Perceptive Software: Think Profitable

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  • 1. Wesley Keller June 18, 2014 Unlock the Value of Your Invoices Think Profitable:
  • 2. © 2013 Lexmark International, Inc. All rights reserved.  Introduction  State of the industry  Size of the opportunity  Setting the strategy  Taking action  The role of technology  The role of services  Getting started Agenda
  • 3. © 2013 Lexmark International, Inc. All rights reserved. Wesley Keller Global Industry Manager – Accounting/Finance Perceptive Software wesley.keller@perceptivesoftware.com Introduction  11 years of experience in accounting and IT solutions prior to Perceptive  Focus on procure-to-pay process and solutions  Extensive project management experience  Four years on steering committee that set procure- to-pay policy and strategy Experience
  • 4. © 2013 Lexmark International, Inc. All rights reserved. State of the Industry Despite this, companies are doing better Economic recovery is slow Risky investments are out As a result, new investment models are emerging
  • 5. © 2013 Lexmark International, Inc. All rights reserved. Can you say that again, but in plain English?  AP departments can now make money off their standard operations; i.e., paying bills.  It works because:  Some companies have more cash than they know what to do with  Some companies need cash today and don’t want to get a bank loan because of financing concerns  Where these two meet, there is a opportunity for profit Wait, I thought we were talking about Accounts Payable.  Many companies are using innovative technology to open up invoice processing as a commodity market  Direct peer-to peer trading offers a return rate that can provide a strong return with a low-risk model Isn’t that the banking industry?
  • 6. © 2013 Lexmark International, Inc. All rights reserved. You could tell your CFO that your department was not only self-funded, but that it brought in money last year? What would it mean to you if...
  • 7. Size of the opportunity
  • 8. © 2013 Lexmark International, Inc. All rights reserved. $1 Billion Amount of AP spend Let’s look at some numbers… 10 - 40 $500K -$2M AP Employees AP Department costs
  • 9. © 2013 Lexmark International, Inc. All rights reserved. Let’s look at some numbers… $1 Billion 20% 1.5% Offered discounts not taken Average Discount $3 Million Savings opportunity Amount of AP spend
  • 10. © 2013 Lexmark International, Inc. All rights reserved. Everyone is pressured to cut costs – it’s now considered a basic deliverable every year Organizations should give preference to projects that deliver enhanced value to the business – analytics, new revenue opportunities or new business models. Unfortunately, many still focus on shrinking operational costs instead. The self-funded cost center is freed from cost-cutting constraints and may now pursue value-added activity Optimization is worth more than efficiency 2014
  • 11. Setting the strategy
  • 12. © 2013 Lexmark International, Inc. All rights reserved. By shifting the average vendor pay terms for $1B of annual spend by one day, you make $2.7M of working capital available to the company.
  • 13. Start by looking within Company, LLC What’s your cash cycle? What regulations are you subject to? Publicly traded? Where are your cash reserves? All of this will tell you what is important with regards to how your business manages cash. How big are your cash reserves?
  • 14. © 2013 Lexmark International, Inc. All rights reserved. Answering these questions will tell you what opportunities exist with your partners. Now look to your partners Who are they?  Big, small, near, far – what do you know about them? How do you treat them today?  Are discounts discussed?  What about extended pay terms? How much leverage do you have?  How important is your business to them?  Terms may be on the table even when price is not. VENDORS
  • 15. © 2013 Lexmark International, Inc. All rights reserved. What it means to you What would it mean to your company if you could produce an additional $3M per year, through discounts, working capital optimization or other methods? More importantly, what does it mean to be a self- funded department?
  • 16. Taking action
  • 17. © 2013 Lexmark International, Inc. All rights reserved. A successful strategy only emerges when a team considers people, process, and technology as a whole. There are no silver bullets
  • 18. © 2013 Lexmark International, Inc. All rights reserved.  Start with the team  Cash conversion is a cross-departmental topic with many variables and drivers. No one can do it alone. Putting a plan in motion Finance – understands the impact IT – owns technology Procurement – represents the vendor relationship Treasury/ banking – owns cash management Accounts payable – covers operations Team should include:
  • 19. © 2013 Lexmark International, Inc. All rights reserved.  Once you’ve formed the team, clearly define roles and expectations  Divide teams responsible and accountable parties  An executive steering committee that meets occasionally to discuss strategy and projects  An empowered user team that designs and implements the strategy  The end users, who understand their roles in the strategy  A team accountable for change management, training, education, and adoption Putting a plan in motion
  • 20. © 2013 Lexmark International, Inc. All rights reserved. Advice for the new team Pick a strategy No sacred cows Stay revenue focused Make a plan and set a timeline Advice
  • 21. © 2013 Lexmark International, Inc. All rights reserved.  Just because it’s not in the contract, you don’t put it in your contract doesn’t mean your vendor doesn’t offer them on the invoice  Discounts are just a way to attach a value to a payment opportunity discussion – there are many ways to shorten or extend payments, and many options to optimize What if you don’t negotiate discounts?
  • 22. © 2013 Lexmark International, Inc. All rights reserved.  It may be Treasury has an investment threshold that they say discounts do not meet. Remember the earlier statement about short-term interest rates being zero? The APR for a standard 2/10 Net 30 rate is 36.5%.  You may also say that discounts interfere with hedging, but with automation tools and predictive analytics, payable visibility can be delivered sooner and with more accuracy than even a few years ago. What if you don’t negotiate discounts?
  • 23. © 2013 Lexmark International, Inc. All rights reserved. What if you don’t negotiate discounts?
  • 24. The role of technology
  • 25. © 2013 Lexmark International, Inc. All rights reserved. A successful strategy only emerges when a team considers people, process, and technology as a whole. There are no silver bullets
  • 26. © 2013 Lexmark International, Inc. All rights reserved.  Most businesses have a discount opportunity equal to 0.5-1% of spend.  Unfortunately, most businesses cannot capture a majority of these discounts due to the normal AP cycle time  The target to optimize discount capture is a three-day AP cycle time. Most discounts are available if payment is made within 10 days, but you should expect to lose seven days to transit, routing, and payment scheduling.  AP Automation or electronic invoicing projects are good ways to hit these cycle time targets, and typically drastically improve discount capture. Increasing discount capture
  • 27. © 2013 Lexmark International, Inc. All rights reserved.  Dynamic discounting is a ‘sliding scale’ discount that can be offered at any time during the payment period.  Dynamic discounts can include vendors who would not normally negotiate discounts, but who might need cash at that time  As a result, the return on Dynamic discounting can be much higher than traditional discounts  Dynamic discounting works best with some sort of portal or online network to facilitate the ask/bid offer and a way to manage the discount program. Offering a dynamic discount
  • 28. © 2013 Lexmark International, Inc. All rights reserved. There are multiple strategies for cash management through selecting the correct payment method. Payment methods as cash management Credit card settlement – by shifting a vendor from traditional payment to a credit card, you can offset payment by up to 45 days, depending on terms.  Note that this is different from a Purchasing card solution  Vendors are paying the transaction fees for credit card payment. Many are open to this, but it can result in higher product or service costs. Checks – the float from mailing checks does allow for some cash management. Just be careful of the unintended costs – lost checks, misapplied payments and potential fraud. Wire/ACH – In many ways the best practice, but does nothing for cash cycle. Does help build trust with the vendor around on-time payment
  • 29. © 2013 Lexmark International, Inc. All rights reserved. Sometimes, all you need is the right data to make the right decision. Analytics driving decisions Vendor data Best pay terms Cost effective sourcing Procurement data Policy compliance Fewer exceptions AP performance data Identify bottlenecks Faster processing Cash visibility Better payment forecasting Better hedging
  • 30. The services that can help
  • 31. © 2013 Lexmark International, Inc. All rights reserved. Don’t try to do it alone Internal IT or Finance projects often fail or have a small impact because they lack dedicated resources and knowledgeable partners. There are many dedicated partners who use a revenue share model for cash management, and are therefore committed to your success in these projects.
  • 32. © 2013 Lexmark International, Inc. All rights reserved. Still a relatively new offering. Not a big market yet, but rapid growth predicted. Partners make their money off transactions and are dedicated to corporate success. Offers a higher return potential than traditional discounts or supply chain financing Advantages: Disadvantages: Sliding scale discounts allow companies to engage in peer-to- peer financing, using their own capital to go around the banks. Dynamic discount services
  • 33. © 2013 Lexmark International, Inc. All rights reserved. Low return opportunity. Vendors may offset costs in pricing. Low risk for companies. Banks dedicated to success. Advantages: Disadvantages: Trends to watch: Some banks are starting to offer dynamic discounts with supply chain financing in blended models. Invoices have a very low risk profile for non-payment. For this reason, banks have consistently offered supply-chain financing as a strong offering. Supply chain financing
  • 34. © 2013 Lexmark International, Inc. All rights reserved. Simply onboarding vendors to credit card payment can result in huge payment terms shifts. Many companies specialize in this activity over supply chain financing. Credit Card Financing Vendor may offset costs in pricing. Can be hard to drive adopting in strategic partners. Better success that supply chain financing, less sharing of benefits with provider. Potential for rebates. Advantages: Disadvantages:
  • 35. © 2013 Lexmark International, Inc. All rights reserved. Be careful of ‘one size fits all’ data.Standard ERP extracts can be good for organizations with little ERP knowledge. Benefits from industry knowledge – common data pulled from other customers. Advantages: Disadvantages: Things to note: Sometimes results in data that never gets used – make sure you will use it. May be better to invest in reporting infrastructure. Extracting useful data from your ERP or other systems can be an extensive task, similar to mining for gold. Partners can sometimes do a better job of finding this data. Paid Analytics and data enrichment
  • 36. How to get started
  • 37. © 2013 Lexmark International, Inc. All rights reserved. Perceptive Solutions for Accounting and Finance Get your executive sponsor Form your team Plan for a plan – don’t jump right to solving the problem Find partners or coaches Executives must empower team Team must invest significant time Commit budget Ask for help early 2016
  • 38. Wesley Keller Global Solution Manager – Accounting/Finance Perceptive Software wesley.keller@perceptivesoftware.com Questions?