Payment Optimization

The Financial Leadership Series - 2014

Payment Optimization

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Comdata, Inc is registered with the National Association of State Board of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors.

State boards of accountancy have final authority on the acceptance of

individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through it website: www.learningmarket.org.

For more information regarding administrative policies such as

registration, complaint, CPE program refund and cancellation, please contact Suzanne Busby at 615-370-7000.

Continuing Professional Education Credits

http://www.learningmarket.org/

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• Course Title: Payment Optimization • Description: In this session, we will present on the topic of “Payment

Optimization” and outline how organizations automate their accounts payable departments and manage expenses to streamline internal processes. We will highlight the use of electronic payables to drive supplier discounts opportunities and maximize the procurement process.

• NASBA Credit - CPE: One (1) • Subject Matter Area: Management Advisory Services • Program Level: Basic • Program Prerequisites: None • Advanced Preparation: None • Delivery Method: Group Live

Continuing Professional Education Credits

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• Introductions • Corporate payments landscape • Understanding the options and associated value • Thought Leadership Presentations

• Keys to business transformation • Best Practices

• Summary

Agenda

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• Define today’s current payment landscape and emerging trends

• Identify the key components of an

effective payment optimization program • Identify strategies and implementation

best practices

Learning Objectives

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Bob Sneed | SVP of Corporate Payments Tony Grayson | Director of Disbursements

Tom Dean | SVP, Financial Services

Introductions

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• 40+ years experience • Productivity

improvement, cost reduction and expense management

• Payment expertise, technology innovation and solutions for AP automation

• Provide strategy, implementation and support services for multi-card programs

Comdata is a leading provider of innovative, value-added payment and information solutions

Overview

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A frontier in value creation

New advances in payables technology enables organizations to migrate paper-based transactions, to higher-value electronic payments - with complete confidence.

“We are focused on achieving quantifiable

bottom line results through AP automation.”

CFO

AP Automation Electronic Invoice

Presentment Workflow approval

Expense Management


Electronic Payment Corporate Card Fleet | Purchasing

and Travel

2012 Ceridian Corporation. All rights reserved.

“Manual, paper-based accounts payable departments are eroding the bottom line of large and mid-market enterprises by an order of millions of dollars each year….and the stage is set for a major financial makeover.”

The Challenge

11 Sources: Kaiser Associates, RPMG P-Card Benchmark Survey 2010, TowerGroup, Aite Group, MasterCard *All commercial product segments – large, mid, small, public sector)

Commercial Payment Landscape

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Reduce Cost Enhance Control Streamline Processes Margin Improvement

Electronic Payments AP Virtual MC ACH and wires

Pre-Paid Payroll | Incentive

Commercial

card solutions Fleet |T&E and P-Card

Designed for value creation

Payment Optimization Electronic Payment Applications

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• Cost savings : $1.61 - $8.12 • Administration, bank fees, print stock, toner and

postage , lost checks, fraud, positive pay

• Efficiency improvements through automation • Streamlined procurement with card program • Online expense reporting with approval • Employee/contractor payments delivered via debit card • AP goes electronic with virtual MC payments and ACH

• Discount optimization

• Virtual payments deliver additional discount revenue of 1%-1.5%

Why Leave the Paper Check Behind?

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What % of the payment landscape is still occupied by check?

A. 57% B. 70% C. 76% D. 82%

Question 1.

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Case Study Privately Held

$2.6B in revenue 80% brand penetration

in US households

Pinnacle Foods Group

Program Goals Reduce cost, streamline business

processes and generate additional revenue

Provide a “one-card” solution for effectively managing all discretionary expenses related to travel and general purchasing

Ensure compliance to policy through an online expense reporting tool

Migrate to an e-payables solution to reduce the number of check disbursements

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Case Study

Avg. Cost savings per report ($19.24) $19.24 Actual # of reports (24) 5,400 Avg. Transaction Size $125.00 Transaction $/Year $3,500,000 *Rebate (1.25%) $43,750 Process Cost Savings $103,896 Total Return $147,646

Travel & Entertainment $3.5M annually 225 cardholders 28,000 transactions

Pinnacle Foods Group

Purchasing Card $16.5M annually 150 cardholders 38,750 transactions

Avg. Cost savings per item ($40.00) $40.00 Actual # of items 38,750 Avg. Transaction Size $425.80 Transaction $/Year $16,500,000 *Rebate (1.25%) $206,250 Process Cost Savings $1,550,000 Total Return $1,756,250

* Example only - based upon billing and payment terms

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Summary

Pinnacle Foods Group Virtual Card AP


Avg. Cost Per Check ($5.43) $5.43

Actual # of virtual cards/ Year 10,000 Avg. Transaction Size $2,850 Transaction $/Year $28,500,000

*Rebate (1.25%) $356,250

Check Elimination Savings $54,300 Total Return $410,550

Program Value Overview

Process Savings Value $1,708,196

Revenue Share* $606,250

Total Program Return $2,314,446

“Comdata provided active support throughout the vendor enrollment process,” said Parnell. “They were able to offer a solid methodology and industry best practices to help our program ramp up quickly. As a result, we saw an impact to our bottom line almost immediately.” Wayne Parnell Corporate Finance


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Which of the following are benefits of leaving the check behind?

A. Cost Savings B. Streamlined business processes C. Incremental margin improvement D. All of the above

Question 2.

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A Suppliers Perspective

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The e.Payment Alternative

An Introduction to Virtual MasterCard Accounts

http://www.youtube.com/watch?v=4Xys8HICUgM

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• Design your “ePayment” strategy

• Stratify the vendor master • Leverage a variety of payment modalities

– Commercial Card – Virtual MC payments – ACH with a discount – Check (extended term)

• Collaborate and Communicate • Ensure ongoing vendor enrollment

Program Framework

“The move from check-to-electronic payments

requires a disciplined approach with effective execution on a

sustained basis.”

Structuring Your Electronic Payments Program


Vendor Enrollment Execution is the Difference

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Understood Value Proposition Cost savings | Revenue generation | Efficient business process

Program Strategy Executive Sponsorship Organizational Commitment Communication Strategy SMART Goals Integrated systems approach Vendor management

The Move to Electronic Payments

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Which of these is important when launching an e-payables program?

A. Executive sponsorship B. Communication Plan C. Effective Supplier Segmentation and Management D. All of the above

Question 3.

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Tony Grayson | Director of Disbursements

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Tom Dean | SVP Financial Services

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Start the Discussion Cost savings Revenue generation Efficient business process

Complete a supplier analysis of your file Introduce a “Game Changer!” Start the journey and path to wealth creation

Next Steps

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If you are seeking CPE credit hours for this session, please:

• Sign in on the designated sign-in sheet • Turn in your completed quiz/survey sheet to

the Room Monitor to obtain your certificate.

CPE Credit Hours

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Bob Sneed Senior Vice President of Corporate Payment Solutions, Comdata Bob Sneed is responsible for business development and growth of corporate

payment solutions into large markets. During Bob’s 20 year tenure with the organization, he has used his extensive experience with business development and systems integration to enable Comdata to capitalize on emerging trends, and he was instrumental in the design, deployment and sale of Comdata’s MasterCard Multi-Card Payment Solutions with particular emphasis on the emerging trend of e-Payables. Bob is a member of NAPCP, AP Network and IOMA and is a frequent speaker at various industry conferences.

Recent speaking experience includes: Institute of Financial Operations Fusion Conference – 2012 National Association of Purchasing Card Professionals (NAPCP) Annual Conference –2011 Healthcare Financial Management Association (HFMA) Conference – 2011

Biography


Thank you.

Bob Sneed, SVP of Commercial Payments

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Comdata Financial Leadership Series

March 14, 2014

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Vanderbilt University Background Information

Vanderbilt University founded 1873 in Nashville, Tennessee

– http://www.vanderbilt.edu

Presently ranked among the top 20 universities (U.S News &

World Report) in the United States

– Undergraduate and graduate student population totals 12,795

– 3,672 faculty and approximately 21,000 staff

– 234 buildings covering approximately 330 acres

– Operating budget is nearly $4.0 billion and endowment nearly $3.3 billion

– Second largest private employer in the State of Tennessee

Vanderbilt University encompasses the following schools

– Arts & Science, Music, Divinity, Engineering, Law, Medicine, Nursing,

Management and Education

– Vanderbilt University Medical Center (VUMC) includes 985-bed teaching hospital

– Monroe Carell Jr. Children's Hospital at Vanderbilt

– Vanderbilt Stallworth Rehabilitation Hospital

Medical Center Demand Check

Paper Checks Have Historically Dominated Disbursements Representing 93% of Payments

Represents results from

12 months April 2012

through March 2013.

($ In millions)

Count

$ Amount

% of Payments

Paper

Checks

240,000

575.9

______

93%

Electronic

Payments

18,993

1,245.0

______

7%

Total

Payments

258,993

1,820.9

______

100%

Accounts Payable

Totals

138,969

167.8

______

57.1

University Demand Check

Totals

58,127

142.7

______

24.7

f

Count

$ Amount

% of All Paper

Checks

Count

$ Amount

% of All Paper

Checks

Count

$ Amount

% of All Paper

Checks

Totals

42,904

265.4

______

18.2

High volume of paper checks represents diverse population of recipients such as employees,

students, vendors, athletes, subject participants.

2014 Goal: Eliminate 60,000 Paper Checks

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Progress as of: January

Projected Target Δ

Absolute Check Volume Reduction: 62,643 60,000 2,643

Percentage Reduction y-o-y: 26% 25% 1%

Month FY13 FY14 Projection

July 20,466 21,486 8,533 0 0 0 (1,020)

August 20,375 17,120 12,312 0 0 0 2,235

September 16,769 18,253 16,587 0 0 1,061 751

October 22,070 16,192 19,650 0 0 0 6,629

November 20,607 13,214 21,212 0 0 118 14,022

December 19,056 11,968 23,263 0 0 200 21,110

January 22,787 15,894 25,777 0 0 0 28,003

February 17,392 13,202 26,277 2,190 2,000 0 32,193

March 19,327 13,496 26,777 2,231 2,200 (1,400) 38,024

April 21,499 13,351 27,577 2,298 2,200 (3,650) 46,172

May 20,587 12,372 28,377 2,365 2,200 (3,650) 54,387

June 19,065 10,809 28,877 2,406 2,200 (3,650) 62,643

Total 240,000 177,357

Cumulative

Reduction Count

FY14 Disbursements Check Reduction Projection

Projected

Cumulative

Annual

Reductions (ACH)

Projected FY14

Monthly

Reductions from

ACH

Projected FY14

Monthly

Reductions from

Travel

One-Time Events

& Project

Reductions:

More / (Less)

Checks

A Comprehensive Payment Strategy is Best Practice

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• Repetitive payments

• High dollar payments

• International payments

ePayables ACH/Virtual

Card

• One-off payments

• Emergency low-dollar payments

Checks

• Travel & Expense

• Procurement

• One-off payments

Physical Card

Wires

• Payments requiring same day settlement

• Int’l payments if ACH can’t be used

Optimal Payment Mix

Wires

ACH/EFT Cards

Payment Channel Optimization Begins with Employees

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• Payroll

– Payroll cards are viable option for unbanked employees

– Easily reloadable for employers with broad flexibility for employees

– Paper checks no longer an option for new employees at Vanderbilt

• Direct deposit for all employee reimbursements

– Leverage existing payroll processes and banking information

– Vanderbilt started with travel and has expanded into all employee

reimbursements

– Change management issues were significant in the beginning

– Resulted in reduction in refund cycle time for employees

• Payment cards work well to minimize employee out of pocket

expenses while traveling

– Cards don’t commit fraud, people commit fraud

– Requires management wherewithal to address inappropriate behaviors

• Payment strategy begins with Procurement

– Negotiate electronic payment as part of contracts and confirm with purchase

orders

• Change in tone from Disbursements

– We no longer make payments via paper check……….absolute last resort

– Some vendors will resist anything except a paper check!

– Obstacles & Change Management- “I’m hesitant to give out my banking

information”

• What are ePayables Solutions?

– ACH (Automated Clearing House) • Typically stem from your financial ERP

• Funds deposited directly into vendors bank account & includes remittance information

• Benefits vendor by reducing cash flow cycle

– Virtual Card Programs • Payments are “pushed” to vendors utilizing virtual credit card transactions

• Can significantly extend your cash flow cycle & revenue sharing opportunities can be significant

• Many providers will offer to enroll vendors into card program for you….take them up on the offer!

– Obstacles & Change Management • Some vendors may not be able or willing to accept fees associated with card programs….but you

might be surprised!

We lead with

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ePayables Solutions Form the “Foundational” Channel

8,533 12,312

16,587 19,650 21,212

23,263

25,777 26,277 26,777

27,577 28,377 28,877

627

869 1,082

1,317

1,493 1,806

2,144 2,294

2,444 2,594 2,744

2,894

0

500

1,000

1,500

2,000

2,500

3,000

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Cumulative Check Reduction & Conversions to Electronic Payment

Reflects 338 conversions to

electronic payment including:

• Tennessean, Google Inc.,

Music City Tents, Nashville

General Hospital

Vendor Conversions to Electronic Payments Continue to Grow

Progress Through January

Checks Eliminated: 25,777

Vendors Converted: 2,144

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Year-to-Year Comparison of Monthly Paper Check Volumes

Reflects the cumulative,

annualized reduction in

vendor check volume based

on FY13 volumes.

July August September1 October November2 December3 January February March April May June Totals

FY13 Actual 20,466 20,375 16,769 22,070 20,607 19,056 22,787 17,392 19,327 21,499 20,587 19,065 240,000

FY14 Act./Fcst. 21,486 17,120 18,253 16,192 13,214 11,968 15,894 13,202 13,496 13,351 12,372 10,809 177,357

FY 13 Cum. Count 20,466 40,841 57,610 79,680 100,287 119,343 142,130 159,522 178,849 200,348 220,935 240,000 240,000

FY 14 Cum. Count 21,486 38,606 56,859 73,051 86,265 98,233 114,127 127,329 140,825 154,176 166,548 177,357 177,357

62,643

Note 1: September FY14 includes 1,061 checks for one-time FICA payments.

Note 2: November FY14 includes 118 checks for one-time FICA payments. Note 3: December FY14 includes 200 checks for one-time FICA payments.

Net FY 14 Check Reduction

Payment Cards Address Subject Participation Payment

Issues

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Current State

• Vanderbilt research community engages in hundreds of subject based participation

studies each year resulting in approximately 20,000 paper checks/year.

• Majority are low-dollar, low-frequency payments to very a diverse population of

recipients.

• Heavy administrative burden given the value of the payment.

• Timing of payment is sensitive topic and not all studies are local to Nashville.

Future State

• Single Issuance Payment Card is the answer!

• Issuance on demand via web-based tool. Huge win for research community.

• Minimizes risk of fraud.

• Reduces Vanderbilt administrative burden. – Lost or stolen, call card provider

– Provider is responsible for any unclaimed property issues

• Great flexibility for subject participant……easily converted to cash.

• Currently in the process of implementation.

• Perfect tool for the job!

Payment Card Solution Addresses Patient Refund Payment Issues

Current State

FY2013 Hospital & Clinic Statistics 57,768 Discharges

307,292 Inpatient Days

1,833,337 Ambulatory Visits

119,225 Emergency Visits

Numerous payors and payment touch points result in patient overpayment.

Majority are low-dollar, low-frequency payments.

Results in significant administration burden to void & reissue checks or escheat unclaimed property.

Future State

Single Issuance Payment Card is the answer!

Direct issuance from our patient accounting system to Comdata.

Reduces Vanderbilt administrative burden: Reduces fraud exposure

Lost or stolen cards are easily replaced

Provider is responsible for any unclaimed property issues

Key Factor: Need to gage patient experience.

Currently in the process of implementation.

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1 Emdeon Proprietary & Confidential 1

Comdata Payment Innovations 2014

Tom Dean SVP Financial Services

Payer to Provider

Payments

2 Emdeon Proprietary & Confidential

U.S. Healthcare Market Landscape

• Estimated $2.6 trillion in annual healthcare expenditures in the U.S.

• Healthcare expenditures growing approximately 6% annually

• Estimated $150 billion spent on billing and insurance administration

• Estimated $396 billion in inefficient care

Unsustainable Growth in Healthcare Costs

Excessive Administrative Costs

National Health Expenditure ($t)

0.02.04.06.0

2010E 2019E

2.6 4.5

Source: CMS, office of the Actuary

% of GDP

Excessive Administrative Costs

17.9 19.3

Source: Council for Affordable Health Insurance

$2.6t

Other Administrative Costs Inefficient Care

86% $2,140b

14% $360b

16% 396b


Lowering Cost has Increased Complexity

Emdeon is in the Business of Simplifying Complexity

Sources: [a] Philliou Selwanes Partners, LLC [b] The Kaiser Family Foundation and Health Research and Educational Trust, 2007 [c] Forrester Research, 2005 [d] Susquehanna Financial Group, 2004

Conventional (1)

POS (2) CDHP / SO (3)

Benefit Design Trends Drive Further Complexity [b]

(%)

Consumerism Generating Bad Debt [c] Government Mandates Drive Administrative Burden

Year Mandate

2006 • Recovery Audit Contractor (RAC) program, HIPAA

2008 • NPI

2012 • X12 – 5010

2013 • ICD 10

Consumer Directed Health Plans (#)

PPO HMO

60% of patient billings result in bad debt [d]

Fewer Payers, Yet Greater Complexity [a]

Notes: (1) Conventional plans refer to traditional indemnity plans. (2) Point-of-service plans not separately identified in 1988. (3) Not included in survey until 2006.


A Consumer Centric Portal in Healthcare

Providers

Patients

Payers

Members

Patients

Patients

Providers

Payers

Providers

Payers

Providers

Payers

Step 1 Eligibility and

Benefits Verification

Provider verifies

the benefits available to the Patient and/or ability to pay

Step 3 Claims

Management

Provider bills the Payer for

Services (a.k.a the Claim)

Step 4a Payment

Distribution

Payer sends payment and remittance

information to Provider

Step 5 Patient Billing and Payment

Provider sends a bill to Patient for

remaining balance

Step 4b Payment

Distribution

Payer sends Explanation of

Benefits to Patient

Medical Treatment

Step 2


Industry A/R and A/P Challenges

Further Information: www.hipaasimplified.com http://www.caqh.org/ORMandate_EFT.php

Challenge to comply with MLR mandate1

Disparate EFT systems used

by payers, clearinghouses

Exchanges

ACO’s

Reduce Admin costs

ICD-10

Mandated Healthcare Operating Rules: Second Set - EFT & ERA

• Compliance with

regulations

• Reconciliation, Audit and Control processes related to multiple payment modalities

Payer and Provider

http://www.hipaasimplified.com/


http://www.caqh.org/ORMandate_EFT.php


Mandate Compliance 2014 EFT/ERA Mandate Highlights

• Payers must have compliant ACH solution by 1/1/2014

• Payers can still utilize

other Payment tender types unless a Provider requests AHC

• Providers are not mandated to accepted ACH

http://www.emdeon.com/epayment/trace/

http://www.emdeon.com/resourcepdfs/EMDA1040214.pdf

More info at: WWW.HIPAASIMPLIFIED.COM

Goal is electronic distribution using multiple

methods of payment

http://www.emdeon.com/epayment/trace/

http://www.emdeon.com/resourcepdfs/EMDA1040214.pdf



ePayment: Virtual Credit Card Payments Description • Virtual credit card is a limited

value, single-use payment number

• Remittance is printed and mailed, faxed, e-mailed or distributed via a portal to providers

• Provider is able to enter transaction into an existing Point-of-Service (POS) terminal

• Electronically routes the payment using credit card networks

• Deposits funds into the provider’s existing merchant account


ePayment: Virtual Credit Card Payments Key Benefits • A healthcare claims payment (EFT)

vehicle utilizing the card network

• Replaces checks and is optimized for paper Explanation of Payments (EOPs) –maintains current workflow for the provider

• 99% of providers acceptance

• Does not require enrollment or additional agreement

• A source of revenue generation or cost offset for a payer (especially smaller payers who can not drive EFT adoption)


The vast majority of Provider payments are relatively small which minimize individual interchange fees to Providers

EPN: Value Proposition

Payment Averages: Check: $713 VCC: $203 EFT: 6,442


FUNDS FUNDS FUNDS

SETTLEMENT BANK

BANK

APPROVAL APPROVAL APPROVAL

Provider Keys in Virtual

Card

NETWORK/ SWITCH

ISSUER

BANK

ACQUIRER

BANK

PROCESSOR

AUTH.REQUEST REQUEST REQUEST

SALES TICKET ITEMS ITEMS

PAYER’S BANK

BANK

EOP and Virtual Card Information

Distribution Processor

Assigns Payer

Cardholder Account Number

Payer EOP and Payment file

Payer Payment Distribution: “Paper” VCARD Model


What do our customers say?........ Comparison of two forms of electronic payments

Provider Issue VCC ACH / ERA

Cost of processing fees and remittance posting

VCC means merchant discount fees to the provider which can range in cost. VCC is most commonly distributed as paper or fax which means the provider must manually post the remittance information.

The payment cost is low, but the cost of implementing each payer is high and the cost of reconciling the payment to the remittance is high.

The enrollment process is cumbersome and requires that the provider give their bank information to each payer

This is not an issue with VCC, but the provider pays merchant fees or this convenience.

The reason why providers only enroll with their large payers for ACH is that providers find the process too cumbersome for small payers.

Electronic Remittance Advices (ERAs) are different from one payer to the next

VCCs are mostly delivered as paper or fax so the ERA is not an option, this means there is no opportunity for the provider to automate posting.

This is the other reason that providers can only afford to implement large payers. Each payer requires its own costly implementation because of the differences in the file content.


Payment File

Payment Tender Type Gating

EFT Virtual Card

Closed Loop Check

Delivery Gating

eDelivery Paper Delivery

• Secure Email • ACH • ICL

(Fvtech, Bank Lockboxes) • Portal

(PBPS, Partner Platforms) • Fax

• USPS

Tender Type

Delivery Method

Payment Consolidation

• Payment consolidation so that one payment goes to provider for the Payer

• Manage Provider preferences and ongoing payment modality routing

• Consolidate compose and fulfill selected payment instrument. Comprehensive reconciliation and 1099 service for those who want it

• Distributes payments electronically and physically across a myriad of distribution channels

Challenge - Leveraging this bundle of services in combination and management of both the payer and the provider preference.

EPN EPN Evolution

BI Card


Questions

Documents

Payment Optimization