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“Trends, Strategies & Solutionschanging the world of Corporate Payments

and Working Capital”

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AGENDA

• Introductions • Goal for this session• B2B Holistic Payments discussion

North America Trends, Strategies & SolutionsBusiness Case Where does one begin?Hallmarks of a successful initiative

• Summary and Q & A

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B2B Holistic Payments Vision & Strategy ….. A New World

Enables Treasury & Finance:

‐move 80% ‐ 90% of payments to electronic‐ optimize hard $ savings and unlock working capital‐ realize process efficiencies and transformation

A Client with $102.5 million spend targeting to save $643 thousand annually.

AP Automation(eInvoicing, EIPP, Discount

Management )+Payments(EFT, ACH, Wire, Cards,

BIP, cheques)

= Client attainsprocess transformation, savings and

unlocks working capital

Trend: Holistic Payment Strategy now includes all three

Working Capital(Supply Chain Finance,

Buyer-Initiated-Payment )+

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PayStream Advisors Inc.Market Study Report, B2B ePayments, Q3 2010

Cost reduction - reduced headcount, process efficiency- reduce duplicate payments and lost cheques- earn significant card rebates- reduce data entry errors

Cash Flow- improved visibility into payments & spend - better cash flow forecasting

Fraud- reduce risk of payment fraud,

Positive “Green” impact - remove paper

Increase supplier satisfaction- reduce DSO

B2B Holistic Payments Strategy … transform Payments into Performance

100%

0%

BIP 0%

“Present” Invoices/Purchase 

Transactions

PaperCheques

67%

Card 5%

EFT 21%

Wire 7%

Mid $

Payment Terms

“Goal Invoice/PurchaseTransactions” 

HIGH COST LOW # of Transactions‐ ACH‐ EDI

LOW COST HIGH # of Transactions‐Pcard,  T&E‐ FleetPaper Cheques5%

Card35%

EFT41%

BIP 10%

Wire 9%

5

0%

100%

Create New Holistic Payment Distribution.. map to Spend $$ and Suppliers … deliver savings

BIP 0%

“Present” Invoice/Purchase

Transactions

PaperCheques

67%

Card 5%

EFT 21%

Wire 7%

“Goal Invoice/Purchase

Transactions”

5%

Card35%

EFT41%

BIP 10%

Wire 9%

5%

66%

10%

$$$ Spend

10%

9%

5%

7%

# of Suppliers

33%

40%

15%

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Results of Holistic Analysis

Client Spend Data:• Addressable Spend $

Paid by Card $ 1,538,480Paid by EFT $ 13,461,765Paid by Wire $ 5,365,256Paid by Cheque $ 82,199,859

Total $102,565,360• Invoices 85,820• Suppliers 6,860• DPO 40 Days

Targets:• Payments 90% electronic payment (EFT + Card + BIP + Wire)• Savings Optimize• Working Capital Key Priority

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Holistic Payment Value($102.5 Million Spend)

ePayment Savings $ 68,947 Card Rebate $ 76,924Buyer-Initiated-Payment Rebate $ 53,334 AP Automation

- Return on Cash & Discounts $ 170,357- Compliance $ 138,463

AP Process Savings $ 135,000

Steady State Savings (annual) $ 643,025

Unlock working capitalSupply Chain Finance $1,410,274Buyer-Initiated-Payment $ 712,259

$0.03 - $0.04

Income Statement impact: “Goal” Savings

Balance Sheet impact:

EPS impact:

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What are they?• Corporate Credit cards• Issued to designated employees and/or key vendors• To purchase business-related goods and services,

fleet, travel and entertainment

Why use them?

• Streamline procurement for high volume, low dollartransactions

• Take costs out • Earn financial rebates• Extend DPO

Value: Card “Goal” generates savings.… 35% of transactions … 10% of Spend … 40% of suppliers

Rebate: $ 76,924 - Card Spend $10.25 million - Target Transactions 30,037

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Buyer-Initiated-Payment generates savings and unlocks working capital …10% transactions .. 10% of Spend $ … 7% of suppliers

What is BIP?• Growing payment method • Many industry names e.g. Buyer-Initiated-Payment, BIP, B2B, ePayment• Merges functionality of pCard & EFT/ACH• Win - Win with suppliers

How is it used?• To pay for goods and services from many suppliers, including:

- any PO & nonPO-based suppliers - suppliers that do not offer early pay discounts- suppliers that offer Net 30 or Net 45 terms - any Indirect and Direct purchases

• Fits easily inside a Buyer’s PO system. • Buyer sends regular payment request files to bank, once invoices ‘approved to pay’• Bank funds & pays the suppliers directly

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Value: Buyer-Initiated-Payment

Buyer

• Earn a financial rebate

• Extend DPO• Extend DPO to 45 - 60+ days• Pay bank once per month e.g.1 month

plus 7, 14, 21 or 27 days• Unlock working capital• Idea: Use Business Line of Credit to

extend another 30 – 60 days. Rebate pays for interest.

• Fits easily inside PO process• No change management

• Process efficiency• Automated payment reconciliation and

upload to ERP, GL & AP

Supplier

• Reduce DSO• Paid earlier by the bank < 30 days• Many buyers extending DPO to

45 - 60 days

• Low payment fee• Similar to an Early Pay Discount

• Increase process efficiency • No-touch, Straight-Through-

Processing and Payment• Electronic remittance process

• Maintain Privacy • No supplier banking information

shared with Buyer

Rebate: $66.667- BIP Spend $ 10.26 million - Target Transactions 8,582

Unlock $712,259 working capital

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Value: ePayment (ACH & BIP) … 51% of transactions … 76% of Spend … 22% of suppliers

New Functionality

• Makes it easy to transition from paper cheques to ePayments• Reduces the heavy admin

- delivers up-to-date supplier banking information.• Resolves the remittance & reconciliation challenges

- deliver detailed electronic remittance documents.

Value of “Goal” state to Buyer (using $102.5 million spend)

Move to ePayment generates Savings: $68,947

"As is" costs "Goal" Target CostsMetrics # Pymts Cost Fee # Pymts Cost FeeCheck 48,874 $1.57 $76,733 3,647 $1.57 $5,726ePayment 14,418 $0.15 $2,163 28,149 $0.15 $4,222Wire 6,007 7,724Card 4,291 30,037BIP 0 8,582Total 73,591 $78,896 78,139 $9,949

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Value: ePayment opens the door to AP Automation

1%

.5%

1.5%

% D

isco

unt

36.5% APR

Days

2%

2010 30

Current Approval

# of

Invo

ices

New approval

60

3% New opportunity for “Use of Cash” enables stable APR “sliding scale” discounts at any point beyond the traditional 2-part term drop date.

Greater than hurdle rate?

“Use of Cash” to captureContracted Discounts& Standing Discounts on a Sliding Scale.

Enables a new world of Working Capital

Traditional “Use of Cash”

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Savings: $170,357 (0.21%)Target Addressable Spend: $ 82,052,288

Most recent Hackett, IOMA & Aberdeen study says 0.3% – 1.0% per $1B spend

Value: AP Automation

1. Standing Discounts with Effective Terms- Treasury can offer Standing Discounts to suppliers greater than Hurdle Rate- “Effective Term” provides Treasury control

i) dynamically turn on/offii) seasonal control

2. Dynamic Discounts- At end of fiscal periods, surge in supplier need for cash- Now Treasury can dynamically propose an early pay discount to a supplier

against specific invoices- Suppliers can dynamically propose to buyers- Target specific suppliers at a specific point in tim

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Compliance Savings $138,463 (0.15%)(Most recent Hackett: 0.2% – 0.7% of spend in savings leakage)

Value: AP Automation drives AP Compliance

Functionality• 5% of invoices contain errors (IOMA AP Department Benchmark) • Invoice compliance validation

- Network Test: Insures only accurate invoices are passed into the Network.- Matching Test: 3 & 4 way match.- Workflow Test: Approval Workflow.

Savings• Drives high Compliance• Target Spend: $92.3 million

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Process Savings (FTE) $135,000(Reassignment opportunity 3 of 9 FTEs @ $45,000 loaded cost)

Value Holistic Strategy: Process Savings (FTE)

FTE reassignment opportunity:

1) Due to Card & EFT & BIP Payment processes 8% - 10% 2) Due to eInvoicing processes 25% - 35%

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Overall Metrics Current Goal

Total Targeted Spend ($) $67,693,138

Spend Target for SCF (%) 15.00%

Days Payable Outstanding (Target) 40 90 Valuation Rate for Working Capital Unlocked (WACC) 3% 3%

Value: Supply Chain Finance (SCF)…use with Strategic Suppliers to unlock Working Capital

Working Capital Unlocked $1,410,274Total Incremental value @WACC 3% $ 42,308(Weighted Average Cost of Capital)

This mechanism allows a bank to provide immediate liquidity to a supplier by purchasing the receivables confirmed by the buyer and allocating the entire risk to a solid buying entity and is proving to be a successful risk alleviator.

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Holistic Payment Value($102.5 Million Spend)

ePayment Savings $ 68,947 Card Rebate $ 76,924Buyer-Initiated-Payment Rebate $ 53,334 AP Automation

- Return on Cash & Discounts $ 170,357- Compliance $ 138,463

AP Process Savings $ 135,000

Steady State Savings (annual) $ 643,025

Unlock working capitalSupply Chain Finance $1,410,274Buyer-Initiated-Payment $ 712,259

$0.03 - $0.04

Income Statement impact: “Goal” Savings

Balance Sheet impact:

EPS impact:

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PHASE

1

Low

Savings OpportunityHigh

DIFFICULTEa

se o

f Im

plem

enta

tion

PHASE

4

PHASE

3

PHASE

2Next 6 – 9 months First 6 – 9 months

EASY

Next 9 – 12 monthsNext 6 months

Where do I start? – Ease vs. Opportunity

EFTGrowth

CardGrowth

Create Holistic

Payment Strategy

CardGrowth

EFTGrowth

BIP

Grow all solutionsto include all suppliers AP

Compliance

Discountmgnt

BIPGrowth

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Hallmarks of a Successful B2B Holistic Payment Strategy & Initiative

Key Success FactorsExecutive support & buy-in from all stakeholdersSupplier Enablement aligned with customer Goals/ObjectivesStrong supplier compliance positionCommunicate oftenChange Management Plan in place

Resources required to be activeExecutive sponsorAccounting, Treasury, Finance, AP, Procurement and IT

Obstacles to be overcomeLack of executive leadership / program vision-metrics Poor communication both internally and externally to suppliers Creation and execution of a compelling value proposition to suppliers

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Summary of Value

Creates a roadmap to move 90% of payments to electronic

Achieve process transformation & efficiencies

Take costs out of Operating Budget

Unlock working capital

Win – Win with suppliersHelps supplier optimize working capitalReduce Days Sales Outstanding and take-out costs

InfrastructureEnhance (not replace) current solutions

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Thank You

Doug MacCallumManaging Director

BMO Spend & Payments Solutions905 722-7597

doug.maccallum@bmo.com