Transforming Accounts Payable from Cost
Center to Profit Center in Higher
Education
Ian Paul Da Costa Manager, Accounts Payable University of California, Los Angeles (UCLA) Objectives How a Purchase Card Program Can Support AP Transformation Implementing Change to Facilitate Transformation Other opportunities Strategic Sourcing Agreements Buying Consortiums Spend Analytics Payment Efficiencies Study
Agenda
How your Purchase Card program
can support AP transformation
•
Accounts Payable Analysis
– AP file to identify card accepting merchants still paid by check – Matched against association’s merchant list – Reporting based on check tiers • $1 ‐ $2,500 • $2,501 ‐ $10,000 • >$10,000 – Move appropriate spend to cards or ePayables reducing invoice traffic and increasing revenue share• Current Climate – Higher Education budgets under significant strain – State funding historically reduced due to revenue shortfalls – Pressure across all non‐educational departments to reduce costs and improve efficiency – Card programs provide significant opportunity to address the situation and more importantly, drive revenue
• Accounts Payable Cards – Purchase cards held in AP – Used to pick off and pay invoices where the merchant accepts cards – Does require some extra‐normal reconciliation – Allows for payment diversion and revenue increase – Identifies potential cardholders in invoice generating department
• Payment Analytics – Provider offered purchase card audit engines – Allows you to create rules and exceptions to monitor card spends • Weekend charges • Split transactions • High risk MCC identifications – Automatic notification for review and action – Moves AP staff from batch processing to value added audit role
• ePayables – Allows all current up‐front processes to remain – PO, Receiving, Invoice Processing – When check run batch is processed, diverts selected supplier invoices to provider output file – Provider processes those invoices on ghost accounts – Dramatic revenue share increase potential as the process targets higher spends – AP critical player in development/implementation
• 1099 Reporting Relative to Purchase Cards – Institutions relieved from 1099 reporting on card spends – Merchant processing banks responsible to report all spends and 1099 information – Opens up an enormous ‘service’ related spends category for card usage – Increased revenue – Allows refocus in AP
• Speed of Pay (SOP) Manipulation – Cash flow becoming an important focus in difficult budgetary times. – Card programs typically offer additional variable incentives for SOP – SOP incentives at present are most likely better then returns available for conserving cash – AP plays a major role in prioritizing card payments to support initiative.
Implementing Change to Facilitate
Transformation: A Case Study
12 • UCLA Accounts Payable – Main campus, UC Merced and UC Office of the President (Oakland) – Metrics (FY13) • Annual: 454,788 paper invoices; 205,332 “electronic transactions” • Monthly range: 43,424 ‐72,962 (combined paper and “electronic”) • Budget $3.1 million; 32 FTE • Procurement Card – Small program: 450 cardholders; $5.5 million – AP reviews for policy compliance and use tax accruals – Departments required to create orders in our eProcurement system • Budget Issues – University System’s “Working Smarter” initiative • streamline operations • identify revenue opportunities • Identify cost‐savings
Background
• Implemented a vendor portal to speed‐up processing and improve discount opportunities • Created daily reports to identify missed available discounts • Priority and resources given to EDI, vendor portal (invoicing), ACH & card adoption (payments) • Work with Purchasing/Strategic Sourcing to identify incentives and early pay opportunities • Automated process to return incentives to federal funds
Continuous Improvement
13• Worked with key areas on central billing to reduce invoice volume (e.g. campus telecommunications ) • Perform cost benefit analysis: early pay, patronage incentives vs. cards (Must be ongoing) • Formed project teams • Customer Satisfaction • Employee Satisfaction • Invoice Automation • Payment Efficiencies (ACH, Credit Card & Discounts) • Operations (planning, staffing & forecasting)
Continuous Improvement
14• UCLA’s internal process – Top 50 vendors (fully integrated automation – procure to pay) • File specifications from card provider • IT resources to develop file • Review data – Webinar or in‐person presentation is better – Bring the right players to the table – Recognize limitations of process (vendor might accept cards for certain consumer transactions but not regular bill payments. e.g. LA DWP)
Payment Analysis
15•
Over 180 UCLA vendors were already on ePayables with
our bank provider
•
Analysis identified over $53M in check and ACH
payments to vendors on the program
•
Savings in payment method in addition to incentives
earned
AP Analysis Results
16* Source: Aberdeen Group, May 2010
*
17 • Looking for automation opportunities • Reviewed invoices • Asked “Do you take credit cards?” • Took ownership of conversion • Asked vendors again • Partnered with our card provider and Purchasing/Strategic Sourcing
Our Process
18 • Small investment – Programming – Staff time – Infrastructure changes • Potentially large return – Incentives – Reduced payment costs • Banking on the future – Cover program expenses
Key Benefits
19 • Law firms – patent attorneys related to research intensive University system and subsequent royalty payments • Scientific companies • Copier leases – steady revenue stream • Technology companies • Cylinder gas suppliers • Hotels (Events)
Our Key Suppliers
c4Slide 19
c4 I'm assuming this is tied to the notions around being surprised about the types of merchants that could accept card payments. If so, then I suggested a retitle of this slide.
Program Growth
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Month # Vendors # Transactions Amount
10‐Oct 7 195 221,861 2010* 20 3,137 2,092,424 2011 65 59,422 26,342,363 2012 81 92,610 40,324,341 2013 109 105,387 55,125,179 2014 GOAL: 60,000,000 Launch
21 • In CY13, $719K in incentives for ePayables vs. $100K for other programs (approx.) • Using some incentives to fund activity: – Staffing – Training – Supplies & Expenses • Program already larger than our p‐card program • Don’t need to issue 1099s
Payback
22 • Overcoming internal resistance – Not what we were used to doing – Focus on automation, missing the low‐hanging fruit – Concerns about controls • Overcoming external resistance – Vendor concerns about fees • Be willing to revisit payment terms (Dynamic Discounting) • Promise of faster turnaround • Banking issues – Does the vendor’s merchant bank have velocity or dollar limits – Initial concerns by vendor’s card processor about legitimacy of transactions – Vendor turnover in AR department – Establish controls to prevent card fraud (a learning process) • Regulatory issues – Fees for credit cards or two tier pricing
Challenges
23 • Understand the process – Working with card provider was key to success • Payment analysis – Identify potential vendors • Review invoices – Does the invoice show credit card info • Ask, ask, ask….. – Do you take credit cards? – Ask your colleagues (industry groups, PDG conferences etc.) • Perform cost benefit analysis: early pay, patronage incentives vs. cards AND monitor pricing • Just Do It!
Recommendations
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