Michigan Community College
Business Officers Association
Turning A/P From a Cost to a Profit
Center
November 08, 2012
Presented by:
Agenda
I.
Payment Industry Trends
II. Card Program Fundamentals
III. Primary Value Proposition
IV. Payment Optimization Strategies
V.
Industry Best Practice Highlights
VI. PNC Card Services Overview
VII.Questions
2
Payment Industry Trends
3
Payment Industry Trends
Migration From Checks to Electronic Payments
*PayStream Advisors: Value of Purchasing Cards 2012
4
Payment Industry Trends
North American Purchasing Card Spending ($B)
PROJECTED
*2012 RPMG Purchasing Card Survey
5
Payment Industry Trends
Purchasing Behavior and Performance (2012 RPMG)

On average, 52% of transactions under $2,500 were paid with a purchasing card

On average, 31% of transactions between $2,500 and $10,000 were paid with a
purchasing card

Average organizational purchasing card spend is expected to increase over the 2011 base
year by 8% in 2012, by 26% by 2014 and by 48% by 2016

The most common use of purchasing cards is for office supplies, MRO, computer hardware
and software and peripherals

Electronic Accounts Payable (EAP) spend grew by 67% in the two year period from 20092011 – increasing use of cards as an alternate means of supplier payment!
6
Card Program Fundamentals
7
Card Program Fundamentals
Deployment Across the Procure to Pay Cycle
Organizations capturing the greatest percentages of transactions and spend have multiple card
programs
Non-Distributed Cards
Card Building Blocks
Distributed Cards
Employee Purchasing cards



Employee Travel cards
For smaller dollar decentralized purchasing
Reduces time for receipt and payment of goods
A lot of value for both buyer and vendors



For travel & entertainment expenses
Preferred method of payment for these vendors
Improves financial controls (SOX compliance)



Single Use Card Accounts
For one time payment vendors
XML capabilities through Web Services
Improves payment cycle time



Ghosted Purchasing cards
For preferred (contract) vendor ordering
Facilitates online ordering and payment
A lot of value for both buyer and vendors



Electronic AP cards
8
Payments requiring backend approval
Enables card settlement on PO’s
Automated solution for both push &
pull approaches
Card Program Fundamentals
Deployment Across the Procure to Pay Cycle
Distributed Cards
Ghost Cards
Electronic AP Cards
Account
Issuance
Physical cards held by
employees
16 digit account #
housed by vendor
16 digit account #
Spending Limit
Monthly discretionary
maximum
Monthly discretionary
maximum
$0 – incremented by
approved amounts only
Other Controls
MCC, transaction size,
frequency
MCC, transaction size,
frequency
MCC, transaction size,
frequency
Card
Presentment
Point of Purchase
Charged upon
Fulfillment/Service
Delivery
Upon receipt, approval and
payment decisioning –
push and pull options
Transactions
Served
Non P.O. indirect spend,
travel & entertainment
Selected centralized
vendor relationships –
air travel, overnight
courier, supplies, temp’s
Strategic spend requiring
continued procurement,
receiving and approval
processes
Mixture of default
mapping, cardholder
reconciliation and
export
Centralized
reconciliation assisted
with cost center or
department ID passed
with transaction record
Existing approval and
accrual process unchanged
– payable relieved when
approved and file sent to
PNC
Accounting
9
Card Program Fundamentals
Risk Mitigation/Compliance Considerations
Traditional Point of Sale Controls
 Merchant category controls (MCC)
 Per transaction spend limits
 Daily, monthly, & annual spend limits
 Velocity limits
Management Visibility into Spend
 Real time visibility into recent authorizations
 Next day visibility into processed transactions
 Reporting of potential exception activities
Fraud Monitoring
 PNC provides proactive fraud monitoring 24x7 through the analysis of suspect
spending patterns
 Utilizing an intelligent neural network that risk-rates the probability of fraudulent
transactions based on a card’s past spending history and PNC determined fraud
criteria queues
Liability Waiver Coverage
 Provides insurance coverage addressing cardholder misuse up to $100,000
 Covers posted transactions surrounding notification of termination
 Covers 75 prior to, and 15 days from, notification of termination
10
Card Program Fundamentals
Electronic AP Card Solutions - Overview

Assists clients with the conversion of their accounts payable payments from check to
electronic card payments

Payor-initiated solution which allows clients to produce a “card run” from their
Accounts Payable System … with subsequent settlement execution through the card
payment network

Systemic funding of vendor for approved payments

Combined with delivery of electronic remittance information

Variety of Supplier settlement solutions

Opportunity to penetrate more strategic spend
11
ActivePay for Accounts Payable
Card-based Payment Mechanism
Push Settlement

Current Process Remains the Same

Invoice

Funds directed to suppliers
established merchant service
account
Electronic remittance advice
directed to supplier
Supplier funded in 24 - 48
hours
Pull - Single Use Settlement

ActivePay
Sourcing
Receiving
Voucher
Payment
Decision




Approved funds added to single
use card account
E-mail directed to supplier
Supplier will obtain single use
card account number,
expiration date, CVV
Supplier funded in 24-48 hours
Company manages approved
payments which remain
outstanding
AP Card Benefits

Retention of current sourcing, approval,
and payment decisioning

Significant increase of card penetration into
overall spend…resulting interchange
revenue sharing potential

Natural extension in payment terms

Elimination of check-based execution
costs: postage, banking fees, etc.
Pull – Dedicated Settlement





12
Approved funds added to
dedicated supplier card account
Electronic remittance advice
directed to supplier
Supplier processes along with
other card transactions
Supplier funded in 24 – 48
hours
Company manages approved
payments which remain
outstanding
Card Program Fundamentals
Electronic AP Card Solutions – Key Control Considerations

Current sourcing, approval and AP processing activities are unaffected

Accounts are only funded for amounts approved and authorized

No card account details are housed within Accounts Payable environment or are
transmitted to PNC

Automated transmission of payment authorization file to PNC

No physical card issuance

PNC solutions fully PCI-DSS compliant – protecting payment details

Fraud monitoring and reporting

PNC has experienced $0 fraud across our epayables programs since inception in 2004
13
Value Proposition
Efficiency, Revenue Share, Float, and Other
Technology Benefits
14
Value Proposition
Benefits of Card Programs
Convenience ranks as the number one benefit of p-card programs, followed by the receipt of
rebates
*2012 PayStream Advisors
15
Efficiency
Traditional Procure to Pay Model Characteristics
 Integration and confirmation of receiving function prior to payment decisioning
 Forces approval and compliance of company business rules prior to payment
 Complete vendor file – timeliness and accessibility to this vendor data varies by
system (more problematic in older legacy deployments)
 Complex requisition rules/interface can promote maverick spending with associated
exception request for disbursement workflow – degrading A/P processing efficiencies
 Expense and complexity of maintaining vendor file – particularly for one-time vendors
or other small dollar items
 Generally characterized by a relative high cost to process
16
Efficiency
Charge Coding Card Transactions
GL Coding and
Transaction Splitting
Enhanced Data,
Level I, II, & III
Approval Rules and History
 Review, validate and enhance transaction details
 Custom Charge Coding access, transaction splitting,
complex tax estimation
 Receipt integration
 Reviewed transactions will be automatically available
for Approval or Extract
17
Interchange Revenue Sharing

Accepting merchants are assessed interchange fees for access to the card
processing network (Visa, MC, AMEX, etc.)

PNC, as a Card Issuer receives a portion of the interchange and can share a portion
of the interchange they receive

Rebates paid on qualified spend – use of tiers to determine appropriate rebate (top
tier applied to all spend)

PNC can either rebates or reward models through Visa Extras

Financial proposal impacted by billing cycle length, payment terms, number/size of
expected transactions
18
Payment Float
Working Capital and Payment Float Impacts – Electronic AP Cards
Billing Cycle: Your company is able to choose any date between the 4th and the 25th of the month, or the 27th of the month,
for the end of its billing cycle. PNC Bank’s standard billing cycle period is 30 calendar days.
Date
6/7
6/10
6/13 6/16
6/19
6/22
6/25 6/28
7/1
7/4
7/7
7/10
7/13
7/16
Days
0
3
6
12
15
18
24
27
30
33
36
39
9
Vendor Purchase
Traditional
CheckBased
Settlement
Card-Based
Settlement
21
Vendor Payment Terms n/30
Traditional
Check Payment
Payment Terms:
7 Days
Check to
Vendor
Check Payment
to Vendor
7/19 7/22
42
45
7/25
7/28
7/31
8/3
8/6
48
51
54
57
60
Payments to vendors can be made on any
day throughout the PNC Billing Cycle, we
are assuming that on average, you
company will pick up 15 days of Payment
Float based on the 30 day PNC Billing
Cycle. Additional payment float days can
be gained based on 7 payment terms.
ACH to
PNC
22 Day Average Float Extension
Payments made to Vendors throughout Billing Cycle
PNC Billing Cycle
Start Date
PNC Billing Cycle
End Date
19
Other Technology Benefits
IntelliLink Spend Management
 Intellilink offers a suite of tools and
services that includes everything from
reporting… to expense management…
straight through to data integration.
 It is a comprehensive, data-rich solution
that gives you unparalleled access to the
information you need – whenever you
need it.
 Gain greater visibility into company spend
– locally and globally.
 Manage transactions, services and
permissions quickly and easily.
 Set up custom email alerts to signal key events and stay informed, including things
like approvals, availability of reports or statements, and specific program thresholds.
 Key features are always available with a minimal amount of clicks, and contextsensitive help provides immediate information relevant to whatever feature you’re
currently using.
20
Other Technology Benefits
Online Expense Management and Reporting
Advanced Expense
Management Features:
 Custom Approval Flows
– Parallel
– MCC Based
– Transaction $
 Out of Pocket Transactions
– Mileage
– Custom Rate Tables
– Cash Payment
Extracts
 Delinquency Management
 Complex Tax Estimation
 Complex Policy Integration
– If/Then
– Policy Reminders
– Mandatory Rules
– Question Based
– Violation Monitoring
 Receipt Management
– Scanning
 IntelliLink can be accessed via smart phone
 Captured receipts can be uploaded in the following
formats (GIF, TIF, JPG, JPEG, PDF, XLS or XLSX file)
21
Other Technology Benefits
Interactive Program Reporting/Business Intelligence

User Friendly Interface

Wide array of interactive report templates

Customizable report parameters – user defined
filters and output formats

Multiple report formats – including Excel and PDF

One-click statements

Schedule reports for delivery directly to your
homepage

On-Demand Access

Role and Hierarchy based access

Robust Reporting enables Strong Program
Management
– Expenditure Analysis
•
Know what, where, and how your
cardholders are spending
– Company Administration
•
Stay on top of month end
reconciliation and approvals
– Usage and Monitoring
•
Identify and correct out-of-compliance
spending
22
Payment Optimization Strategies
23
Payment Optimization Strategies
Understanding Payment Economics
*Revenue Share based on rebate of 100 bps. Float based on 3% Cost of Capital.
24
Payment Optimization Strategies
Creating an Optimal Payment Mix
While it is not feasible to pay all suppliers with card, by deploying a payment
protocol model of card first, ACH second, and check last, Company’s can
migrate toward an optimum payment mix.
Misc. Expense, Local Procurement and Individual Travel
Centralized/Recurring Expenses (Temp Help, Office
Suppliers, Courier, Large Ticket Travel)
Smaller Dollar – Recurring
& Non-Recurring
Vendor Ghost Card –
E-Commerce with Card
Card Based Settlement, ACH
and Check
Remaining Direct &
Indirect Spend
Capital Markets,
Fiduciary, Tax,
Cap Ex
Distributed – P-Card &
T&E Card
Card Based Settlement, ACH
and Check
Wire Transfer, ACH and Check
25
Payment Optimization Strategies
Creating an Optimal Payment Mix – Vendor Identification/Engagement
PNC Vendor Analysis
 Analysis of vendor base to
determine which vendors are
likely to take cards
 Focus on suppliers accepting
currently card payments
Vendor Engagement
 Communication with potential
suppliers
 Length and scope of calling
campaign
 Procedural, scripted discussion
 Do not negotiate alternate terms
Other
 Modify future bid language to
reserve right to pay via card
 Optional merchant service
enablement
$
5 Year Value of AP Program
3,106,592
Client File
Transactions**
Sample Vendor Analysis
165,140
Spend
$
1,031,097,591
Vendor Match Summary
AP Matched Vendor Spend
PNC Matched Vendor Spend
Visa Matched Vendor Spend
ACH Matched Vendor Spend
Total Potential Vendor Spend
Conservative Vendor Enrollment
$
$
$
$
$
80% of AP Matched Vendor Spend
40% of PNC Matched Vendor Spend
15% of Visa Matched Vendor Spend
1% of ACH Matched Vendor Spend
Projected AP Spend
13,184,435
26,433,306
89,837,013
133,821,249
263,276,003
10,547,548
10,573,322
13,475,552
1,338,212
35,934,635
9,845
3,909
4,057
413
18,224
80% of AP Matched Vendor Trans.
40% of PNC Matched Vendor Trans.
15% of Visa Matched Vendor Trans.
1% of ACH Matched Vendor Trans.
Projected AP Transactions
12,306
9,773
27,048
41,280
90,407
AP Matched Vendor Transactions
PNC Matched Vendor Transactions
Visa Matched Vendor Transactions
ACH Matched Vendor Transactions
Total Potential Vendor Transactions**
$
$
$
$
$
Projected Value of PNC Based on AP Spend Analysis
Ramp up period
Existing Distributed T&E Card Program
AP Card Program + Existing Card Spend
AP Card Program Transactions
AP Card Program Average Transaction
$
AP Card Program Spend
Basis Points Earned (30/7 cycle)2
13,668
1,972 $
18,224
1,972
110% enrollment
F - Year 3
39,528,098
$
1,500,000
$
41,028,098
$
$
Value of Check Elimination
Cost of Capital 4
Value of Revenue Share5
One Time Sign-on & Performance Incentives
$
$
$
$
9,294
22,151
384,088
50,000
$
$
$
$
12,392
29,535
524,085
50,000
Annual Value of Program
$
465,534 $
616,013
120% enrollment 130% of enrollment
F - Year 5
F - Year 4
46,715,025
43,121,562 $
1,500,000
1,500,000 $
48,215,025
44,621,562 $
$
$
$
20,046
1,972 $
21,869
1,972
$
23,691
1,972
1.40%
1.40%
1.40%
$
$
$
13,632 $
32,489 $
574,393 $
14,871 $
35,442 $
624,702 $
16,110
38,396
675,010
$
620,514 $
675,015 $
729,516
1.40%
1.35%
3
26
Continued Growth1 (10% Annually)
Target Enrollment
100% enrollment
75% enrollment
F - Year 2
F - Year 1
35,934,635
26,950,976 $
$
1,500,000 $
$
1,500,000
37,434,635
28,450,976 $
$
Industry Best Practice Highlights
27
Card Usage Best Practices
Measured Performance and Improvement Strategy
Best In
Class
Average
Laggards



22% of spend captured through card
29% of vendors paid via card
28% of transactions via card



11% of spend captured through card
19% of vendors paid via card
14% of transactions via card



6% of spend captured through card
11% of vendors paid via card
8% of transactions via card
Best in Class reflects top 20% of respondents, Average
reflects middle 50% and laggards reflect bottom 30% of
respondents
Aberdeen P-Card Benchmark Report
28
 Designate dedicated p-card
administrator and empower the
position
 Energize program with
development of new policy and
limit channels to by-pass card
usage
 Educate internal stakeholders
and suppliers through formal
expansion program
 Seek greater transaction detail
 Involve p-card administrators in
strategic sourcing initiatives
 Integrate p-cards with primary
transaction systems – value of
electronic AP cards
Card Usage Best Practices
High Performing Program Commonalities

Distribution and
Access



Control


Sourcing
RPMG P-Card Benchmark Survey Report



Distribute on average twice as many cards than low performance
programs
Allow departments or business units to decide on how many cards
should be distributed
Less likely to restrict card use to only supervisors, managers,
or purchasing personnel
Have per transaction limits that are, on average, twice as high than
low performance programs
Customize monthly card spend limits depending upon
individual spending responsibility or position
Have a wider “allowable span of spend” for any given category of
goods or services
Conduct data mining of card transactions to ensure policy compliance
Restrict some or all of their card activity to “preferred vendors”
Use card spending data as basis to request higher discounts
from vendors
29
Card Usage Best Practices
High Performing Program Commonalities


Other






RPMG P-Card Benchmark Survey Report
Have a higher level of top management support than low
performance programs
Twice as likely than low performance programs to require purchasing
department to refuse to process requisitions that could be bought on
card
Increase use of ‘ghost” or “other” card accounts
Allow automatic debits (charges) to card for recurring payments
Have an ongoing method of communicating card information to
cardholders and managers
Evaluate spending patterns of cardholders with high number of
disputed transactions and deactivate unused cards
Formally audit and review card spending approval
Reduce number of vendors in AP master file because of card use
30
Industry Best Practice Highlights
Controls to Prevent Misuse
Defining card spending limits is the number one mechanism companies implement to prevent card
misuse
*2012 PayStream Advisors
31
Industry Best Practice Highlights
Steps to Increase use of P-Cards
Companies are looking to provide more and better internal education to increase p-card usage
among employees
*2012 PayStream Advisors
32
PNC Card Services
Overview
33
PNC Card Services – Overview
PNC Market Presence




PNC Experience
Strategic, growth business
7th largest Commercial Card provider
3,800 + customer programs - covering
procurement, travel and combined card
uses
Continued investment in operations
staffing and capabilities




PNC’s Integration and Support



Pioneer in Commercial Card market
One of the fastest growing issuers in the
country, since inception in 1995
Double-digit, YOY growth through
distributed card and leading-edge
payables solutions
Annual spend in 2011 over $6.9B
PNC’s Multinational Capabilities
Experienced, dedicated team support
from implementation through the life of
program
Every client relationship is viewed as a
partnership
PNC has proven experience in interfacing
with all major ERP systems including
SAP, Oracle and PeopleSoft




34
Commercial cards available in 34
countries
Multiple currencies supported including
CAD, GBP, and Euro
Support available in 15 languages
Integrated Transaction Management and
Reporting