAP payment. Exhibit 44 shows, though 41% rate their effort to enlist suppliers to accept EAP payment as successful or very successful, 44% rate the success of their effort as neutral and another 15% as unsuccessful or very unsuccessful. 15 Exhibit 44: Rating of Overall Success of Effort in Enlist Suppliers to Accept EAP Payment Other aspects of organizational success at enlisting suppliers to accept EAP payment will be addressed in greater detail in Chapter A credit for providers of EAP accounts inasmuch as a majority of respondents do not assign blame to them for lack of progress with EAP acceptance. Survey responses indicate that the majority of respondents are satisfied (35%) or very satisfied (18%) with their EAP provider s effort to increase supplier acceptance; another 36% are as yet neutral on the issue. Only 8% are dissatisfied and 3% very dissatisfied with their EAP provider s work in this regard Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 90

91 Assessment of the Level of Supplier Acceptance The respondents lukewarm evaluation of their success with supplier enlistment is reflected in their satisfaction with actual level of supplier acceptance of EAP payment. Exhibit 45 indicates that only 21% are satisfied and 3% very satisfied with the current level of supplier acceptance, while another 46% are neutral on the issue. Twenty-three percent are dissatisfied and 8% very dissatisfied with the level of supplier acceptance. 24% Of respondents are satisfied or very satisfied with the level of supplier acceptance Exhibit 45: Satisfaction with Level of Supplier Acceptance for EAP Payment 2015 Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 91

92 Reconciling Effort to Enlist with Outcome How is it that 41% are satisfied or very satisfied with their effort to enlist suppliers but only 24% are satisfied or very satisfied with the actual level of supplier acceptance? Exhibit 46 reconciles this anomaly, showing that satisfaction with the level of supplier acceptance of EAP is clearly tied to the organization s satisfaction with the enlistment effort. Thus, respondent organizations that are satisfied or very satisfied with their supplier enlistment effort (41% of the sample) tend to rate themselves very satisfied (5%) or satisfied (42%) with the level of supplier acceptance. By contrast, respondent organizations that are neutral, dissatisfied, or very dissatisfied with their supplier enlistment effort (59% of sample) tend to rate themselves as dissatisfied (30%) or very dissatisfied (15%) with the level of supplier acceptance. Exhibit 46: Reconciliation of Respondent Satisfaction with the Effort to Enlist Suppliers the Level of Supplier Acceptance* Satisfaction with the Level of Supplier Acceptance of EAP Payment Organizations with Good Enlistment Effort Organizations with Less than Good Enlistment Effort Very satisfied 5% 1% Satisfied 42% 6% Neutral 40% 48% Dissatisfied 13% 30% Very dissatisfied 0% 15% * We define a good enlistment effort as one in which the organization is satisfied or very satisfied; a less than good enlistment effort is defined as one in which the organization is dissatisfied very dissatisfied, or neutral. Booker Excellence is to do a common thing in an uncommon way. T. Washington 2015 Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 92

93 Impact and Opportunity with Greater Supplier Enablement Respondents recognize the potential for significant improvement in EAP payments if their supplier base was better enabled to facilitate payment in this manner. Exhibit 47 shows that EAP payments would more than double for 44% of respondents if all of the suppliers they desire to pay with EAP accepted payment in this manner. Additionally, 17% (19%) of respondents expect that their EAP spending would increase by 51% to 100% (26% to 50%). Only 20% project that spending would increase by less than 26%. Collectively, if all suppliers that respondents desire to pay with EAP accepted payment in this manner then current EAP spending of $65 billion per year would increase by $47 billion (72%) to $112 billion annually. Exhibit 47: Potential Increase in EAP Spending if All Suppliers Targeted for EAP Accept Payment by EAP 2015 Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 93

94 Supplier Challenges Exhibit 48 indicates that suppliers have given a variety of reasons for their resistance to EAP acceptance. The Exhibit indicates that merchant fees (e.g., negotiated interchange rate) are the predominant reason for their reluctance to accept EAP, cited in 88% of responses. Other less common reasons for refusal to accept EAP include a lack of understanding of the benefits (29%), lack of proper staffing and/or training (24%), difficulty setting up for acceptance (17%), insufficient demand from buyers (11%), fear of fraud (2%), and other (4%). Exhibit 48: Reasons Given by Suppliers for Not Accepting EAP Payments Survey respondents address supplier concerns about EAP payment in a variety of ways. We have included a sample of their open-ended comments regarding strategies to overcome objections to EAP acceptance in the tear-out below Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 94

95 What, if anything, did your organization do to overcome any objections raised by suppliers with respect to EAP payment? We discussed internally with our Materials Management group about other vendors that could provide us with the same products/services, but that already accepted payment by credit card. So we let the vendor know that we could direct our business elsewhere if they were not able to accept card payments from us. Senior Treasury Administrator, Large Market Corporation Slowed payment terms for checks. VP & CFO, Middle Market Corporation Explained the benefits to them as a vendor if they were to accept EAP payments. Accounting Systems and P-card Administrator, Middle Market Corporation Advised supplier of the benefits of EAP - Increased efficiency, productivity, payment times. Financial Operations Manager, Not-for-Profit Organization Changed to pay invoice [with EAP] upon approval not at terms. AP Senior Analyst, Not-for-Profit Organization Vendors want to stop EAP when they receive a large dollar payment (6 figures). We try to get them to accept the payment. Then if they wish to stop EAP, we make the change. Director CPC, Not-for-Profit Organization Telling a vendor that credit card is one of our faster methods of payment was a huge help in getting new e-pay vendors. E-Payment Analyst, Not-for-Profit Organization Open the door to negotiations. Associate Category Manager, Fortune 500-Size Corporation Offered slightly better payment terms. Director of Accounting, Not-for-Profit Organization There's not a lot the organization can do to convince someone that paying their merchant fees (2-3%) provides the supplier value. Dir, Divisional Financial Systems, Fortune 500- Size Corporation Surcharging About 25% of respondents report that they have at least one supplier that assesses a surcharge for EAP payment. However, across all respondents that report at least one supplier surcharge experience, the percentage of suppliers assessing the charge for EAP payment is very low-- only 2% of suppliers. The typical surcharge was for 2% to 3% of the purchase amount. Conclusion Supplier acceptance of payment by EAP is fundamental to the value proposition of EAP technology. This chapter revealed that most EAP-using organizations have engaged in an effort to enlist suppliers to accept EAP and that supplier acceptance of payment with EAP has improved markedly over the past two years. Notwithstanding, survey responses indicate room for improvement in supplier acceptance and significant spending potential for EAP if this challenge is met Electronic Accounts Payable Benchmark Survey Results Connecting with Suppliers 95

96 Chapter 8 Supplier Acceptance: Drivers and Impact As noted in the previous chapter, most EAP-using organizations have engaged in an effort to enlist suppliers to accept EAP and supplier acceptance of EAP has improved over the past two years. This chapter examines in greater detail the impact of supplier acceptance on EAP spending and factors associated with improved supplier acceptance. Impact of Supplier Enablement on Spending Behavior EAP spending is heavily influenced by supplier acceptance. To this point, Exhibit 49 shows organizational and EAP-related spending statistics of similar-size respondents with a higher (lower) percentage of their supplier base accepting EAP payment. The Exhibit shows that, in comparison to the group with a low (below median) percentage of suppliers accepting EAP, the group with a high (median or above) percentage of suppliers accepting EAP payment reports: modestly older EAP programs (3.24 years versus 2.74 years old), a similar percentage of Corporate and Government and Not-for-Profit respondents, 2.6 times as many suppliers accepting payment with EAP (274 versus 107), average total monthly spending that is 3.8 times higher ($3.7 million versus $967,695) monthly EAP spending per employee that is over 4 times higher ($538 versus $131), significantly higher EAP capture of $2,500 or less transactions (24% versus 9%), $2,501 to $10,000 transactions (28% versus 10%), $10,001 to $100,000 transactions (23% versus 8%), and $100,001 to $1 million transactions (12% versus 4%), and significantly higher percentage of organizations that are satisfied or very satisfied (31% versus 17%) with the level of EAP acceptance from suppliers. Supplier Acceptance: 2015 Electronic Accounts Payable Benchmark Survey Results Drivers and Impact 96

97 Exhibit 49: EAP Program Statistics of Similar-Size Respondents with a High (Low) Percentage of Their Supplier Base Accepting Payment by EAP* (all numbers are averages unless otherwise noted) High Percentage of Supplier Base Accepts EAP Payment Low Percentage of Supplier Base Accepts EAP Payment Organizational Statistics Number of employees 6,924 7,391 Age of program (in years) Time to full implementation of EAP (in years) % of Corporate respondents 60% 53% % of Government and Not-for-Profit respondents 40% 47% Supplier Base Number of suppliers currently paid with EAP Percent of supplier based paid with EAP 27% 3% Program Performance Measures Average monthly EAP spending $3,723,195 $967,695 Median monthly EAP spending $900,000 $403,731 Spending per employee $538 $131 Spending per-transaction $3,947 $4,947 Transaction Capture by EAP Payment Transactions of $2,500 or less 24% 9% Transactions between $2,501 and $10,000 28% 10% Transactions between $10,001 and $100,000 23% 8% Transactions between $100,001 and $1 Million 12% 4% Satisfaction with Level of Supplier Acceptance Satisfied or very satisfied 31% 17% Neutral 56% 34% Dissatisfied or very dissatisfied 13% 49% * A high percentage of the supplier base that accept EAP payment is defined as a percentage that is at or above the median for the sample; a low percentage of the supplier base is defined as a percentage that is below the median for the sample. Supplier Acceptance: 2015 Electronic Accounts Payable Benchmark Survey Results Drivers and Impact 97

98 A higher level of acceptance enables organizations to expand the menu of goods and services for which EAP can be used for payment. Exhibit 50 on the next page enables a comparison of the percentage of respondents that pay for a particular category of good or service with EAP, based on their level of supplier acceptance. The two leftmost columns of the Exhibit show that, in general, the respondent group with a higher percentage of their supplier base accepting payment by EAP is more likely to buy a wider range of goods and services; for example, operating goods and supplies (74% versus 63%), inventory (57% versus 40%), mail delivery (23% versus 8%), and media and advertising (47% versus 25%). Not only is broader supplier acceptance of EAP connected with organizational purchases of a wider range of goods and services, it is also associated with a higher percentage of spending for those goods. We refer to the percentage of total spending in a category paid for with EAP as EAP capture. The two rightmost columns of Exhibit 50 provide a comparison of EAP capture based on their group s level of supplier acceptance. The Exhibit shows that the group with a higher percentage of their supplier base accepting EAP payment utilizes EAP to pay for a higher percentage of spending with EAP in almost all spending categories, including: computer and mobile hardware, software and peripherals (29% versus 16%), office equipment and supplies (39% versus 37%), operating goods and supplies (36% versus 35%), construction materials and capital assets (25% versus 12%), inventory (27% versus 25%), catering and food services (46% versus 22%), contractual repair and maintenance services (33% versus 10%), insurance (25% versus 8%), lease and rental payments (33% versus 15%), mail delivery (34% versus 13%), media and advertising (38% versus 10%), printing and duplication (37% versus 15%), temporary help (28% versus 13%), transportation and delivery services (40% versus 18%), education and training (39% versus 21%), professional services (22% versus 19%), telecommunications services (42% versus 35%), travel (51% versus 48%) and other (31% versus 14%). Supplier Acceptance: 2015 Electronic Accounts Payable Benchmark Survey Results Drivers and Impact 98

99 Exhibit 50: Percent of Organizations that Use EAP to Pay for and Average EAP Capture of Total Spending on Category of Good/Service, for Similar-Size Respondents by Percentage of Supplier Base Accepting Payment by EAP* % of Respondents Paying for Good/Service with EAP EAP as a % of Total Spending within Category Consumables High % of Supplier Base Accepts EAP Payment Low % of Supplier Base Accepts EAP Payment High % of Supplier Base Accepts EAP Payment Low % of Supplier Base Accepts EAP Payment Computer/mobile hardware, software, and peripherals 62% 63% 29% 16% Office equipment and supplies 72% 65% 39% 37% Operating goods and supplies^ 74% 63% 36% 35% Assets Construction materials and capital assets^ 30% 25% 25% 12% Inventory 57% 40% 27% 25% Services Catering/cafeteria/food service 42% 38% 46% 22% Contractual repair and maintenance^ 47% 40% 33% 10% Insurance 13% 10% 25% 8% Lease and rental payment 23% 21% 33% 15% Mail delivery 23% 8% 34% 13% Media and advertising 47% 25% 38% 10% Printing and duplication 36% 33% 37% 15% Temporary help 19% 15% 28% 13% Transportation (delivery) 30% 23% 40% 18% Education and training 34% 29% 39% 21% Professional services^ 51% 35% 22% 19% Telecommunications 42% 31% 42% 35% Other utilities 34% 38% 24% 27% Travel and Other Travel 40% 25% 51% 48% Other 23% 21% 31% 14% * A high percentage of the supplier base that accepts EAP payment is defined as a percentage that is at or above the median for the sample; a low percentage is defined as a percentage that is below the median for the sample. ^ The footnote to Exhibit 32 provides further detail about the goods and services in this category. Supplier Acceptance: 2015 Electronic Accounts Payable Benchmark Survey Results Drivers and Impact 99

100 Identifying Suppliers for EAP Payment Exhibit 51 indicates that, in comparison to organizations with a low percentage of their supplier base currently accepting EAP, organizations that have a high percentage of their supplier base accepting payment by EAP are: more likely to identify a supplier for EAP payment based on whether the organization conducts a high volume of activity with the supplier (63% versus 44%) or the supplier is associated with certain spend categories (35% versus 23%) presumably amenable to EAP payment, and is less likely to identify a supplier for EAP payment based on EAP provider information about whether the supplier already accepts EAP payment (69% versus 79%) or already accepts plastic cards (58% versus 65%). When banks or EAP providers conduct most of the steps to encourage suppliers to accept EAP, the process may lean toward the current card acceptance status of the merchant (which is already known to the bank). When organizations themselves reach out to suppliers to accept EAP, they may rely more on leverage with their vendors to encourage EAP acceptance. Exhibit 51: Identification of Suppliers to Target for EAP Payment, for Similar-Size Respondents by Percentage of Supplier Base Accepting EAP Payment* * A high percentage of the supplier base that accept EAP payment is defined as a percentage that is at or above the median for the sample; a low percentage of the supplier base is defined as a percentage that is below the median for the sample. Supplier Acceptance: 2015 Electronic Accounts Payable Benchmark Survey Results Drivers and Impact 100

101 Other Factors Related to Higher Supplier Acceptance There are three categories of difference that are associated with the level of the supplier base that accepts EAP payment: organizational factors, supplier outreach effort, and supplier incentives. Organizational context. In comparison to organizations that have a lower percentage of their supplier base accepting EAP payment, organizations that have a higher percentage of their supplier base accepting payment by EAP are more likely to: be a North American company with all operations and sales in North America (60% versus 44%) and less likely to be a multinational company (25% versus 38%), and use the same bank for EAP, check, ACH, wire transfer, and other payment needs (60% versus 48%). Supplier outreach effort. In comparison to organizations that have a lower percentage of their supplier base accepting EAP payment, organizations that have a higher percentage of their supplier base accepting EAP payment are more likely to: frequently revisit the topic of EAP payment with suppliers who resist EAP acceptance (65% versus 45%), report that senior leadership reached out to suppliers about EAP payment (26% versus 21%), and have had their EAP program implementation and maintenance assisted by 3rd party service providers (17% versus 11%). Supplier incentives. Organizations that have a higher percentage of their supplier base accepting EAP payment also have a higher percentage of their supplier base receiving a lower large ticket interchange rate (on average, 20% versus 12%). The net effect of these differences and the differences shown in Exhibits 49 through 51 is that organizations with a higher percentage of their supplier base accepting payment by EAP are more satisfied with the overall level of supplier acceptance (Exhibit 49), more likely to evaluate their effort to enlist suppliers as successful or very successful (52% versus 27%), more likely to report that EAP spending increased over the past two years (73% versus 63%), and expect to increase spending further over the next five years (86% versus 78%). Supplier Acceptance: 2015 Electronic Accounts Payable Benchmark Survey Results Drivers and Impact 101

102 Supplier Acceptance and Different Types of EAP For many purposes and comparisons, this report lumps the different types of EAP methods (virtual cards, single-use accounts, and buyer-initiated payments as defined in Chapter 1 of this report) into a single group. Yet, there are differences between the types of EAP that may be beneficial to understand. In Appendix A of this report we break down those differences into EAP spending, implementation strategy and timetable, supplier enlistment for EAP acceptance, and purchasing behaviors. Conclusion This chapter examines the impact of supplier acceptance on EAP spending and factors associated with higher levels of acceptance. Our analysis of survey responses reveals that greater supplier acceptance is associated with (a) significantly higher EAP payments, (b) a wider array of goods and services paid for with EAP, and (c) a significantly higher percentage of transactions (of all dollar values) paid with EAP. Organizations that have a higher percentage of their supplier base accepting EAP payment are more likely to (a) identify suppliers for EAP payment based on their volume of activity, (b) frequently revisit the topic of EAP payment with suppliers who resist EAP acceptance, (c) report that senior leadership reached out to suppliers about EAP payment, and (d) have a higher percentage of their supplier base receiving a lower large ticket interchange rate. Finally, organizations with a higher percentage of their supplier base accepting payment by EAP are more (a) satisfied with the overall level of supplier acceptance, (b) likely to report that EAP spending increased over the past two years, and (d) likely to expect increased EAP spending over the next five years. Supplier Acceptance: 2015 Electronic Accounts Payable Benchmark Survey Results Drivers and Impact 102

103 Chapter 9 Best Practice: Spending, Goals, and Strategy A frequent focus of marketplace attention is best practice use of EAP. The actions and policies that comprise best practice can vary by the size and nature of the organization and, in some cases, the industry. Notwithstanding, this section of the report is dedicated to finding the common set of policies and practices that are highly correlated with robust organizational movement to EAP. Best practice policies and actions enhance the value delivered by EAP. Some practices will have greater impact than others on program performance and their impact may be enhanced or diminished by business and industry practices, governmental regulations, tax laws, accounting and reporting systems, human resource practices, organizational cultures, and program leadership. This chapter and the succeeding six chapters highlight the unique best practice choices uncovered in the analysis of the 2015 Electronic Accounts Payable Benchmark Survey response. Best Practice: 2015 Electronic Accounts Payable Benchmark Survey Results Spending, Goals, and Strategy 103

104 EAP Spending Concentration A long-standing economic theory states that roughly 80% of the results stem from 20% of the sources. This theory, named the Pareto principle after Italian economist Vilfredo Pareto, has been extrapolated to other disciplines, and has been used to describe the distribution of spending in an economy. Exhibit 52 reflects this theory, showing that 20% of respondent organizations account for 81.8% of all EAP spending. One might expect that the 80/20 rule would evaporate when evaluating the spending by organizations of the same size or purpose. However, the top 20% of Fortune 500-Size, Large Market, and Middle Market corporations comprise 66.5%, 61.6%, and 61.5% of spending in their segments, respectively. Additionally, the Government and Not-for-Profit segment is more concentrated than the total sample with 20% of the organizations representing 85.4% of EAP spending. Exhibit 52: Distribution of EAP Spending by Percentage of Segment Population This breakdown in spending patterns reflects great potential for growth in a large segment of the market. Specifically, spending captured with EAP by the bottom 80% of respondents in any given size category has the potential to increase significantly by the application of best practices. If the bottom 80% of EAP-spending organizations were to behave like the top 20%, it would more than double the current level of North American EAP spending This statement is based on the analysis of best practice EAP use in Exhibit 53, and is consistent with what we have reported for purchasing card use in general. Best Practice: 2015 Electronic Accounts Payable Benchmark Survey Results Spending, Goals, and Strategy 104