Making Electronic B2B Payments Is
Easier than You Think
Dale Sorenson, Associated Bank
Sharon Jablon, The Clearing House, AAP
Windy City Summit, June 7, 2012
What’s Happening?
• Yes, checks are disappearing – but primarily with consumers
•
Superstructure for B2B electronic payments is largely in place
• Corporate awareness and practices still lag
•
It’s easier than you think
2
B2B Payment Patterns
3
Checks Continue to Disappear
2006 (billions)
2009 (billions)
CAGR*
Checks
31
25
-7%
ACH
15
19
9%
Credit Card
22
22
0%
Debit Card
25
38
15%
Prepaid Card
3
6
22%
Total
95
109.0
5%
* CAGR = compound annual growth rate
2010 Federal Reserve Payments Study
4
Check-Clearing Times Shrink
Lockbox Deposit Clearing Averages
2.00
1.80
1.60
1.40
1.20
City Points
1.00
RCPC Points
0.80
CDA Points
0.60
0.40
0.20
0.00
2005
2006
2007
2008
2009
2010
2011
Source: Phoenix-Hecht
5
Postage Rates Climb
$0.50
$0.45
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
6
Why Pay Electronically?
Benefits of Electronic
Payments
Organizations Rated Benefit
among Their Top 3
Cost Savings
52%
Improved Cash Forecasting
40%
Fraud Control
37%
More Efficient Reconciliation
32%
Working Capital Improvement
28%
Straight-thru-processing for
A/P and A/R
24%
Better Supplier/Customer
Relations
24%
Reduction in DSO
22%
Ability to Take Early Pay
Discounts
18%
“2010 AFP Electronic Payments: Report of Survey Results”
7
Barriers to Change
Major Barriers to Increasing Use of Electronic
Payments
Percentage
Distribution
Lack of integration between payment and accounting
systems
34%
Shortage of IT resources for implementation
33%
Difficult to convince customers to pay electronically
32%
No standard format for remittance info
28%
Trading partners can’t send or receive automated
remittance info with electronic payments
28%
Check systems work well
20%
“2010 AFP Electronic Payments: Report of Survey Results”
8
B2B: Checks Still Swamp ACH
Payment
Type*
2010 Vol. of
B2B (bil.)
% Total
Adjusted %
Comments
CCD Debits
0.6
6%
0%
Corp’s decline debits
CCD Credits
1.4
16%
8%
Often internal transfers
CTX
0.07
1%
1%
Checks
6.7
76%
91%
Total
10.0
100%
100%
“Typical organization makes 57% of its B2B payments by check”
2010 AFP Electronic Payments study
* ACH data from NACHA’s Annual Report
Check data from 2010 Federal Reserve Payments Study
9
Electronic Payment Options
ACH (CCD+)
ACH (CTX)
Fedwire/ CHIPS
Medium
Low
High
Transaction Fees
$
$
$$$
Characters of Remittance
Data
80
800,000
9,000
Vendor Experience
Format for Remittance
Data
• EDI segment
or Data Element
•NACHA Banking
Convention
• EDI
• STP820
•UN-EDIFACT
•
•
•
•
•
•
•
•
EDI
STP820
XML
ISO20022
SWIFT
UN-EDIFACT
TAGS
Narrative
10
Payment Networks
11
The Clearing House (TCH)
Clears and settles 65 million payments, valued at nearly $2 trillion/day
Network
Payment Type
Market Share
EPN
ACH Domestic
52%
SVPCO
Check Images
44%
CHIPS
Domestic & International
Wire Transfers
43%
(Electronic Payments Network)
(Clearing House Interbank Payment System)
(High Value Payments – Real Time
Final Settlement)
12
Payment Flow – STP 820
Payor’s Accounting Software
or Bank’s Online Portal
Payee’s
Payables Data
Accounting Software
Customer Account Number
Customer Name
Invoice Gross Amount
Amount Paid
Invoice Number
Invoice Date
PO Number
Discount
Adjustment Amount
Adjustment Code
The Clearinghouse/Fed
13
NACHA File for CTX Payment with STP820
101 021000018 3112345670302120140F094101ASSOCIATED BANK
JONES PLUMBING
X
5220JONES PLUMBING
1311234567CTXPAYINVOICE
030212
1021000010000012
622021000021182389281
0000012001EP10019
0008ACME IMPORTS
1021000010038729
705ISA*00*
*00*
*30*311234567
*14*9088877320000 *030129*10100010038729
7051*U*00401*000000001*0*P*~\GS*RA*311234567*9088877320000*20030129*1615*1*X*00401000020038729
705\ST*820*0001\BPR*C*120.01*C*ACH*CTX*****1311234567**01*021000021*DA*182389281*2000030038729
705030129\TRN*1*EP10019\N1*PR*JONES PLUMBING*91*123456789012345\N1*PE*ACME IMPORTS 00040038729
705\ENT*1\RMR*IV*3920394930203**30.01*40.01*2\REF*R7*3920394930203*NEW BUILDING PRO00050038729
705JECT\DTM*003*20030123\ADX*-8*01*TD*USED CATALOG 199JAN2003\RMR*IV*254221222500**00060038729
70545*50.01*4\REF*PO*5722319*MARKETING DEPARTMENT ORDER\DTM*003*20030125\ADX*-1.01*00070038729
70504\RMR*R7*21222500**45\DTM*003*20030129\SE*17*0001\GE*1*1\IEA*1*000000001\
00080038729
822000000900021000020000000000000000000120011311234567
021000010000012
9000001000002000000090002100002000000000000000000012001
X
5 = Batch Header Record
6 = CTX Corporate Entry Detail Record
7 = CTX Addenda Record
14
STP 820
14
Bank Portal for Electronic Payments
Running Total of
all remittances
User inputs Payee
information
To get to
detail
Summary information of
remittances already
established to the payee
15
Bank Portal for Electronic Payments
User key enters
remittance information
16
Software Support
Certified by
Promoted by
Adopted by
17
Remittance Information and Wires
18
Wire Remittance Information
(CHIPS and Fedwire)
Transaction = Payment Data +
ISA*00*
*00*
*17*071000366
*17*021000021 *090129*101
1*U*00401*000000001*0*P*;\GS*RA
*071000366*021000021*20090129*
1615*1*X*004010STPW…..
9000 characters of remittance information
19
Options for Sending Remittance Info
with Fedwire and CHIPS
Format
Characters
Unstructured
• EDI
• XML
• SWIFT
9,000
Structured
• Tags
9,000
Related Remittance
Info
• Reference number
• Fax, email or URL
number
2,048
20
Experience with STP 820 & Accounting Software
Verizon
The Clearing House
Great Plains Dynamics
Accounts Payable
– STP 820 module
Verizon’s Bank
TCH’s Bank
Posts to
Accounts Receivables
- STP 820 module
ACH Operator
21
21
TCH Payments to Verizon
Challenge
• Many checks (1200 per year) to Verizon
• Many “pay to” addresses and duplicate invoice numbers (phone #)
TCH Electronic Payments Program
• Verizon initially did not respond to TCH’s mass request for banking info
• But TCH discovered that Verizon processes EDI
Electronic Payments for Verizon – “No Brainer”
• Unique invoice number is now phone number + date = XXXYYYZZZZ MMYY
• Immediate conversion (4-6 weeks) and savings of $1,200
22
Leading Business Practices
23
Miracle at Schwing America
2011
2012
Check Payments
100%
0%
ACH Payments
60%
40%
Average Transaction Cost*
$1.12
$0.60
*Banking Fees
• Check = $1.12
• ACH = $0.26
24
Steps to Success
1. Convince senior management
2. Persuade vendors that payments will be faster
3. Adopt “belts & suspenders” approach to remittance data
4. Start with voluntary program, thereafter involuntary
5. Automate if you can – but don’t wait on automation
25
Vendor Solicitation
February 14, 2011
Dear Valued Vendor:
As Schwing America continues to improve the promptness with which we remit payment to our
valued vendors, we now have the capability to expedite payment further by remitting payment via
electronic funds transfer in the form of an ACH payment.
By utilizing ACH payments, you, our valued vendor, will receive payment directly into your
checking account instead of waiting for the USPS to deliver a paper check to either your office or
lockbox. You will also receive via e-mail a payment advice detailing which invoices were paid
and the total dollar amount deposited into your bank account.
In order to start this process we need to gather the following information from you:
•Vendor Information:
• Your standard information (Name, address, Tax ID etc.)
• Contact Person
• E-mail of the contact person – this will be the e-mail address used to receive the payment
advice.
•Vendor Bank Information
•Vendor Authorization
To start this process we ask that you complete the attached form.
Please note that all sections must be completed.
Once you have completed the form, both signing it and dating it we ask that you scan and e-mail
the form to ap@schwing.com or fax the form to 651-287-0413.
Since payment via ACH is both faster for you and less costly for us, this payment method is now
our preferred payment method. Presently, payment to you via ACH is optional; however, in the
near future Schwing America will require that you accept ACH payments or be assessed a
processing fee to cover the cost of remitting payment via check.
•You will receive payment directly
into your checking account instead
of waiting for the USPS to deliver a
paper check.
•You will also receive via e-mail a
payment advice detailing which
invoices were paid.
Should you have any questions or require additional information, don’t hesitate to contact me.
Best regards,
Paul W. Steffensen
Paul W. Steffensen
Treasurer
An electronic copy of this letter can be found by going to
http://www.schwing.com/pages/news/index.html and selecting the corresponding press release.
5900 Centerville Road w Saint Paul, MN 55127 w www.schwing.com w Phone: (651) 429-0999 w Fax: (651) 429-3464
Subsidiary of Schwing GmbH
•In the near future Schwing America
will require that you accept ACH
payments or be assessed a processing
fee to cover the cost of remitting
payment via check.
26
MapQuest for Payment Pioneers
Starting point:
Trip to:
Distance:
Land of Checks
Electronic Payment Zone
Shorter than you think
1. Start out by recognizing that you can change now or
change later, but change is unavoidable
2. Merge accounting and banking systems with either lowtech or high-tech solutions
3. Don’t be afraid to experiment in order to control risk and
obtain insights
27
Contact Info
Dale.Sorenson@associatedbank.com
Sharon.Jablon@theclearinghouse.org
28