How Small Businesses Can
Improve Their Payments Processes
Valjean Sanchez
Senior Vice President, Union Bank
Claudia Swendseid
Senior Vice President, Federal Reserve Bank of Minneapolis
Lyle Wallis
Vice President of Research, Credit Research Foundation
September 12, 2012
Today’s Objective
 Problem: Small businesses don’t receive adequate
support from banks & other providers to enable them
to use efficient & cost-effective electronic payment
processing, & related electronic invoicing & account
reconciliation services
 Presentation’s Objective: Provide SBDC staff with
information to use to educate small business
customers about electronic payments & related
processes, as well as available services to improve this
aspect of their business
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Today’s Agenda
1. Introduce Ourselves
2. Discuss Each Step in the Business-to-Business Purchase to
Pay Process & How to Make These Steps Electronic
• Electronic Invoicing
• Electronic Payments
• Electronic Remittance Information
3. Remittance Coalition – Getting Involved
4. How Small Businesses Can Leverage Bank Services More
Effectively to Support Electronics
Discussion: How to Explain & Promote EP to Small Biz
Disclaimer: The views expressed are those of the speakers and not their employers.
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Who We Are
Claudia Swendseid
Senior Vice President
Federal Reserve Bank of Minneapolis
Minneapolis, MN
 Member of the Bank’s Management Committee & provides executive
oversight to FedACH Support Services, Electronic Access Customer Contact
Center (CCC), Federal Reserve Consumer Help, FedLine Channel Products,
Information Technology Department, National IT Service Desk, Enterprise
Program Management Support Office, & Payments Information & Outreach
Office
 Conducts industry relations on behalf of the Federal Reserve System, serving
as a liaison to selected national banking associations & corporate payments
groups
 Represents the Federal Reserve to the Accredited Standards Committee (ASC)
X9 & serves as the vice chair of the X9 Board of Directors
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Who We Are
Valjean Sanchez, AAP, CTP
Senior Vice President
Payment System Operations
Union Bank
Monterey Park, CA
 30 years experience in Banking & Treasury Management
 Currently working on special payment related projects based on 16 years of
product management for receivables, payables, ACH, wires, image checks,
lockbox, account reconcilement & positive pay
 Focuses on products to service the needs of various markets including small
business, middle market & large multinational corporations
 Participated on various National Automated Clearing House (NACHA) work
groups & served as the Business to Business Payment (B2B) co-chair on the
NACHA Council for Electronic Billing & Payment for 4 years; served on the
Western Payments Education Committee
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Who We Are
Lyle Wallis, CCE
Vice President of Research
Credit Research Foundation
Westminster, MD
 Has 39 years experience in the commercial credit field
 Joined CRF in 1998 after previously being associated with London Fog, Euler
Hermes ACI, & General Electric Capital Corporation
 Focuses on project development & education at the CRF
 Serves as the executive editor of CRF’s quarterly trade journal, The Credit and
Financial Management Review
 Graduate of The Graduate School of Credit & Financial Management at
Dartmouth College
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Electronic Invoicing
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Electronic Invoicing & Billing Solutions
Common abbreviations:
 EIPP - Electronic Invoice
Presentment & Payment
 EBPP - Electronic Bill
Presentment & Payment
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Purchase to Pay Process We’ll Discuss
Back office:
ERP
PO initiation
 Invoice
matching
A/P
Back office:
ERP
PO Receipt
A/R
 Payment
matching
Purchase Order
Goods
Invoice
Make Payment & Provide Remittance Info
Buyer
Supplier
Initiate Payment
Clearing
Initiate
Payment
Notify of
Payment
Buyer’s Bank
Processor
Supplier’s Bank
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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How Electronic Invoicing Solutions
Work
1. Billing information generated by seller & transmitted
to buyer
2. Customer receives & reviews for accuracy
3. If information is correct, customer approves bill for
payment
4. If information fails to match, a change (e.g.,
deduction) can be created & sent to the seller
5. Payment & supporting remittance detail are
transmitted to seller
 Steps 1-5 above are conducted electronically/on-line
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Invoice Costs: Paper vs. Electronic
Printing &
Mailing
Invoice
Issuer
Paper
Electronic
Payment
Reminder
Electronic
Archiving
Total
$5.66
$0.73
$6.53
$3.19
$16.11
$0
$0.58
$4.35
$1.45
$6.38
Receive Codify
Invoice
Recipient
Paper
Remittance &
Cash Mgmt.
Validate
& Match
Dispute
Mgmt.
Payment
Archiving
Total
$1.59
$4.35
$5.80
$3.63
$6.96
$3.19
$25.52
$0
$0.58
$1.74
$2.90
$4.21
$1.16
$10.59
Source: Billentis, 2009 cited in Customer Self-Service in B2B Order to Cash, Genpact, 2012
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Payments Processing Is Costly
for Small Biz
The cost of processing payments is higher for small businesses
compared to the industry average:
Using electronic payments & remittance information, the cost
could be reduced by 71-77%, or $3.08 to $3.30 per payment
Sources: 2006/2007 Study of Small Business Payment Preferences by Dove Consulting/Hitachi Consulting; Aberdeen Group, SMB: High
Costs Aren’t the Only Problem, September 2008; Small Business Payables & Receivables Survey, Cash Edge/Fiserv, January, 2011
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Federal Gov’t Leading the Way
Small businesses that want to do business with the federal
government need to get on board with electronics:
 Federal Government is pushing EIPP & EBPP
implementation on trading partners
 In 2011, the U.S. Financial Management Service:
― Disbursed more than $2.1T non-defense payments; 84% of which
was via electronics
― Collected more than $3.06T; 96% of which was via electronics
• Pay.gov offers tools for small businesses to use to pay
federal agencies
Source: U.S. Dept. of the Treasury, Financial Management Service, Key Statistics 2011
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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EIPP: A Win-Win for Buyer & Seller
Productivity is improved as entire payment process is
automated
Benefits to buyers:
 Can validate every invoice received automatically
 Knows who/what the payment is for as key invoice information
is attached
 Eliminates/reduces past due payments
 Maximizes rebates & incentives
 Gets remittance info sooner
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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EIPP: A Win-Win for Buyer & Seller
Benefits to sellers:
• Can capture data on customer
spending & buying habits more easily
• Accelerates cash flow & reduces days sales
outstanding
• Saves time on billing
• Reduces postage
Benefits to both:
• Can store payment history automatically
in electronic repository & retrieve easily
• Go green; less paper
© 2012 Federal Reserve Bank of Minneapolis. Materials may not be used without consent.
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Stumbling Blocks to EIPP Adoption
 EIPP solutions can be expensive to implement
 Integrating EIPP technology into existing systems &
processes can be hard
 Some accounts payable software doesn’t support Internetbased invoice payment solutions
 Some businesses are reluctant to adopt new technology
 Some trading partners don’t want to use EIPP
 EIPP solutions aren’t standard
 Banks & other service providers don’t provide the
education, support & services that businesses need to use
EIPP
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Small Business
Payments - An Overview
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Small Biz Touches 7 out of 10
U.S. Payments
Source: Cited in BAI’s Small Business Payments in 2006 report distributed at its TransPay Conference May, 2006
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#1 Method Used by Small Biz: Checks
Source: Visa Small Business Payment Panel Study, 2007
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Collecting Payments is Small Biz
Priority
• About 1/3 of small
businesses say
collecting payments
is their top business
challenge
Source: The Next Payments Frontier: Electronic Payment Acceptance & the Small Business Market, May 2008
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Small Biz Reasons for Accepting
Payment Methods
Source: The Next Payments Frontier: Electronic Payment Acceptance & the Small Business Market, May 2008
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Business to Business (B2B)
Electronic Payments
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B2B Electronic Payment Options
 Wire transfers
 ACH
 Cards
― Credit Cards
― Debit cards
― Corporate
― Procurement cards
― Fleet cards
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Wire Transfers
 Credit payments only
 Each individual transaction
is processed immediately
(RTGS)
 Once posted or
acknowledged, transactions
are final & irrevocable
 Mainly used for time-
critical &/or large-value
domestic payments, &
international payments
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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ACH (Automated Clearing House)
The ACH is a batch processing, store & forward system used
for payments & information (e.g., remittance)
1. Businesses & consumers (originators) send ACH payment instructions
(credits & debits) to their financial institution (FI) for processing
(Originating Depository Financial Institutions or ODFI)
2. ODFIs create & send electronic
files of similar types of ACH
payments to an ACH operator
for processing & routing
3. Operator routes ACH payments to
the
appropriate receiving FI (RDFI) who
applies payments to customer
accounts & notifies customers of
transactions
4. ACH payments settle in 1 or 2 days
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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ACH
Examples of Common ACH Payments
• Direct deposit, e.g., payroll & social security
• Preauthorized debits, e.g., mortgage, utility, taxes
• ACH “E‐Check” - check to ACH conversion
- Account Receivable Conversion (ARC)
- Point‐of‐Purchase (POP)
• Web (WEB) & Telephone (TEL)
• Business-to-business (CCD, CTX)
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Steady Growth in B2B Wires & ACH
18.4%
Grown
18.4%
growth
since
2007
Source: Federal Reserve Bank statistics
Source: NACHA website, June 2012
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Cards
Source: Federal Reserve Bank of Philadelphia, Payments Card Center, March 2011; based on data from First Annapolis Consulting,
Commercial Card Market Landscape, December 2009
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©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
B2B Electronic Payment
Adoption Issues
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Which Small Biz Accept More
Electronic Payments?
Characteristics of Small Businesses...
That Accept Electronic
Payments
That Do Not Accept Electronic
Payments
• Mainly in healthcare & retail
• Mainly in consulting, services &
construction
• Multiple employees & annual
revenues of >$1M
• Small/sole proprietorships with
revenues of <$1M
• Primarily B2B with low typical
transaction amounts (<$200)
• Primarily B2B with high typical
transaction amounts (>$500)
• Report delays in payments & higher
rate of bounced checks
• Report higher overall failure to pay
rate
• Transact over web
• Do not transact over web
Source: The Next Payments Frontier: Electronic Payment Acceptance & the Small Business Market, May 2008
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Benefits of B2B Electronic Payments
Adoption
Top Three Benefits of Electronic
Payments
Annual Revenues
less than $1B
Cost savings
Improved cash forecasting
Straight through processing to A/P or A/R
Fraud control
More efficient reconciliation (enables this)
Working capital improvement
Better supplier/customer relations
Ability to take early payment discounts
Reduction in days sales outstanding
55%
42
38
37
36
26
20
20
18
Source: 2010 AFP Payments Survey
© Federal Reserve Bank of Minneapolis. Materials may not be used without consent.
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Electronic Remittance Information
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Remittance Data Defined
Information shared between a buyer & seller to give
a detailed accounting of what the payment is for
Buyer initiates remittance data to:
• Inform seller of payment details
• Justify amount being paid
Seller uses remittance data to:
• Close an open accounts receivable entry
• Acknowledge that payment was received
• Determine other liabilities (e.g., adjustments,
rebates, promotional efforts, special pricing, etc.)
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Exchanging Remittance Data
Electronically: Typical Problems
 Complete remittance data isn’t provided – lack
information needed to reconcile
 Too many alternatives for remittance exchange & too
many variations of remittance data standards
 Matching payments to remittances may be difficult
when received separately
 Payments & accounting systems aren’t integrated
 Trading partners won’t/can’t accept electronic
remittance data
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Why Automate Remittance Data?
Benefits of automating processing of
payments & remittance information:
• Enable more efficient automated
reconciliation of payments &
remittance data
• Identify & resolve discrepancies faster
• Achieve cost savings
• Maximize rebates & incentives
• Reduce fraud risk
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Small Biz E-Payables Capabilities
Lag Industry Average
Source: Aberdeen Group, SMB: High Costs Aren’t the Only Problem, September 2008
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Remittance Coalition
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Remittance Coalition
What it is National group of associations, small &
large businesses, financial institutions, vendors,
standards development organizations, & others
 Formed in 2011
 100 members & growing
 ASBDC is a member
Mission Work together to solve problems related to
processing remittance info associated with B2B
payments in order to promote use of electronic
payments & straight through processing
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Remittance Coalition
How? Promote more unified standards, processes, &
automated tools that support:
 B2B electronic payments
for all sizes/types of businesses
 Originating & delivering
electronic remittance
information that can be
associated easily with the
payment
 Straight through processing
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Current RC Projects
1. Survey of business practitioners
 Identified pain points related to remittance processing
 Evaluated proposed solutions to remittance-related
problems
 SBDCs participated in survey
2. Create glossary of remittance-related terms
3. Implement “best practice” processes to use existing
standards more effectively – e.g., simplify & standardize
use of discount & adjustments codes
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Current RC Projects,
continued
4. Educate businesses, especially small ones, on how
to adopt electronic payments & streamline
remittance processing
5. Inventory existing standards & their use; & develop
new technical standards to address gaps
6. Work with vendors to support electronic remittance
formats in order to enable automatic reconciliation
with electronic payments
© 2012 Federal Reserve Bank of Minneapolis. Materials may not be used without consent.
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Current RC Projects,
continued
7. Support effort to develop ISO 20022 extended
remittance information standard
8. Promote information about & use of newly available
standards, such as wire ERI & the Balance &
Transaction Reporting Standard (BTRS)
9. Future: Develop standards to create
interoperability among proprietary B2B directories
that list businesses & how to pay them
© 2012 Federal Reserve Bank of Minneapolis. Materials may not be used without consent.
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RC Survey Highlights
 Issue: Despite the benefits of using electronic payments &
remittance alternatives, B2B checks remain popular. Why?
 Methodology:
 Online survey of AFP, CRF, IFO, NAPCP, & ASBDC members
 Data collected June 5 - July 6, 2012
 612 respondents
 Objectives:
1) Assess perception of major obstacles or “pain points” hindering
use of electronic payments & remittance processing
2) Find out most effective solutions to encourage adoption of
electronic alternatives to checks
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Common Pain Points with
Remittance Processing
Source: 2012 Remittance Coalition Survey
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“Common Business Practices”
Seen as Most Effective Solution
Source: 2012 Remittance Coalition Survey
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Next Steps with SBDCs
Remittance Coalition & SBDCs can work together to
address payment & remittance processing issues of small
businesses:
 Educational materials for use
by counselors to assist clients
in choosing best options for
making & receiving payments,
exchanging information,
& reconciling payments
 Webinars on payment &
remittance topics
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Join the Remittance Coalition!
To join the Remittance Coalition,
send an email to:
Deb.hjortland@mpls.frb.org
You will receive a new
member welcoming packet
by email, with information on
how to get involved in our
work
© 2012 Federal Reserve Bank of Minneapolis. Materials may not be used without consent.
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Small Businesses & Banks
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Small Biz Payments & Remittance
Integration Needs Not Addressed
 Existing banking & vendor solutions don’t address small biz
needs adequately
 E.g., Intuit’s “QuickBooks” doesn’t integrate readily with
NACHA ACH formats
 Insufficient information & education
about existing solutions &/or new
initiatives
 Many banks don’t educate small biz
customers effectively about best
services & solutions
 Small biz may not know how to
approach bankers for help
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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What Small Biz Want from Banks
Payment/Banking Services that Small Businesses Want
% of
Small Biz
Straight-through processing of payments from business to bank
70%
Identity-management platform that safeguards business identity &
protects accounts when conducting business electronically
70%
Electronic payments package integrating accounts payables,
accounts receivables, & expense tracking
65%
Bank services that are easily integrated into payroll & HR systems
60%
Live intraday financial position information
55%
Automated card-based, expense-processing system that ties in key
partners
50%
Source: BAI Study, 2006
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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How Some Banks Address Small Biz
Market
Web
Designed
for Small
Business
Secure & convenient
access via web & mobile
Single
Portal
Vendors employed by bank;
Banks work with vendors employed by
small business
Internet
Help yourself/ Self service
Back Office
Integration
Transmissions
to & from the
bank through
the web; formats
being addressed
Vendors
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Know Your Business
Who?
• Who pays me? Who do I pay?
• Consumer? Businesses? Both?
Why?
• Ad hoc purchase?
• Scheduled recurring: fixed/varied amount?
How?
• Checks?
• Electronics? For: Taxes? Utilities? Rent? Payroll?
• Have business partners requested other
payment methods?
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Know Your Business, continued
Posting?
Costs?
• Need remittance data?
• Simple data? Complex data?
• Employee time spent?
• Costs related to fraud?
• Costs related to payment process?
• Know your pain points
Solutions? • Research opportunities
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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More about Solutions
Ask
• Consulting support
• Associations
• Web research
Connect • Treasury services/ Cash management services
Demo
• Does this meet your needs?
• Ask for alternatives, ask about support
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Discussion
1. How can electronic invoicing, payment & remittance
solutions best be explained & promoted to small
businesses?
2. How can we work with the SBDCs to improve
education & services to small businesses?
©2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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Claudia Swendseid
Valjean Sanchez
Senior Vice President , Payment System Operations
Union Bank
Monterey Park, CA
Senior Vice President
Federal Reserve Bank of Minneapolis
Minneapolis, MN
Phone: (323) 278-4780
Email: Valjean.Sanchez@unionbank.com
Web site: www.unionbank.com
Phone: (612) 204-5448
Email: Claudia.Swendseid@mpls.frb.org
Web site: www.frbservices.org
Lyle Wallis
Vice President of Research
Credit Research Foundation
Westminster, MD
Phone: (443) 821-3000
Email: Lylew@crfonline.org
Web site: www.crfonline.orgine.w.crfonline.org
© 2012 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent.
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