B 2 B Payment Processing: The Efficient Frontier James P.
Gilligan, CTP Senior Manager, Corporate Treasury Great Plains
Energy | Kansas City Power & Light Company Utility Payment
Conference New Orleans; Sept. 19 22, 2011 Slide 2 2 Questions for
the audience Do you know what C 2 B means?... B 2 B? Do you know
what DSO is? Do you know what Working Capital is? Do you know what
the Cash Conversion Cycle is? Slide 3 3 B 2 B Payment Landscape
Slide 4 4 Current B 2 B Payment Landscape Getting a handle on the
numbers can be difficult Percentage of B 2 B Check Payments:
Source: 2010 AFP Electronic Payments Survey In 2004 this was 81% In
2007 this was 74% Slide 5 5 Current B 2 B Payment Landscape Trends
Over Past 2 Years How Payments are Made Source: Aberdeen Group,
June 2008 * Card payments within A/P is the fastest growing payment
option and are expected to surpass ACH B 2 B volume by 2012 Slide 6
6 Current B 2 B Payment Landscape The B2B market has been and
continues to be the toughest sell for electronic payments. And for
good reason, some would say... Companies want to collect payments
at the speed of light, but would prefer to disburse funds by Pony
Express Slide 7 7 Current B 2 B Payment Landscape The Bottom Line
The use of paper checks to make B2B payments continues to decline
However, most B2B payments continue to be made by check Large
organizations are more likely to use electronic payment methods
Electronic payments play a bigger role in transactions with major
trading partners Slide 8 8 The problem with B 2 B Payments Its all
about the money Payers want to control timing Payers may want to
renegotiate terms Its a logistics nightmare Payers need payees bank
routing number, account number and instructions for remittance data
delivery and technology Getting remittance information is difficult
List of invoices paid and amount Explanation of short pays,
discounts and deductions Associating the data with an inbound
payment Getting this remit data into a digital, system-readable
form Matching remit data to receivables data and posting payment
Slide 9 9 Top factors driving businesses to switch to electronic
payments Source: Aberdeen Group, June 2008 Slide 10 10 Source:
Aberdeen Group, June 2008 Definition of Maturity Class Mean Class
Performance Savings vs. Paper checks Best-in-Class: Top 20% of
aggregate performers 80% of overall payments processed by
electronic methods 38% savings Average: Middle 50% of aggregate
performers 30% of overall payments processed by electronic methods
33% savings Laggard: Bottom 30% of aggregate performers 7% of
overall payments processed by electronic methods 26% savings
Aberdeens Maturity Framework: Electronic Payments Slide 11 11
KCP&L Focus on e-Payments and Process Automation Slide 12 12
KCP&L Background Founded in 1882 Electric only IOU (NYSE: GXP)
823,000 customers/3,200 employees Acquired Missouri Aquila
customers in 2008 $2.3 Billion Revenues in 2010 16 generating
stations 6.6 MW Nuclear Coal Gas Wind Slide 13 13 KCP&L
Transformation since 2005 Slide 14 14 KCP&L Customer Payment
Options Slide 15 15 Residential Payments Source: KCP&L
Residential Payments Jan - July 2011 Slide 16 16 Residential
Electronic by Channel Source: KCP&L Residential Payments Jan -
July 2011 Slide 17 17 Commercial Payments Source: KCP&L
Commercial Payments Jan - July 2011 Slide 18 18 Previous C 2 B
Payment Issues Multiple 3 rd party vendors offering electronic
payment choices to our residential customers Separate files sent to
us by multiple vendors Files with different formats No validation
of customer account numbers/data Some vendors still sending check
& lists No visibility into payments received when asked by our
customers Payments received meant for another biller Slide 19 19
How KCP&L automated C2B Payments e-Box Online Bill Pay Websites
Receivables Manager e-box Decisioning CheckFree Metavante MC RPPS
Others Pmts Stop / Pos / Xref File Stop / Pos / Xref File Data Feed
Posting File Slide 20 20 Current State of C 2 B Payments with e-Box
Single source for all on-line bill payments Processing features
enable faster, accurate processing of payments On-line Decisioning
for returns and corrections Cross-references to handle recurring
errors Posting to multiple billing systems Slide 21 21 Previous B 2
B Payment Issues Incomplete data prohibited prompt processing No
addenda information at all Missing, unreadable or incorrect
customer information Manual posting to CIS system required
Customers dont receive timely credit, creating penalty charges CIS
feeds to G/L, delay could create inaccurate statement of financial
results at reporting periods Considerable staff time researching
payments Slide 22 22 Previous B 2 B Payment Issues - ALA Account
Link Advantage (ALA) Our homemade solution to automating B2B
payments Customer signs-on to portal to access all their accounts
Customer must indentify which accounts are being paid and the
amount Customer must electronically send payment that matches
exactly to entered amount of payment Slide 23 23 Why the focus on B
2 B now by KCPL? Improvement in Cash Working Capital means enhanced
liquidity and lower borrowings a strategic advantage Reduced Float
Improved Days Sales Outstanding (DSO) Faster posting of payments
due to accuracy Slide 24 24 TreasuryAPTreasuryBusinessAR Purchase
services, goods or raw materials Payment for purchases Production
of goods Inventory holding period Sale of Goods Collection of
payment Cash Treasury Slide 25 25 Why the Focus on B 2 B Now
Greater Customer Satisfaction Improves efficiencies for our largest
customers, often resulting in lower costs for them as well
Eliminates penalties for late payments Accurate posting of payments
Better Relationships Our customers appreciate improved technology
We arent your typical utility not difficult to deal with Rate
increase requests arent met with animosity Reputation Risk News
stories are positive rather than negative Our community values us
as a corporate citizen Slide 26 26 Products/Services drive
Reputation Top 3 reputation Drivers for Utilities 1.Governance
2.Products and services 3.Citizenship Slide 27 27 KCP&L Tier 1
Customer Sat Index Slide 28 28 DSO reduction Accelerate customer
payments Lockbox Remote Deposit Capture Check conversion to ACH Web
Presentment and payment Electronic Funds Transfer (EFT) Receivables
data integration enables business process automation 28 Slide 29 29
DSO reduction Account Receivable Days Sales Outstanding DSO: avg #
of days to convert a sale (A/R) into cash Working capital drivers
Accelerate customer payments Automate cash application process
& reduce exceptions [AR] [Annual Sales] Slide 30 30 Challenges
we faced with B 2 B electronic payments No standard format for
remittance information Payment type options available CCD/CCD+/CTX
Who is the appropriate customer contact? What tools should we use
in our campaign? How do we aggregate payment details and auto-post?
Slide 31 31 The Efficient Frontier - How KCP&L is automating B
2 B Payments Accounting System / ERP ACH Credits/Debits Incoming
Wires Online Bill Payments Desktop Deposit Receivables Manager Data
files Lockbox Payments Consolidated Data File Consolidated Data
File Slide 32 32 B 2 B Payments Implementation Plan Implementation
Plan Pilot Target Automated PayMode receipts as first test Convert
existing ALA customers with focus on the entity with the most
difficulty getting in right Expansion to other ALA customers
(KCP&Ls largest customers) Add customers that have asked to
automate Full Market Rollout 4Q 2011 Slide 33 33 B 2 B Payments
Implementation Plan Targeted Pilot Customers Soft roll-out to a
targeted large commercial customers Current users of technology
Conversations one year in advance of implementation Work with
banking partners to smooth transition Partner with CSRs and
Marketing Reps to keep communication lines open Slide 34 34 Q &
A Slide 35 35 Contact Me James P. Gilligan, CTP Senior Manager,
Corporate Treasury Great Plains Energy | Kansas City Power &
Light Company 816 / 556-2084 [email protected]
