Solutions to Improve Cash Flow What Business Owners Need to Know Kimberly Bonzelaar Senior Vice President, Merchant Services Nicole Epp, CTP Senior Vice President, Treasury Management Hampton Roads Association for Finance Professionals

Hampton Roads Association for Financial Professionals Oct 2010 Slide 2 Are you taking advantage of the latest treasury management technology to save time and money? Are you at risk of losing money due to fraud? Two Critical Questions to Answer

Hampton Roads Association for Financial Professionals Oct 2010 Slide 3 How Business Owners View Liquidity Funding daily operations (including meeting payroll) Acquiring assets (including acquisitions) Accumulating personal wealth

Hampton Roads Association for Financial Professionals Oct 2010 Slide 4 Liquidity Management From Business Owner’s Perspective The management of short-term financial resources to sustain the daily operating entities in an efficient and cost effective manner Efficient utilization of working capital Systematic management of inflows and outflows of cash Information to fund business objectives and minimize risks

Hampton Roads Association for Financial Professionals Oct 2010 Slide 5 Goal for Liquidity Management Collect Fast – Pay Slow Speed up collection of Accounts Receivable Pay suppliers and accrued expenses at the most favorable time Minimize interest expense on debt Maximize interest income on deposits

Hampton Roads Association for Financial Professionals Oct 2010 Slide 6 Operating Cycle Purchase of Resources Payment for Resources Sales of Goods or Services Collection of Sales Receipts

Hampton Roads Association for Financial Professionals Oct 2010 Slide 7 Payment Channels Check Cash ACH Bill Pay Lockbox Merchant Processing Remote Deposit Vault Electronic Bill Payment & Presentment Remittance Processing Card

Hampton Roads Association for Financial Professionals Oct 2010 Slide 8 Improve Payment Efficiencies and Control Cash Flow Cash Flow Timeline Control cash flow Gain efficiencies/capture data Prevent costly fraud

Hampton Roads Association for Financial Professionals Oct 2010 Slide 9 Cash Flow Gain Efficiencies Capture Data Emerging Trends: Commercial Card Adaptation Maximize float through grace periods Negotiate discounts with suppliers Capture rebates/ rewards Streamline A/P Eliminate paper related to paper purchase orders, invoices and checks, checks Online management A $7.5 Billion manufacturing company realized $300,000 in process savings by moving non Purchasing Order transactions under $1, to a Commercial Card program * Data feeds into accounting systems Reporting for tax documents (1099) and socioeconomic data for vendors Improve controls around spend categories and amounts * Source: 2008 Visa Global Procure to Pay and Commercial Card Best Practices Executive Summary

Hampton Roads Association for Financial Professionals Oct 2010 Slide 10 Here’s Proof Spend Categories for Purchasing Programs Aberdeen Research 2008

Hampton Roads Association for Financial Professionals Oct 2010 Slide 11 Cash Flow Management Innovative Thinking Commercial Card 30 Day Billing Cycle 25 Day Grace Period CYCLE TIME GRACE PERIOD Cycle Begins Cycle EndsGrace Period EndsGrace Period Begins Pay Vendor here on Discount date or day 60 Pay Commercial Card balance at end of grace period for up to 55 days extra cash float! 2/10, net 60 - can deduct 2% of the net amount owed if invoice is paid within 10 days of invoice date. If not paid within the discount period of 10 days, the net purchase amount (without the discount) is due 60 days after the invoice date. Pay a vendor under their negotiated discount terms OR Forego the discount to delay payment and conserve cash (if invoice paid at day 60, beginning of billing cycle, full-payment period interest free up to 115 days) $15,000 2/10 net 60 INVOICE

Hampton Roads Association for Financial Professionals Oct 2010 Slide 12 With payment terms of 2/10 net 30, the effective cost of paying on day 30 instead of on day 10 is: i =.02 x = 37.24% Source: NCCMA Essentials of Cash Management, 1986 Payment Terms 2/10 net 30 1/10 net 30 2/10 net 45 1/10 net 45 Effective Cost 37.24% 18.43% 21.28% 10.53% Example

Hampton Roads Association for Financial Professionals Oct 2010 Slide 13 Best Practices to Improve Cash Flow Do you regularly review your cash flow strategy with your bank? Are you taking advantage of emerging electronic payment channels: –Commercial Card Programs –Electronic Bill Presentment and Payment (EBPP) –Remote deposit with payment card processing –Remote safe service –Online shopping cart payments

Hampton Roads Association for Financial Professionals Oct 2010 Slide 14 Are you at risk of losing money due to fraud? Reprogramming scams - criminal may pose as employee of merchant company then reroute transactions to their own bank account Hacking wireless - fraudsters hack into wireless terminals. To prevent, use equipment that meets security standards for storing, processing, and transmitting card holder data Rigged upon delivery - recent fraud ring programmed terminals before deploying in U.S. for final shipment to merchant

Hampton Roads Association for Financial Professionals Oct 2010 Slide 15 External Fraud: Defending the Business Electronic Debit Protection Merchant Service Fraud Alerts PCI Compliance Check-ins Employees crediting personal accounts for customer- returned items. Employees stealing credit card data and customer account data. Accepting fraudulent credit cards for payment POS systems compromised

Hampton Roads Association for Financial Professionals Oct 2010 Slide 16 PCI DSS Compliance Payment Card Industry Data Security Standard Compliance with PCI DSS helps companies minimize the risk of a data security breach Visa ® estimates that 85% of breaches occur at small businesses Source:

Hampton Roads Association for Financial Professionals Oct 2010 Slide 17 Why Comply with PCI DSS? A breach can negatively impact a merchant’s brand image and customer loyalty Card associations mandate compliance: –Fine: $10,000 to $550,000 –Increased transaction-processing fees –Suspension of credit card processing abilities

Hampton Roads Association for Financial Professionals Oct 2010 Slide 18 How To Become PCI Compliant Build and maintain a secure network Protect cardholder data Maintain a vulnerability management program Implement strong access control measures Regularly monitor and test networks Maintain an information security policy

Hampton Roads Association for Financial Professionals Oct 2010 Slide 19 What is Required for PCI Compliance? Visa ® and MasterCard ® requires that all merchants do the following: –PCI DSS Self Assessment Questionnaire (SAQ). An approved list of questions from the card associations about the security controls on a merchant’s transaction network –Network Vulnerability Scan. A remote scan of a merchant’s transaction network to detect weaknesses that could be exploited by hackers or unauthorized third-parties

Hampton Roads Association for Financial Professionals Oct 2010 Slide 20 Improve Cash Flow Gain Efficiencies/ Capture Data Fraud Prevention Best Practices Leverage commercial card programs Improve disbursement float by understanding grace periods Negotiate better vendor discounts through merchant synergies Improve receivables collection through electronic payment acceptance Leverage online reporting tools to eliminate paper- intensive processes Increase controls by limiting spend categories and amounts Automate reconciliation Protect against data security breaches that can be costly Online reporting tools help prevent against internal and external fraud

Hampton Roads Association for Financial Professionals Oct 2010 Slide 21 Questions Kimberly Bonzelaar Senior Vice President Capital One Bank | Merchant Services Nicole Epp, CTP Senior Nicole Epp, CTP Senior Vice President Capital One Bank | Treasury Management This presentation is for informational purposes only, does not constitute the rendering of legal, accounting or other professional services by Capital One, N. A. or any of its subsidiaries or affiliates, and is without any warranty whatsoever. © 2010 Capital One. Member FDIC. All rights reserved.