Comprehensive Check to Electronic Payment Services Transforming Your Business from Paper to Electronic

Presented by:

Dawn Haddock Senior Vice Present, Senior Product Delivery Officer Government Banking

&

David Randolph Vice Present, Card Account Manager Government Banking DAWN HADDOCK DAVID RANDOLPH Senior Vice President Vice President Senior Treasury Solutions Officer Card Account Manager

Email: [email protected] Email: [email protected] Telephone: 602.523.4113 Telephone: 602.523.6996 Fax: 972.728.4436 Fax: 214.416.0772

Bank of America Bank of America 201 E Washington St 201 E Washington St Phoenix, AZ 85004 Phoenix, AZ 85004

2 Agenda

Agenda

 Why check to electronic?

 Where can you use electronic payments?

 What is next?

 What are the options?

 What project is the “best bang for the buck”?

 Vendor Enrollment

 Questions?

3 Why check to electronic?

4 Why check to electronic?

Cost of paper is rising

 On July 14, 2010, Wachovia Bank won a $154,000 lawsuit over a customer that did not implement Payee Positive Pay when the bank made the service available.

 A Pennsylvania judge's ruling in a recent check-fraud case could wind up coercing more small businesses into buying anti-fraud protection services from their banks. The case was Schultz Foods Co. vs. Wachovia Corp., which stemmed from Wachovia's decision in 2005 not to cover a nearly $154,000 loss Schultz incurred due to check fraud. After Wachovia covered its losses on three previous occasions, Schultz assumed Wachovia would have its back after a fourth time. But Wachovia balked, triggering the lawsuit. In August, a federal court sided with Wachovia and threw out the case, largely due to a specially crafted deposit agreement from Wachovia that required Schultz to pay for certain anti-fraud services in order to be covered for losses. - US Banker November 2010  Labor intensive

5 Why check to electronic?

IRS Regulations

 TIPRA: Tax Increase Prevention and Reconciliation Act of 2005

 Who does it impact? – Effective January 1, 2013 – Government entities – $100 million AP budget – Vendor payments via ACH, Wire and check/warrant – Vendors you are paying $10,000 a transaction or more – Remit 3% to the IRS to be claimed by vendors during their tax filing – Card is exempt at this time

 1099 Reporting

 Check, ACH, Wire and check/warrant are 1099 reportable

 Card payments are not subject to 1099 reporting as of January 1, 2011

6 Where can you use electronic payments?

7 Where can you use electronic payment?

What funds do you disburse?  Operational Expenses / Accounts Payables

 Payroll – 10-12% of the work force will never have a bank account

 Seasonal Workers

 Jury Payments

 Refunds

8 What is next?

9 Picking a project

 Determine cost of processing a paper payment for your organization

 Gather Bank Financial Benefit Models (see handout)

 Rate from highest to lowest what payment options will benefit your organization and your vendors most today, and in the future

 Set goals for each payment option  Overall spend volume to transition  Projected breakdown by spend commodity  Spend by order mechanism  Cost savings  Vendor sourcing goals  Discounts lost  Financial incentives received

 Obtain leadership support / designate project champion

 Payment Analysis

 Vendor Contact Campaign (if needed) 10 What are the options?

11 Option One – Purchase Card

Extracting greater value from your Purchase Card Program

 Focus on departmental spending

 Focus on commodity spending - Business services, Office supplies, Fleet, IT/Telecommunication, Courier services, etc

 Increase number of cardholders

 Increase spend limits

 Review expense and reimburse data to identify employees that may benefit from a „travel card‟

 Reoccurring Payments – Phone, Utility, Rental

 Maintenance and Repair – Office Equipment, Furniture

 Professional Services – Consulting, Legal

 Periodically Review Purchase Orders 12 Option One – Purchase Card

Extracting greater value from your Purchase Card Program

 Mandate Card based off criteria type  Commodity type  Dollar size of transaction  Frequency of transaction

 Incorporate Card acceptance into supplier contracts

 Incorporate Card into eProcurement application

 AP Payment Analysis  Total spend by payment method  Cardable spend  Vendors paid by multiple payment options  Department/Cost Center spending  Consultation on best practices and technology to maintain control

 Evolve your Card program

13 Option Two – Automated Card AP Payments

Paying with a ghost card:

 Automated Card AP payment solutions allow organizations to convert paper AP payments to electronic payments utilizing the Card network  Partner with financial institutions to analyze paper based vendor payments to identify opportunities for conversion  Benefits to You -

 Elimination of expenses associated with check i.e. printing, mailing, bank fees, fraud, etc

 Opportunity to extend float on payments to suppliers without negatively impacting DPO

 Precisely time disbursements and accurately forecast short term cash

 Provides revenue share opportunities with your financial institution  Benefits to Your Vendors -

 Converts the payment to electronic settlement thereby eliminating processing fees (internal and/or bank analysis charges) associated with accepting a check

 Removes the mail float and funds availability factors from the collection process

 Provides opportunity for Suppliers to reduce DSO without impacting your cash flow

 Electronic delivery of the remittance information

14 Option Three – Increase Electronic Vendor Payments

Paying with ACH:

After maximizing purchase card and automated card AP payments the next step is to look at the remainder of the paper. Structure a conversion plan with bank partner:

 Identify remaining paper payment vendors

 Call vendors to collect their banking information for ACH payment  Benefits to You -

 Displaces check costs associated with these payments

 Reduces opportunity for fraud

 Reduces time needed for reconciliation  Benefits to Your Vendors –

 Options for no cost remittance information

 Displaces check costs associated with these payments

15 Option Four – Prepaid and Payroll Cards

Non-vendor related payments:

 A card solution that helps government municipalities to integrate recurring electronic payments and further streamline disbursement administration  Targeted to underbanked recipients who do not have traditional bank accounts  Deposit accounts are individually owned FDIC-insured accounts accessed by a Visa-branded card  Card Programs:  Visa Prepaid Debit Card – Accessed everywhere Visa debit cards are accepted, pinned point of sale terminals and ATMs  Visa Instant Issue – Available for agencies with special needs for on-site card distribution  Acceptance Point Options:  Visa Merchants – use at millions of locations worldwide  Interlink® pinned point-of-sale – over 1 million locations  Visa financial institutions for cash access via teller

16 What project is the “best bang for the buck”?

17 Options One – Purchase Card and Option Two Automated Card AP Payments!

 Vendor analysis

 Provide a vendor payment history file for the most recent 12-month period – Include vendor name and address, total paid and number of payments per vendor  Provide data elements for robust cost savings analysis

 Include your average cost of a check, direct check production costs and short term funds rate (float value)  Payment strategy

 Bid limit

 Mandate card

 Card – Net 5 / ACH – Net 15 / Check-Net 30  Marketing strategy

 Create a proposed marketing strategy for vendor enrollment – Letter Campaign

 Identify desired targets to begin campaign

18 What does electronic payment automation look like?

19 Vendor Enrollment

20 Things to consider for vendor enrollment

Multiphase campaign accelerates enrollment of your vendors Analysis  Vendor file is segmented and based on:

 Most suitable payment method (card or ACH)

 Vendor value (# transactions, logical payment groupings)  Facilitates a thorough review of proposed vendors/suppliers for each payment method Execution  Approve a call script for calling campaign, assist with contact information for vendors in the card campaign

21 Things to consider for vendor enrollment

Multiphase campaign accelerates enrollment of your vendors Results: Vendor activation  You request card account, advise vendor of account number for use in their AR system  Vendors who decline card method become potential ACH recipients  Weekly report of new vendors method of payment selected  Vendors should be flagged appropriately in your AP system Ongoing support  Electronic payments begin  New vendor welcome packet  Ongoing new vendor enrollment reporting  Specialized campaigns as requested

22 Questions?

23 For more information, including terms and conditions that apply to the service(s), please contact your Bank of America representative.

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