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NASACT Annual Conference Accounts Payable Transformation Bill Kilmartin, AccentureAugust 2006
Agenda Overview of Electronic Invoicing & Settlements DomainEIPP Strategy and Approach Example of EIPP Applied to a State What does an EIPP Solution Look Like Copyright © 2006 Accenture All Rights Reserved.
Process automation and elimination of paperEIS focuses on automating key transactional elements of both AP and AR, including the assembly, creation, transmission and receipt of invoices electronically. EIS has a compelling value proposition to clients in three key areas: Process automation and elimination of paper Labor savings Cashflow Optimization Copyright © 2006 Accenture All Rights Reserved.
EIS addresses key pain points within the financial value chain for both Buyers and SellersRecon & Analysis Collection Invoice Account Mgmt Offer & Contract Sales & Marketing Fulfil Order Manage Order Receive Order Strategic Sourcing Accounts Payable Order Management Strategy Develop’t Contract Supplier Mgmt Invoice Processing Approval & Query Mgmt Payment & Analysis Order Origination Order Placement Receive Accounts Receivable Customer Acquisition Order Fulfilment Maximize Visibility and Compliance 1-2% Savings Operational Efficiency Improved by 70% Optimize Early Payment Discounts Capture 2% discounts The Procurement to Payment Opportunity Optimize Collections (Reduce DSO) Reduce DSO by 2-10 days Operational Efficiency Reduce costs by 50% Maximize Visibility and Buyer Compliance 10% Revenue Growth The Order to Cash Opportunity Copyright © 2006 Accenture All Rights Reserved.
The Electronic Invoicing and Settlement LandscapeB2B: Electronic Bill Presentment and Payment (EBPP) B2B: Electronic Invoice Presentment and Payment (EIPP) Addresses high volume, and/or high complexity bills Disputes managed on a by line item exception basis rather than a by invoice basis Generally only touches outbound invoices, but can integrate Proof of delivery documentation as well Focuses on supply chain interactions between businesses trading partners Generally involves multiple documents: mainly invoices, but could also include PO’s, Change/Acknowledge Orders, Remittance Advice, etc. Payment typically requires: 1) matching (to PO, Invoice) 2) reconciliation / adjudication 3) approval and authorization Key industries: Manufacturing, Wholesale, Retail, Government Key industries: Utilities, Telecommunications, Insurance and Financing (credit cards and leasing) and Distribution, Health care, Government Recurring Bills (Simple) Invoices (Complex) EBPP EIPP Pay Anyone B2C EBPP Pay Anyone Business-to-Consumer electronic bill presentment and payment Transactions tend to be recurring (credit card statements, utility bills, etc.) but could involve a one-time-only transaction Key industries: Utilities, Telecommunications (wireline, wireless) Insurance and Financing (credit cards), Government Consumer transactions supporting one-time payments Payment methods vary and include check, money wire, etc. Examples include PayPal, C2It and Valid Copyright © 2006 Accenture All Rights Reserved.
The Electronic Invoicing and Settlement LandscapeAR Automation “EBPP” AP Automation “EIPP” EIPP solutions are oriented toward either buyers or sellers. Solutions designed for sellers aim to present all invoices electronically (EBPP), whereas solutions intended for buyers are geared toward receiving all invoices electronically (EIPP). Copyright © 2006 Accenture All Rights Reserved.
Agenda Overview of Electronic Invoicing & Settlements Service DomainEIPP Strategy and Approach Example of EIPP Applied to a State What Does an EIPP Solution Look LIke Copyright © 2006 Accenture All Rights Reserved.
What is the Prompt Pay Discount Opportunity?Major Payee Groups Vendor Trade Payables Employees Other Governments (grants etc) Recipients (such as Welfare, Unemployment, etc) Beneficiaries (such as Pension, Worker Compensation) Health and human service providers (such as Medicaid and social service provider organizations) Bond holders Customers receiving revenue refunds Vendor Trade Payables Suppliers already agree to contractual terms and already accomplish prompt pay discount Suppliers already agree to contractual terms but not accomplishing prompt pay discount Suppliers do not yet agree to contractual terms, but probably would if requested In the past, considerable emphasis has been placed on ERP implementations to deliver business benefits for the larger organization, focusing on total cost of ownership reduction, integrated data model and end to end process integration. This has resulted in sub-optimal operations for specific functions. The Accounts Payable function is often targeted as an area for cost reduction ; but is equally challenged to continually deliver process efficiencies. Many accounts payable functions adopt discrete initiatives to address the symptoms of associated with an inefficient invoice to payment process (e.g. managing exceptions , avoiding late payment penalties) rather than holistic initiatives which target the cause inefficiencies. Accounts Payable functions are seeking to add value back to the organization through improving the management of the invoice to payment cycle and delivering real value business value (e.g. business intelligence in payables, participation in supplier negotiations, realizing early payment discounts). Considerable emphasis now exist in the market place for complimentary solutions which help an organization to improve the efficiency and effectiveness of managing payables. Internal Pressures Continued Cost Reduction: Drive to improve process efficiencies in invoice to payment process. Compliance & Control: Renewed interest and rigor around process controls. In ability to process efficiently is viewed as a lack of internal controls. Recognition that cost containment is insufficient : Must be seen to add value: Internal functions must offer compelling propositions to demonstrate its value to the organization. Pressures to adopt other business models: Other organizations are demonstrating value and improved service delivery from shared services and business process outsourcing. To be competitive, AP functions must find new ways to demonstrate cost containment and value delivery. External Market – ERP & Niche Vendors : Renewed interest in Electronic Invoicing ; ERP vendors seeking new ways to add value to its client base through new electronic enablement solutions, challenged by niche players who are building credibility and critical mass in the market place (Xign, BottomLine Technologies, CheckFree). Evolution of Credit & Collections Solutions: Debtors management capabilities have advanced significantly in recent times to allow sellers to manage its debt collection more effectively. In doing so, they are able to dynamically apply terms to seek early payment Finance Supply Chain Integration: Financial institutions have traditionally had offering it invoice discounting but are increasing new solutions and partners to offer more comprehensive solutions. Business Process Outsourcing: Organizations which support multi-client accounts payable operations are seeking new and innovative ways to reduce cost and add value to its client base. With the critical mass required to effect change, Copyright © 2006 Accenture All Rights Reserved.
Reduce Accounts Payable Operating Costs Create value through discountsValue Proposition of EIPP: Opportunity to Reduce Cost and Generate Hard Dollar Savings As-Is To-Be Use of electronic invoices Supplier queries Receive Post Invoice Approve Idle Time Pay % Discounts Opportunity 2 Days Net terms – payment on time No discount opportunity 2% saving on invoice if paid early Day 10 Day 30 Incremental Savings Opportunity Opportunity Reduce Accounts Payable Operating Costs 40-60% There are two aspects to creating value for our clients. Firstly, there's the efficiency play, which is reducing the accounts payable operating cost. Typically, within accounts payable, one-third of the cost of the people within accounts payable resides within data processing. This includes receiving the mail, opening the mail, scanning it and keying the data into the ERP system. Query Resolution takes another third of the typical accounts payable cost. Query resolution is the process by which mismatches between the purchase order, goods receipts and invoices are resolved with the associated parties and with the ERP system. The final third will be the peripheral functions that surround accounts payable – including the management of the accounts payable function, supervision costs, performing payment runs, maintaining vendor data, maintaining bank data, et cetera. The second stream of value is about the discount management and enhancing a client's ability to obtain discounts and then executing on those discounts. We use a rule of thumb, in terms of determining the target value, of .3% of the accounts payable spend. So for a buying organization that processes through accounts payable $1 billion, the value for that buying organization would be $3 million per annum, as a typical rule of thumb. By comparing those two efficiencies, typically what you'd find is that the implementation of a technology to deliver electronic invoicing would typically pay for itself within a kind of 12- to 18-month timescale, based on the efficiency reduction that's achieved. And then anything that's created through discounts is icing on the cake. To give you an idea of the relative value of these two elements, you'd expect the discount capture to be worth two to five times the amount of the efficiency, in terms of dollar value. It's very significant. Create value through discounts 1.3%-2% of Spend Copyright © 2006 Accenture All Rights Reserved.
Value Proposition of EIPP: Typical Process ChallengesOver 50% of invoices arrive at the Accounts Payable for approval after 1 Week. Over 50% of invoices require 1+ weeks for approval. 65% of invoices are entered in the Payables within 1 week of arrival at the Accounts Payable. Over 25% of invoices are paid after the due date. Minimal use of suppliers with early payment discount terms. Significant invoices paid early in advance of due date. Our Electronic Invoicing offering not only drives efficiency in AP, but also deals with the optimization of cash within the accounts payable cycle. And this is really done through maximizing our client's ability to take advantage of early payment discounts. Fundamental to being able to achieve this is having control over the accounts payable process. This slide demonstrates how out of control the payment part of the accounts payable process can be, for one of our pipeline clients. This illustrates the spread of when payments have been made against specific invoices. So we can see a bell curve here. And the high point of the bell curve is, as you'd expect, around day zero, day zero representing when the payment should be made for an actual invoice according to the payment terms agreed with that supplier and embodied within the invoice itself. However, you can see that probably 80% to 90% of the payments that have been made have either been made later than 20 days after the due date or earlier than 20 days before the due date. There are two specific problems associated with this. Firstly, if payments are being made early, then your buying organization, or the paying organization, is not taking advantage of their cash position and optimizing their working capital. Equally well, if they're paying late they might well not be taking advantage of early payment discounts, and they might be causing their suppliers problems and creating an environment that's detrimental to the relationship between the two partners. So this is a great example of just how bad payment processes can become. There are numerous pain-points within the financial value chain ... A holistic financial value chain solution has opportunity to drive benefits for buyers and suppliers. Copyright © 2006 Accenture All Rights Reserved.
Value Proposition of EIPP: Discount Management Strategy1. Persuade & enable more suppliers to offer discounts 2. Equip the buyer with the ability to execute on and to control discounts Suppliers With Negotiated Discount Terms Prompt Pay Discounts already Realized Opportunity to negotiate more favorable & flexible discount terms 20% Terms Adopted But Not Realized Improve process & realize terms Discounts not actively taken Payment outside discount threshold due to inefficient internal process Suppliers Currently Without Discount Terms 1 Currently Without Discount Terms and Paid early 2 ‘Low hanging fruit’ Modify contracts and/or enable suppliers to take advantage of more flexible discount possibilities 80% Earlier we talked about the drop-off that occurs in “typical” invoice payment terms – for example, after the 2%/ten days parameter lapses. The concept of smoothing out that curve and extending the DPO is know as confirming, dynamic payables discounting or dynamic discounting. There are a two different flavors of dynamic discounting a supplier can offer; ‘regular’ dynamic terms – which we’ve described as the sliding scale in the “triangle versus rectangle” slide, and “Pay me Now” terms. In a typical engagement we’d target a buying organization’s suppliers that are already offering discounts, and sign them up for new (generally more aggressive) terms. The more leverage a buying organization has over its suppliers, the easier this job becomes. The second target are suppliers not currently offering terms. And finally, all suppliers are able to take “Pay me Now” terms at any time. As the name describes, these terms are quite steep (5% +) in exchange for payment as quick as the approval process will allow. A surprising number of suppliers are delighted to be able to speed up invoice payments to round out their month, quarter or fiscal year Currently Without Discount Terms and paid in 30 days Could these transactions be paid early to earn discounts? Currently Without Discount Terms and paid late Assess rationale for late payment Supplier Base Invoice Transaction Base Copyright © 2006 Accenture All Rights Reserved.
Value Proposition of EIPP: Strategic Discount CaptureEnforce discount terms Through EIPP Individually negotiate discounts Enforce through EIPP Supplier A B C D H Enforce discount terms through EIPP Group A Group B Group C Spend Size M Corporate P Card Let's talk about the supplier segmentation strategies. A client will not, realistically, be able to go to their supply base and negotiate discount terms with every supplier. We need to use very different approaches to enabling suppliers, which depend on the leverage and the size of the buyer and the supplier. Let’s look at these four bubbles. In the upper left quadrant, where our client – the buying organization – has little leverage over a category of suppliers, yet the dollar amounts are high, we need to track spending and ensure payments are to terms, but there’s not much room to win incremental discounts. Rent, Utilities, taxes all fall under this category of non-discountable spend. The lower left quadrant represents low spend and corresponding low leverage; a perfect scenario for a corporate purchasing card (or “PCard”). By implementing or expanding a corporate PCard program, Accenture helps our clients capture what amounts to a discount in the form of the rebates on purchases. In recent years, PCard programs have begun encroaching up on the traditionally non-discountable spend categories such as utilities, whereby in the past such payments have been precluded by service or transaction fees. Looking at the right-hand side, there’s a lot more buyer leverage -- the sweet spot in terms of the ability to capture discounts. This is precisely the area where we focus in terms of the discount optimization strategy. In the lower right quadrant, we create a program for the vendors where we discuss the opportunity with them, we extend DPO, and at the same time, we offer new payment terms that are dynamic versus static. For the larger suppliers found in the upper right quadrant, with whom a buying organization will typically have a more strategic relationship, we will leverage a more tailored approach to rolling out dynamic discounting – or even have our client’s procurement organizations handle negotiations. L L L M M H H Buyer Leverage Manage and monetize discounts across addressable spend Copyright © 2006 Accenture All Rights Reserved.
Agenda Overview of Electronic Invoicing & Settlements DomainEIPP Strategy and Approach Example of EIPP Applied to a State What Does an EIPP Solution Look Like Copyright © 2006 Accenture All Rights Reserved.
For the 9 month period of analysisExample Executive Summary (Based on analyzed data set – 9 Month Period) For the 9 month period of analysis Conclusion 1: The State realized 1.38% of discounts on a spend value of $47.3M resulting in savings of $651K ($868 annualized) Conclusion 2: Enforcement of existing terms with current vendors could realize an additional $3.7M in savings.($4.3M annualized) Conclusion 3: Changes in procurement policy and targeting of additional vendors and spend categories could realize $21.7M ($28.2M annualized) Annualized Opportunity* $28.2M Extending terms and improvement in efficiencies Enforcement of existing Terms and improvement in efficiencies $4.3M As-Is $868K Copyright © 2006 Accenture All Rights Reserved. * 9 Month Analysis ; X 1.33 to annualise , assuming pro-rated spend
Example Executive Summary Graphical Summary of Analyzed DataVendors Transactions Spend Discount 348K $21.7M $1,585M 14,120 20% of transactions account for 73% of spend 80% of transactions from 8.7% of suppliers 818 12K $47M $868K 490 Vendors with Discounts Captured Vendors with Discount Terms Total Vendor Data set Transactions receiving discounts Total Transactions data set Spend subject to discounts Total spend in data set Discounts received Discounts opportunity Copyright © 2006 Accenture All Rights Reserved. As-Is Data set Opportunity
Agenda Overview of Electronic Invoicing & Settlements DomainEIPP Strategy and Approach Example of EIPP Applied to a State What Does an EIPP Solution Look Like Copyright © 2006 Accenture All Rights Reserved.
What a Typical EIPP Software Suite DoesSupplier Management Order Management Invoice Management Payment Management Discount Management Supplier Portal Supplier Enrollment Master Vendor Network Supplier Matching & Activation Private Supplier Entry PO Delivery PO Acknowledge Advance Ship Notice Supplier Order Mgt Order Mgt Reports Contract PO Mgt E-Invoice Capture Invoice Validation Routing & Approval Dispute Mgt 2/3-way match Attachments Supplier Invoice Mgt Approval Status Invoice Reports Paper Invoice Entry Imaging Integration EDI VAN Invoices Goods Receipt Contract Enforcement Payment Approval Remittance Processing Payment Status Funds Movement Payment Audit Supplier Payment Mgt Payment Reports ACH, P-Card , RPPS P-Card Payables Acct CTX Remittance Garnishment Payments Employee Expense Payments Discount Program Mgt Dynamic Discounting (Pay Me Now) Prorated Terms Terms Capture ERP Reconciliation DPO Mgt Reports Xign terms its collective Product Suite the “Xign Payment Services Network” or XPSN. All the modules are distinct, but work together in a complementary way to enable the discount strategy we've been referring to. Intuitively, the Invoice Management module is typically the foundation upon which is layered on the Discount Management module, Order Management, and so forth. Copyright © 2006 Accenture All Rights Reserved.
How An EIPP Solution WorksBuyer Supplier Treasury Advanced Discount Management Program Management Supplier groups Program definition Dynamic Capture Execution engine ERP synchronization Terms Management Standard terms Prorated terms Pay Me Now™ Order Management Order Delivery Delivers Direct, Services, Blanket, and other order types Acknowledgements and ASN support Purchasing Materials Management Invoice Management Approval Routing based Auto routing/STP Dispute management Real Time Validation Performed at submission Business rule driven Exception management Invoice Capture Web template, PO Flip eFile/EDI ERP invoice upload Billing Key Points Order Delivery delivers a variety of order types to the supplier and captures acknowledgements and advance shipping notices (ASN). Xign does NOT generate the PO, this is done with the purchasing system. We typically extract this info from the ERP system. Enables PO flip Invoice Management Once the supplier receives the order, they process it and send an invoice. This can be done through a variety of means, including web forms, PO flip or eFile/EDI. Invoices are filtered by business rules for exceptions and then routed for approval Payment Management Once invoices are approved, Xign prepares the invoices for payment and the delivery of remittance information back to the supplier. Discount Capture With Xign’s discount management capabilities, early payment discounts can be managed and monetized. Notes Build slide Payment Management Payment Processing Authentication Timing control Remittance Processing Format mapping , EDI, FTP, CTX A/P A/R Citibank JPMorgan Chase Wachovia Wells Fargo Northern Trust Other Disbursing Banks Copyright © 2006 Accenture All Rights Reserved.
Where are the discounts coming from?Top Categories* Industrial Equipment & Supplies Paper & Packaging Engineering & Construction Office Products Facilities & Maintenance Services Mix 58% of suppliers 26% of invoices 46% of spend 33% of discounts Broad Participation Suppliers large and small Consider discount leverage Need to consider discount leverage and supplier’s financial situation Some well-known office products and paper & packaging organizations very accustomed to offering early pay discounts. Others are smaller organizations that have little access to capital and a real need for cash. Copyright © 2006 Accenture All Rights Reserved. *Source: Xign network statistics, 2Q05 Discount Manager customers
Bill Kilmartin William.Kilmartin@Accenture.com 781-367-9576Contacts Bill Kilmartin Mark Howard Hopefully we’ve demonstrated that this is an enormous opportunity. It has significant benefits for our clients, and for us. To conclude, we do believe that there is a tremendous opportunity here for EIS within the market space. We believe that we at Accenture are uniquely positioned to go after that. And we want to make sure that we've channeled our energies toward that because it's a very powerful value proposition, and we can help make our clients high-performing businesses by doing this type of work. Copyright © 2006 Accenture All Rights Reserved.
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