B 2 B Payment Processing: The Efficient Frontier James P. Gilligan, CTP Senior Manager, Corporate Treasury Great Plains Energy | Kansas City Power & Light Company Utility Payment Conference New Orleans; Sept. 19 – 22, 2011

2 Questions for the audience Do you know what C 2 B means?... B 2 B? Do you know what DSO is? Do you know what Working Capital is? Do you know what the Cash Conversion Cycle is?

3 B 2 B Payment Landscape

4 Current B 2 B Payment Landscape Getting a handle on the numbers can be difficult Percentage of B 2 B Check Payments: Source: 2010 AFP Electronic Payments Survey In 2004 this was 81% In 2007 this was 74%

5 Current B 2 B Payment Landscape Trends Over Past 2 Years How Payments are Made Source: Aberdeen Group, June 2008 * Card payments within A/P is the fastest growing payment option and are expected to surpass ACH B 2 B volume by 2012

6 Current B 2 B Payment Landscape The B2B market has been and continues to be the toughest sell for electronic payments. And for good reason, some would say... Companies want to collect payments at the speed of light, but would prefer to disburse funds by Pony Express

7 Current B 2 B Payment Landscape The Bottom Line ▫The use of paper checks to make B2B payments continues to decline ▫However, most B2B payments continue to be made by check ▫Large organizations are more likely to use electronic payment methods ▫Electronic payments play a bigger role in transactions with major trading partners

8 The problem with B 2 B Payments It’s all about the money  Payers want to control timing  Payers may want to renegotiate terms It’s a logistics nightmare  Payer’s need payee’s bank routing number, account number and instructions for remittance data delivery and technology Getting remittance information is difficult  List of invoices paid and amount  Explanation of short pays, discounts and deductions  Associating the data with an inbound payment  Getting this remit data into a digital, system-readable form  Matching remit data to receivables data and posting payment

9 Top factors driving businesses to switch to electronic payments Source: Aberdeen Group, June 2008

10 Source: Aberdeen Group, June 2008 Definition of Maturity Class Mean Class Performance Savings vs. Paper checks Best-in-Class: Top 20% of aggregate performers 80% of overall payments processed by electronic methods 38% savings Average: Middle 50% of aggregate performers 30% of overall payments processed by electronic methods 33% savings Laggard: Bottom 30% of aggregate performers 7% of overall payments processed by electronic methods 26% savings Aberdeen’s Maturity Framework: Electronic Payments

11 KCP&L Focus on e-Payments and Process Automation

12 KCP&L Background Founded in 1882 Electric only IOU (NYSE: GXP) 823,000 customers/3,200 employees Acquired Missouri Aquila customers in 2008 $2.3 Billion Revenues in generating stations – 6.6 MW  Nuclear  Coal  Gas  Wind

13 KCP&L Transformation since 2005

14 KCP&L Customer Payment Options

15 Residential Payments Source: KCP&L Residential Payments Jan - July 2011

16 Residential Electronic by Channel Source: KCP&L Residential Payments Jan - July 2011

17 Commercial Payments Source: KCP&L Commercial Payments Jan - July 2011

18 Previous C 2 B Payment Issues Multiple 3 rd party vendors offering electronic payment choices to our residential customers ▫Separate files sent to us by multiple vendors ▫Files with different formats ▫No validation of customer account numbers/data ▫Some vendors still sending check & lists ▫No visibility into payments received when asked by our customers ▫Payments received meant for another biller

19 How KCP&L automated C2B Payments e-Box Online Bill Pay Websites Receivables Manager e-box Decisioning CheckFree Metavante MC RPPS Others Pmts Stop / Pos / Xref File Stop / Pos / Xref File Data Feed Posting File

20 Current State of C 2 B Payments with e-Box Single source for all on-line bill payments Processing features enable faster, accurate processing of payments ▫On-line Decisioning for returns and corrections ▫Cross-references to handle recurring errors ▫Posting to multiple billing systems

21 Previous B 2 B Payment Issues Incomplete data prohibited prompt processing ▫No addenda information at all ▫Missing, unreadable or incorrect customer information Manual posting to CIS system required ▫Customers don’t receive timely credit, creating penalty charges ▫CIS feeds to G/L, delay could create inaccurate statement of financial results at reporting periods ▫Considerable staff time researching payments

22 Previous B 2 B Payment Issues - ALA Account Link Advantage (ALA) ▫Our homemade solution to automating B2B payments ▫Customer signs-on to portal to access all their accounts ▫Customer must indentify which accounts are being paid and the amount ▫Customer must electronically send payment that matches exactly to entered amount of payment

23 Why the focus on B 2 B now by KCPL? Improvement in Cash Working Capital means enhanced liquidity and lower borrowings – a strategic advantage ▫Reduced Float ▫Improved Days Sales Outstanding (DSO) ▫Faster posting of payments due to accuracy

24 TreasuryAPTreasuryBusinessAR Purchase services, goods or raw materials Payment for purchases Production of goods Inventory holding period Sale of Goods Collection of payment Cash Treasury

25 Why the Focus on B 2 B Now Greater Customer Satisfaction ▫Improves efficiencies for our largest customers, often resulting in lower costs for them as well ▫Eliminates penalties for late payments ▫Accurate posting of payments Better Relationships ▫Our customers appreciate improved technology ▫We aren’t your typical utility – not difficult to deal with ▫Rate increase requests aren’t met with animosity Reputation Risk ▫News stories are positive rather than negative ▫Our community values us as a corporate citizen

26 Products/Services drive Reputation Top 3 reputation Drivers for Utilities 1.Governance 2.Products and services 3.Citizenship

27 KCP&L Tier 1 Customer Sat Index

28 DSO reduction Accelerate customer payments ▫Lockbox ▫Remote Deposit Capture ▫Check conversion to ACH ▫Web Presentment and payment ▫Electronic Funds Transfer (EFT) Receivables data integration – enables business process automation 28

29 DSO reduction Account Receivable Days Sales Outstanding ▫DSO: avg # of days to convert a sale (A/R) into cash Working capital drivers Accelerate customer payments Automate cash application process & reduce exceptions [AR] [Annual Sales]

30 Challenges we faced with B 2 B electronic payments No standard format for remittance information ▫Payment type options available  CCD/CCD+/CTX Who is the appropriate customer contact? What tools should we use in our campaign? How do we aggregate payment details and auto-post?

31 The Efficient Frontier - How KCP&L is automating B 2 B Payments Accounting System / ERP ACH Credits/Debits Incoming Wires Online Bill Payments Desktop Deposit ® Receivables Manager Data files Lockbox Payments Consolidated Data File Consolidated Data File

32 B 2 B Payments Implementation Plan Implementation Plan ▫Pilot Target  Automated PayMode receipts as first test  Convert existing ALA customers with focus on the entity with the most difficulty “getting in right”  Expansion to other ALA customers (KCP&L’s largest customers)  Add customers that have asked to automate ▫Full Market Rollout 4Q 2011

33 B 2 B Payments Implementation Plan Targeted Pilot Customers ▫Soft roll-out to a targeted large commercial customers ▫Current users of technology ▫Conversations one year in advance of implementation ▫Work with banking partners to smooth transition ▫Partner with CSR’s and Marketing Reps to keep communication lines open

34 Q & A

35 Contact Me James P. Gilligan, CTP Senior Manager, Corporate Treasury Great Plains Energy | Kansas City Power & Light Company 816 /