ACH, EIPP, STP… OMG! Sifting Through the Jargon to Develop a Cohesive ePayment Strategy. 06/06/12

2 Agenda 1 3 Source: Forbes Global 2000; PayStream Advisors, 2010: Association for Financial Professionals, 2010 The current landscape and where we’re heading The options available to you How to get started 2

3 Paper-based Payables Volume is a Resource Drain for Companies of All Sizes In 2010, the Global 2000 had… 11.2 billion invoices 1 85% of invoices are paper 2 57% of payments are check 3 What is your organization’s cost for ineffective payables processing? Source: Forbes Global 2000; PayStream Advisors, 2010: Association for Financial Professionals, 2010

4 The Tide is Rapidly Shifting Source: IAPP, Accounts Payable Automation Survey, Sept. 2010

5 The Tide is Rapidly Shifting Source: IAPP, Accounts Payable Automation Survey, Sept Healthcare

6 Payment and Reconciliation Aberdeen Group May 2010 Study: "Global Payments: Maximizing Cash Flow with Electronic Payments and Process Automation" Accenture 2007 Study: "The Role of Procurement Cards in the Source-to-Settle Process" Electronic payments are a significant opportunity for cost savings Illustrative Example Only Payment Costs Reconciliation Costs

7 Which Paperless Option is Best?

8 Lots of Tools in the Payables “Tool Kit”  E-Payments ACH/EDI Commercial Cards Wire Electronic Accounts Payable –Dynamic Adjustment Accounts –Single Use Accounts –Ghost Accounts  Electronic Invoice Presentment & Payment  End-to-End Automation

9 Most Organizations Use More than One Cap Ex MROAd Hoc COGS Business Purchase Landscape CARDS ACH CHECKS WIRES EDI

10 The Options ACH Wire Transfers Cards Electronic Accounts Payable (EAP) 4 Electronic Invoice Presentment and Payment (EIPP) 5 2

11 ACH has Broad Acceptance and Uses COMMON USESBENEFITS  Collections – Utilities, Charitable, RE, Membership  Disbursement – Payroll, Dividends, Refunds, Pension Payments…  B2B Trade Payables  B2C One Time or Repetitive Collections or Disbursements  International ACH Payments  Check Conversion – ARC, BOC, POP  Decoupled Debit – POS  Return Fee Collection  Low Cost per Item  Supports both Debit and Credit  B2B or B2C  Ideal for Repetitive Transactions  Can Contain Remittance Info that Travels with the Payment – Native Electronic Payment  Ubiquitous Acceptance through Banking System  Long Established NACHA Format Supported by all ERP Systems, NACHA File Software and Services Widely Available  “Green” Alternative 1

12 Key Considerations – ACH ACH  Payables/Receivables (DR/CR) (22,32,27,37)  Payment that are the right fit for ACH? (COGS, MRO)  Payment Applications (PPD, CCD, CTX, IAT, WEB)  File creation (WEB,PC, Direct File)  Format (NACHA format, Non-NACHA format)  Addenda (STP 820, ANSI X12 formats, tax addenda)  Rules and operating guidelines? (REG E, Reg CC, UCC4A)  Returns, notification of changes, authorizations and enrollment  Driving adoption (Direct Payment, Direct Deposit, UPIC)  Remittance Reporting (EDI, Data Capture, Formatting, STP) 1

13 Wire Transfers Speed Payment Processing COMMON USESBENEFITS  Where funds need to be available immediately, and where finality of payment needs to be certain – mortgage closing, broker dealer, high dollar value B2B transactions  Can be used in conjunction with other payment types, e.g., a draw wire to fund an ACH credit file  Has high potential for wider B2B usage once the new FED wire remittance is in place  Funds available for immediate use  Initiation flexibility and security  Automated batch input can send large volumes in automated fashion  Accurate, safe, and confidential  Increased financial flexibility  Simplified transfers, repetitive and voice initiated options 2

14 Key Considerations – Wires WIRES  Type of wire input (Voice, Phone, PC, Web, Direct Connection)  Network (FED, SWIFT,CHIPS, internal)  Wire type (Repetitive, Semi-Repetitive, Free Form)  Wire cutoff times per bank but follow Federal Reserve  Security requirements  Wire instructions (valid characters for each network, BNF, OBI, BBI fields)  New FED wire remittance data  Wire reporting and advice information  Tracking 2

Cards are Easy to Use 3 CARDS COMMON USESBENEFITS  Decentralized purchases  Large number of purchases – small amounts per purchase  Travel, fuel, private aviation expenses  Easy to use  Network standardization  Transfer of risk from supplier to card issuer  Increased productivity  Revenue share opportunities  Reduced processing costs  Better cash flow forecasting

16 Key Considerations – Cards CARDS  Supplier adoption is key  Buyers need to articulate benefits to suppliers  The more spending you push onto the card, the greater the benefits to all  Consider mandating their use  Enhanced spending controls (optional)  Payment analytics can spot employee misuse (optional)  Still growing 3

17 Virtual Card Accounts CARDS 4 COMMON USESBENEFITS  Management of strategic supplier relationships  Single Use Accounts  “Ghost” Accounts  Virtual Accounts  Straight Thru Processing  Enhanced visibility and control  Reduced operating costs from process improvements  Reduced fraud  Improved on-time payment  Increased early payment discounts  Improved revenue sharing opportunities  Enhanced cash flow forecasting abilities

18 Virtual Card Accounts Considerations  Ideal if you have a substantial number of regular suppliers who offer discounts for early payment  Significant IT investments are not necessarily required by either buying and selling organizations  For best results, need to “sell” epayments as the standard for conducting business to all internal/external partners 4

19 Virtual Card Accounts  Over 25% of organizations have adopted virtual purchasing card accounts  For organizations with $1 billion+ revenue, the adoption rate is nearly double  Over the next three years, EAP use will grow by over 40%* *Source: 2010 RPMG “Purchasing Card Benchmark Survey Report” 4

20 Electronic Invoice Presentment & Payment (EIPP) CARDS 5 COMMON USESBENEFITS  When the buyer’s goal is invoice- to-payment automation  When the goal is to reduce your payment costs, reduce your paper use and maximize your efficiency  Bank can pay the suppliers how they want to be paid  Buyers can pay the bank the way they want to pay  Bank acts as the “converter”  Easily converts paper to electronic  Everything - from invoice to final payment – is electronic  Buyer and supplier to have equal access to data – promotes collaboration, mitigates disputes  Payment method neutrality  Fewer lost or missing invoices  Minimize fraud and duplicate invoices  Finance options for buyers and suppliers  Maintain a complete audit trail

21 Electronic Invoice Presentment & Payment (EIPP) Considerations  Significant IT investments are not necessarily required by either buying and selling organizations  Implementation may take a little more time  Rebates are not part of it, but the cost savings might exceed any possible rebate 5

Electronic Invoice Presentment & Payment (EIPP)  Incremental benefits available... eliminating large capital investment  Buyer and supplier benefits are not dependent on each other  EIPP solutions are reaching critical mass 5

23 Electronic Invoice Presentment & Payment (EIPP)  Almost 16% of organizations have adopted Electronic Invoice Presentment and Payment (EIPP) tools Currently, $1 billion+ organizations have the highest adoption rates 50% of organizations have plans to adopt within the next three years 5

24 How EIPP Works  Cooperative approach between two participants Buyer – uses EIPP for A/P Supplier – uses EIPP for A/R  Both parties review and manage their transactions online  Both parties have real-time visibility to invoice and payment status  Both parties collaborate online to resolve disputes or exceptions PRESENT PROCESS PAY FINANCE 5

25 How Do I Get Started? Map out current payable and receivable processes Review IT resources; determine desired automation level Consult with banking partners Consult with trading partners to determine interest and effort required Obtain senior manager buy-in Drive adoption

26 The Low-Hanging Fruit COMMERCIAL CARDS ACH FOR RECURRING LOW VALUE PAYMENTS INVOICE PROCESSING AND PAYMENT SOLUTIONS Z B2B PAYMENT NETWORKS WIRES FOR IMMEDIATE FUNDS, HIGH VALUE PAYMENTS

27 Is Now the Right Time? Should I wait for the mobile revolution instead? You need to get started yesterday You have tools now to fit your needs Mobile and other innovation will build on these options Cards, EIPP, ACH and Wires will form the backbone for the foreseeable future

28 Questions

Thank You! Jeff Pape SVP Group Product Manager Corporate Payment Systems U.S. Bank Greg Rettinger AVP Global Treasury Management, AAP U.S. Bank