Making Electronic B2B Payments Is

Easier than You Think

Dale Sorenson, Associated Bank
Sharon Jablon, The Clearing House, AAP
Windy City Summit, June 7, 2012

Whats Happening?
Yes, checks are disappearing but primarily with consumers

Superstructure for B2B electronic payments is largely in place

Corporate awareness and practices still lag

Its easier than you think

B2B Payment Patterns

Checks Continue to Disappear

2006 (billions)

2009 (billions)

CAGR*

Checks

31

25

-7%

ACH

15

19

9%

Credit Card

22

22

0%

Debit Card

25

38

15%

Prepaid Card

22%

Total

95

109.0

5%

* CAGR = compound annual growth rate

2010 Federal Reserve Payments Study

4

Check-Clearing Times Shrink

Lockbox Deposit Clearing Averages
2.00
1.80
1.60
1.40
1.20
City Points
1.00

RCPC Points

0.80

CDA Points

0.60
0.40
0.20
0.00
2005

2006

2007

2008

2009

2010

2011

Source: Phoenix-Hecht
5

Postage Rates Climb

$0.50
$0.45
$0.40
$0.35
$0.30
$0.25

$0.20
$0.15
$0.10
$0.05
$0.00
1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

Why Pay Electronically?

Benefits of Electronic
Payments

Organizations Rated Benefit

among Their Top 3

Cost Savings

52%

Improved Cash Forecasting

40%

Fraud Control

37%

More Efficient Reconciliation

32%

Working Capital Improvement

28%

Straight-thru-processing for
A/P and A/R

24%

Better Supplier/Customer
Relations

24%

Reduction in DSO

22%

Ability to Take Early Pay

Discounts

18%

2010 AFP Electronic Payments: Report of Survey Results

Barriers to Change
Major Barriers to Increasing Use of Electronic
Payments

Percentage
Distribution

Lack of integration between payment and accounting

systems

34%

Shortage of IT resources for implementation

33%

Difficult to convince customers to pay electronically

32%

No standard format for remittance info

28%

Trading partners cant send or receive automated

remittance info with electronic payments

28%

Check systems work well

20%

2010 AFP Electronic Payments: Report of Survey Results

8

B2B: Checks Still Swamp ACH

Payment
Type*

2010 Vol. of
B2B (bil.)

% Total

Adjusted %

Comments

CCD Debits

0.6

6%

0%

Corps decline debits

CCD Credits

1.4

16%

8%

Often internal transfers

CTX

0.07

1%

1%

Checks

6.7

76%

91%

Total

10.0

100%

100%

Typical organization makes 57% of its B2B payments by check

2010 AFP Electronic Payments study
* ACH data from NACHAs Annual Report
Check data from 2010 Federal Reserve Payments Study

Electronic Payment Options

ACH (CCD+)

ACH (CTX)

Fedwire/ CHIPS

Medium

Low

High

Transaction Fees

$$$

Characters of Remittance
Data

80

800,000

9,000

Vendor Experience

Format for Remittance

Data

EDI segment
or Data Element
NACHA Banking
Convention

EDI
STP820
UN-EDIFACT

EDI
STP820
XML
ISO20022
SWIFT
UN-EDIFACT
TAGS
Narrative

10

Payment Networks

11

The Clearing House (TCH)

Clears and settles 65 million payments, valued at nearly $2 trillion/day

Network

Payment Type

Market Share

EPN

ACH Domestic

52%

SVPCO

Check Images

44%

CHIPS

Domestic & International

Wire Transfers

43%

(Electronic Payments Network)

(Clearing House Interbank Payment System)

(High Value Payments Real Time

Final Settlement)

12

Payment Flow STP 820

Payors Accounting Software
or Banks Online Portal

Payees

Payables Data

Accounting Software

Customer Account Number

Customer Name
Invoice Gross Amount
Amount Paid
Invoice Number
Invoice Date
PO Number
Discount
Adjustment Amount
Adjustment Code

The Clearinghouse/Fed

13

NACHA File for CTX Payment with STP820

101 021000018 3112345670302120140F094101ASSOCIATED BANK
JONES PLUMBING
X
5220JONES PLUMBING
1311234567CTXPAYINVOICE
030212
1021000010000012
622021000021182389281
0000012001EP10019
0008ACME IMPORTS
1021000010038729
705ISA*00*
*00*
*30*311234567
*14*9088877320000 *030129*10100010038729
7051*U*00401*000000001*0*P*~\GS*RA*311234567*9088877320000*20030129*1615*1*X*00401000020038729
705\ST*820*0001\BPR*C*120.01*C*ACH*CTX*****1311234567**01*021000021*DA*182389281*2000030038729
705030129\TRN*1*EP10019\N1*PR*JONES PLUMBING*91*123456789012345\N1*PE*ACME IMPORTS 00040038729
705\ENT*1\RMR*IV*3920394930203**30.01*40.01*2\REF*R7*3920394930203*NEW BUILDING PRO00050038729
705JECT\DTM*003*20030123\ADX*-8*01*TD*USED CATALOG 199JAN2003\RMR*IV*254221222500**00060038729
70545*50.01*4\REF*PO*5722319*MARKETING DEPARTMENT ORDER\DTM*003*20030125\ADX*-1.01*00070038729
70504\RMR*R7*21222500**45\DTM*003*20030129\SE*17*0001\GE*1*1\IEA*1*000000001\
00080038729
822000000900021000020000000000000000000120011311234567
021000010000012
9000001000002000000090002100002000000000000000000012001
X

5 = Batch Header Record

6 = CTX Corporate Entry Detail Record
7 = CTX Addenda Record

14

STP 820

14

Bank Portal for Electronic Payments

Running Total of
all remittances
User inputs Payee
information

To get to
detail
Summary information of
remittances already
established to the payee

15

Bank Portal for Electronic Payments

User key enters
remittance information

16

Software Support
Certified by
Promoted by
Adopted by

17

Remittance Information and Wires

18

Wire Remittance Information

(CHIPS and Fedwire)

Transaction = Payment Data +

ISA*00*
*00*
*17*071000366
*17*021000021 *090129*101
1*U*00401*000000001*0*P*;\GS*RA
*071000366*021000021*20090129*
1615*1*X*004010STPW..

9000 characters of remittance information

19

Options for Sending Remittance Info

with Fedwire and CHIPS
Format

Characters

Unstructured

EDI
XML
SWIFT

9,000

Structured

Tags

9,000

Related Remittance
Info

Reference number
Fax, email or URL
number

2,048

20

Experience with STP 820 & Accounting Software

Verizon

The Clearing House

Great Plains Dynamics
Accounts Payable
STP 820 module

Verizons Bank

TCHs Bank

Posts to
Accounts Receivables
- STP 820 module

ACH Operator

21

21

TCH Payments to Verizon

Challenge
Many checks (1200 per year) to Verizon

Many pay to addresses and duplicate invoice numbers (phone #)

TCH Electronic Payments Program
Verizon initially did not respond to TCHs mass request for banking info
But TCH discovered that Verizon processes EDI
Electronic Payments for Verizon No Brainer
Unique invoice number is now phone number + date = XXXYYYZZZZ MMYY
Immediate conversion (4-6 weeks) and savings of $1,200

22

Leading Business Practices

23

Miracle at Schwing America

2011

2012

Check Payments

100%

0%

ACH Payments

60%

40%

Average Transaction Cost*

$1.12

$0.60

*Banking Fees
Check = $1.12
ACH = $0.26

24

Steps to Success
1. Convince senior management

2. Persuade vendors that payments will be faster

3. Adopt belts & suspenders approach to remittance data
4. Start with voluntary program, thereafter involuntary
5. Automate if you can but dont wait on automation

25

Vendor Solicitation
February 14, 2011

Dear Valued Vendor:

As Schwing America continues to improve the promptness with which we remit payment to our
valued vendors, we now have the capability to expedite payment further by remitting payment via
electronic funds transfer in the form of an ACH payment.
By utilizing ACH payments, you, our valued vendor, will receive payment directly into your
checking account instead of waiting for the USPS to deliver a paper check to either your office or
lockbox. You will also receive via e-mail a payment advice detailing which invoices were paid
and the total dollar amount deposited into your bank account.
In order to start this process we need to gather the following information from you:
Vendor Information:
Your standard information (Name, address, Tax ID etc.)
Contact Person
E-mail of the contact person this will be the e-mail address used to receive the payment
advice.
Vendor Bank Information
Vendor Authorization
To start this process we ask that you complete the attached form.
Please note that all sections must be completed.
Once you have completed the form, both signing it and dating it we ask that you scan and e-mail
the form to ap@schwing.com or fax the form to 651-287-0413.
Since payment via ACH is both faster for you and less costly for us, this payment method is now
our preferred payment method. Presently, payment to you via ACH is optional; however, in the
near future Schwing America will require that you accept ACH payments or be assessed a
processing fee to cover the cost of remitting payment via check.

You will receive payment directly

into your checking account instead
of waiting for the USPS to deliver a
paper check.
You will also receive via e-mail a
payment advice detailing which
invoices were paid.

Should you have any questions or require additional information, dont hesitate to contact me.
Best regards,

Paul W. Steffensen
Paul W. Steffensen
Treasurer
An electronic copy of this letter can be found by going to
http://www.schwing.com/pages/news/index.html and selecting the corresponding press release.
5900 Centerville Road w Saint Paul, MN 55127 w www.schwing.com w Phone: (651) 429-0999 w Fax: (651) 429-3464
Subsidiary of Schwing GmbH

In the near future Schwing America

will require that you accept ACH
payments or be assessed a processing
fee to cover the cost of remitting
payment via check.

26

MapQuest for Payment Pioneers

Starting point:
Trip to:
Distance:

Land of Checks
Electronic Payment Zone
Shorter than you think

1. Start out by recognizing that you can change now or

change later, but change is unavoidable
2. Merge accounting and banking systems with either lowtech or high-tech solutions
3. Dont be afraid to experiment in order to control risk and
obtain insights

27

Contact Info
Dale.Sorenson@associatedbank.com
Sharon.Jablon@theclearinghouse.org

28