Order-to-Pay Webinar Series

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1 April 22, 2010 Order-to-Pay Webinar Series Tools and Strategies for Optimizing Working Capital S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L Joseph Murphy, J.P. Morgan JPMorgan Chase & Co. All Rights Reserved. JPMorgan Chase Bank, N.A. Member FDIC. All services are subject to applicable laws and regulations and service terms. Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by J.P. Morgan and or its affiliates/subsidiaries.

2 Agenda Challenges in Accounts Payable Market trends in e-invoicing New opportunities to optimize working capital Getting started Verizon case study: Overview of Verizon Company Program objectives and results Keys to success Questions and Answers 1

3 Challenges in Accounts Payable Procure to Pay Process Sourcing Procurement Order- to-pay Order-Invoice-Payment Order Delivery (PO, ASN) 1-3 days Send Invoice 4-7 days Receive and Route Invoice days Process and Approve Invoice 2-10 days Transmit Payment 4-7 days Resolve Exceptions days Day Cycle Manual paper intensive process Lack of visibility and transparency Issue resolution is tedious and time consuming Invoice approval is challenged due to ineffective workflow the result is missed discount opportunities 2

4 Market Commentary Given the overwhelming interest in cost reduction and improved cash management, we believe that increasing electronic payments will be a top automation priority for organizations over the next three years - PayStream Advisors, Q Best-in-Class A/P departments, that hold a 84% advantage in invoice processing costs over their peers, credit e-payables solutions and a resolute focus on process improvement for their efficiency gains. - Aberdeen Group, October 2009 Dynamic discounting serves the cash management needs of buyers and suppliers alike. There is a trend for organizations to extend net payment terms with suppliers to maximize working capital and DPO. - The Hackett Group, PayStream Advisors, Q2 2010

5 Stages of AP Automation Introduction Growth Maturity Decline Increased adoption of E-Invoicing P-Cards EDI Paper Check Dynamic discounting is emerging B2B E-Payments E-Procurement OCR Electronic Invoicing Front-end Imaging & Workflow Solutions are complementary Dynamic Discounting Innovators Early Adopters Majority Laggards Source: PayStream Advisors, Inc. 4 Opportunity to capitalize on market conditions

6 CFO s Top Concerns for 2010 Include Working Capital Hackett Group -- leader in enterprise G&A best practice insight and organizational effectiveness conducted an analysis measuring the key issues facing procurement organizations and key concerns of CPO and CFO of 200 companies (revenue >$500 million). Key results -- improving process and driving working capital strategies are critical strategies for many organizations. Improving working capital and optimizing cash flow Freeing Cash 67% Optimizing the cost structure of the G&A organization Developing and managing talent to support the new and evolving skill sets of the enterprise Implementing enabling technologies to improve efficiencies and effectiveness Source: The Hackett Group 2010 Key Issues Study Reducing Costs Enabling: Talent Enabling: Technology 5 60% 60% 64%

7 Payables Segmentation: Multi-tiered Approach to Penetrate All Spend Trade Finance Supplier financing using J.P. Morgan balance sheet for cash flow improvements Payment Terms Management 60% - 70% Spend 5-15 Days DPO Extension Strategy Early Pay Discounts Check to ACH Conversion 10% Spend $1.4MM Savings $2 Savings Per Payment $100K Savings T&E & P-Card Card Settlement Rebate E-Invoicing (receipt, validation, and workflow) 0% Total Spend 100% Company with $1B annual spend; 100K Invoices and 50K Payments $2.5M in savings and ~10 Day DPO extension 6 2.5% Spend $250K Rebate $5 Savings Per Invoice $500K Savings 2.5% Spend $250K Rebate

8 End-to-End Approach Multiplier Effect on Financial Returns Companies are dramatically growing financial returns by combining process automation, discounting and card settlement against A/P spend Cumulative Effect of Automation, Dynamic Discounts & Card Rebates 6x Reduce Operational Costs & Monetize Invoices 5x A/P Spend With Card Rebate 4x 3x 2x 1x Existing Terms Paper-Based Processing 2x Invoice Automation + Existing Terms + Invoice Automation 7 4x Dynamic Discounts + Supplier Recruitment Invoice Automation + Existing Terms + Advanced Discount Capture 6x Dynamic Discounts + Supplier Recruitment Invoice Automation + Existing Terms + Card Rebate For A/P Spend

9 Invoice Automation is Integral to Reducing Costs and Unlocking Working Capital Opportunities Unit costs are directly correlated to the % of supplier invoices that are electronic $ th Percentile Median 75th Percentile $9.24 $11.84 J.P. Morgan s Order-to-Pay solution automates A/P s invoice and settlement process $7.19 $6.48 $5.50 Electronic Supplier Invoices = 0% $4.78 Electronic Supplier Invoices = 1-25% Source: Hackett 2009 Finance Benchmark Database 8 $4.39 $3.03 Electronic Supplier Invoices = 26-50% $2.65 $2.14 $1.80 Electronic Supplier Invoices = 51-75%

10 Early Payment Discounts Benchmarking - Results are Correlated With Level of Invoice Automation Impact of Electronic Invoicing on Early Payment Discounts 100% 0.236% 0.25% 80% 80% 0.192% 0.187% 0.20% 60% 0.15% 40% 42% 0.067% 0.10% 20% 16% 2% 0% 1stQ 2ndQ 3rdQ 4thQ Percent of Electronic Invoice Line Items Early payment discounts taken as a percent of spend The Hackett Group AP Performance Study, % 0.00%

11 Early Payment Discount Optimization Combining Automation, Dynamic Discounting and Terms Extension Chart On Right: Early Payment Discount technology provides attractive, risk-free returns while providing suppliers with a valuable off-balance sheet source of liquidity: AP automation reduces cycle time and captures previously missed discounts. Discount 2.5% 2.0% 1.5% 1.0% Capture Lost Discounts 2%/10 Net 30 term = 36% APR Dynamic Discounts Dynamic discounting captures discounts on invoices approved after day 10 Supplier recruitment is critical to success 0% Discountable merchant spend Pro forma $1.0 billion Avg. spend discounted 15% Discounted spend $150 million Avg. discount rate 1.3% Gross discounts per $1B spend $2.0 million % Automation Approvals < 10 days Paper Process 42 days average DPO Day 10 Day 30 Day 45 Chart On Left: Discounts can be leveraged decrease COGS and deliver high, risk free returns: For every $1B of Discountable spend that flows through an e-invoicing network, you can generate on average $2.0 million in reduced Cost of Goods Sold (COGS)

12 Verizon Case Study 11

13 Verizon Wireless At-A-Glance Verizon Wireless operates the nation s most reliable and largest wireless voice and data network 87.7 million wireless customers 87,000 employees 2,000 stores and kiosks $58.6 billion annual revenues 12

14 epayables Operational Objectives Operational Challenge End Result Growing invoice volume required more staff to process Migration of 80% of invoices to fully electronic Non compliant approvals Automated routing to proper approver based on HR hierarchies Incorrect coding forced rejection and return of invoices Automated coding validation prior to routing of invoice Minimal prompt pay discounts Accelerated processing cycle times and visibility of status Increasing volume of calls from vendors and employees to AP Help Desk requesting status of invoice processing and payment Accounting and payment surprises 13 Online availability of invoice and payment status Visibility to invoices received but not processed

15 Invoice Volumes 80% adoption of electronic invoicing over 3 1/2 years Invoices Processed (000 s) Percent epay 12% 37% 64% 74% 14 Processed via epay Processed Manually

16 Vendor Analysis Vendor Profile 2,002 enrolled Order-to-Pay vendors With discount terms 26% 15 With net/immediate terms 74%

17 Vendor Analysis Vendors With Discount Terms Vendors With Net Terms Others 11% 2% 10, net 30 23% Others 18% Net 30 days 25% 0.5% 25, net 30 53% 1% 20, net 30 13% Average Age of Payables days Net 60 days 49% Minimum APR s ensure discounts exceed cost of funds Average Age of Payables days Extension of net terms offsets accelerated payments required to achieve discounts 16 Net 45 days 8%

18 Incremental Prompt Payment Discounts 500% increase in payment discounts over 3 years 12 $10.7 $ Discounts Achieved $M $6.1 $ ASAP Pay Me Now

19 Supplier Recruitment Keys to Success Target high volume/high complexity suppliers Require mandatory participation for all vendors Include epayables requirement in contract templates and RFP process Ensure supplier management /purchasing engaged in enrollment Engage epayables provider in initial on boarding campaign 18

20 Payable Performance Measurement A successful program measures and manages Key Performance Indicators Top performers on the Order-to-Pay platform are capturing: 98% of available discounts against 37% of their target supplier base Discounts on 22% of their spend and on 44% of their invoices At a rate of 1.6% and an APR of 36% DPO at 35 days 19

21 Getting Started Focus on deploying solutions that: Eliminate paper invoices and payments Leverage shared supplier networks Eliminate end user and supplier inquiry calls by providing selfservice portals Require low upfront investment and reduce the need for deep technical expertise and resources Utilize a single connectivity engine, thereby facilitating expansion options that are simple and easy to implement Above all, leverage best practices 20

22 Before Procure to Pay Process Sourcing Procurement Order- to-pay Order-Invoice-Payment Order Delivery (PO, ASN) 1-3 days Send Invoice 4-7 days Receive and Route Invoice days Process and Approve Invoice 2-10 days Transmit Payment 4-7 days Resolve Exceptions days Day Cycle Payment Challenges: Invoice Challenges: 90% of payments made via check 90% of invoices are paper based Suppliers lack full remittance 50% invoices past due upon A/P receipt Suppliers call A/P for status 15% of invoices have exceptions 67% of AP fraud from paper checks 75% of discounts never realized 21

23 After Procure to Pay Process Sourcing Procurement Order- to-pay Order-Invoice-Payment Order Delivery (PO, ASN) <1 day Send Invoice <1 day Receive and Route Invoice <1 day Process and Approve Invoice <1 day Transmit Payment <1 day Resolve Exceptions 1-2 days 3-5 Day Cycle Payment Benefits: Supplier self-manage banking information validated by J.P. Morgan 100% remittance delivery in supplier s preferred format Supplier self-service portal allows suppliers to view invoice and payment status on portal Reduced fraud 22 Invoice Benefits: > 90% of invoices are electronic < 1% invoices past due upon A/P receipt Many invoice exceptions can be stopped before they even reach A/P (ex. duplicate invoices) Invoices with legitimate exceptions can be routed using workflow to the appropriate person Offer pro-rated discounts resulting in increased discounts earned

24 Questions Joseph Murphy, J.P. Morgan Tel: Webinar Series Information: 23

APP2P SPRING CONFERENCE & EXPO

APP2P SPRING CONFERENCE & EXPO Accounts Payable Done Right: Supplier Engagement & Payments Optimization Ernie Humphrey, CTP CEO & COO LEARNING OBJECTIVES Identify and remove inherent barriers to accounts