Moving From Paper to Electronic - Why governments need to get serious about electronic payment solutions.
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Bank of America Merrill Lynch White Paper
Moving From Paper May 2014
to Electronic
Why governments need to get serious about
electronic payment solutions.
Executive summary Contents
Purchasing cards continue
With the impact of the recession still lingering, state and local governments are under
growth path . . . . . . . . . . . . . . . . 3
immense pressure to cut costs. While some states and cities have been cutting services
Accounts payable
and eliminating personnel to balance their budgets, others are finding opportunity for goes digital. . . . . . . . . . . . . . . . . 3
savings through less drastic — but still extremely effective — measures. Specifically,
Fuller solutions generate
they are making changes to the way they initiate and receive payments, greatly reducing more electronic payments. . . . 4
costs while improving cash management. E-invoicing takes hold. . . . . . . . 4MOVING FROM PAPER TO ELECTRONIC | 2
The recession may be easing, but governments are still feeling the pain. In cities, a steady
layoff of workers since the summer of 2008 continued in 2011, with 39% of municipalities
saying they had cut personnel in the previous six months, according to municipal advocacy
group National League of Cities.1 States, meanwhile, are continuing to make deep cuts in
critical public services, as they strive to recover from the largest decline in revenues on
record as a result of the recession. The Center on Budget and Policy Priorities is projecting
budget shortfalls of $49 billion for states for fiscal year 2013.2
With funds so tight, governments of all sizes across the nation are being asked to do more
with less. The Obama Administration’s Campaign to Cut Waste, signed in June 2011, is
setting the tone from the top, requiring all federal government agencies to identify and
help eliminate waste. As part of the campaign, the Treasury Department mandated that all
its bureaus and vendors must submit and process invoices electronically, a move expected
to save $450 million annually. Even before the campaign, the Treasury Department had
initiated a move toward electronic payments for Social Security and other benefits, an
effort expected to save taxpayers $1 billion over 10 years.
Compressed budgets, combined with the federal government’s new emphasis on eliminating Compressed budgets and a
waste, are propelling states and municipalities to more seriously consider alternatives to
the paper-based methods they have long relied on to receive and distribute funds. new emphasis on eliminating
Paper in all its forms — checks from constituents, invoices from suppliers and payments waste are propelling states
to beneficiaries, to name a few — has become increasingly problematic in today’s
constrained environment. and municipalities to seriously
For starters, paper is both costly and inefficient. According to the Treasury Department, consider paper alternatives.
it costs 92 cents more to issue a paper check than it does to issue a direct-deposit check.
Paper checks are also a magnet for fraud and theft. Organizations that were victims of
different kinds of payment fraud in 2011 were more likely to experience check fraud
(85%) than ACH (28%) or wire fraud (5%), according to the Association for Financial
Professionals. In addition, almost half a million Social Security checks are reported lost
or stolen each year, according to the Treasury Department. Paper is also detrimental
to the environment. The Electronic Payments Association estimates that if 20% of
households eliminated paper checks, they would avoid using more than 100 million
gallons of gas required to transport mailed payments. 3
1
Local Economic Condition Survey (2012 March). National League of Cities.
2
McNichol, E., Oliff, P., Johnson, N., (2012 March 21). States Continue to Feel Recession’s Impact. Center on Budget and Policy Priorities, 1.
3
PayItGreen Impact, n.d., http://www.payitgreen.org/files/resources/PayItGreen_Facts_Impact.pdf (accessed April 19, 2012).MOVING FROM PAPER TO ELECTRONIC | 3
Purchasing cards continue growth path
Typically, the first entry point for governments seeking to automate some aspect of the
payment process is the purchasing card. These cards allow organizations to distribute
funds to employees via cards, which can then be used like standard payment cards to
purchase things such as office supplies and travel expenses. Annual purchasing card
spending is expected to increase to $255 billion by 2014, reflecting an annual growth
rate of 10.6% for government agencies, according to RPMG Research Corp., a provider
of research on corporate procurement and purchasing.4
The growing popularity of purchasing cards is not surprising, given their many benefits.
RPMG estimates the average administrative cost of a purchase made using a traditional
purchase order is about $93, compared to only $22 for one made using a purchasing card,
a savings of more than $70. In addition, purchasing cards reduce the procurement cycle
time by about 12 days and the number of suppliers by an average of 16%; they also cut
down on staff devoted to accounts payable functions.5
North Carolina State University (NCSU) has experienced the benefits of purchasing cards
firsthand, having been a leader in the use of the cards since the mid-1990s. In addition
to earning rebates based on purchasing card spending, NCSU now writes fewer checks,
which results in lower processing costs and bank fees. The university can also consolidate
its spending into one monthly payment that can be deferred by as much as 25 days from
the end of the billing cycle, lengthening float. Also, transparency into the card transactions
is high, facilitating better cash management and reduced fraud.
Accounts payable goes digital
In recent years, a variety of other electronic payment innovations have been introduced E-Payables is a technology
to help governments overcome their reliance on paper and eliminate needless expense.
A key area of focus is the accounts-payable function. Today, about 77% of incoming invoices that seeks to reduce the
are paper, leading to completely manual receipt, approval and payment processes for most
manual aspects of the
organizations, according to the IT research and analysis company Aberdeen Group.6
E-Payables, an increasingly popular technology, seeks to reduce the many manual aspects accounts payable process by
of accounts payable by transforming the paper checks that go to suppliers into electronic
transforming paper checks
payments. Top-down mandates from within organizations to cut costs, combined with
the difficulty of working with information in paper format, are the two top drivers of into electronic payments.
e-Payables, says Aberdeen Group.7
The high cost of processing paper checks is reason enough to begin a move toward
electronic payments. Aberdeen Group reports that the average cost of a check payment
is $7.78.8 Plus, there are additional benefits to e-Payables, including greater transparency
into an organization’s cash flow and the ability to avoid late-payment penalties, while
capturing early-payment discounts.
4
Palmer, R., Gupta, M. (2010). Purchasing Card Benchmarking Survey. RPMG Research Corp.
5
Ibid.
6
Pezza, S., (2011 September). E-Payables 2011: Efficiency, Visibility, and Collaboration in the Financial Supply Chain. Aberdeen Group
7
Ibid.
8
Ibid., p. 8.MOVING FROM PAPER TO ELECTRONIC | 4
E-Payables can help to eliminate paper early in the payment process, by distributing funds to
suppliers through card-based payments rather than checks. Through a single file submission,
the credit limit on the supplier’s card increases by the designated amount of the payment.
At the same time, the bank notifies the supplier of the remittance details and payment
instructions via email. This streamlined process lets suppliers receive payments within
one to three business days, while eliminating the risk of fraud through checks.
Washoe County in Nevada turned to e-Payables to increase the number of its vendors
paid through automation, and has incurred significant savings. Washoe County increased
its cash flow by about 45 days by reconciling the payments authorized to its bank’s credit
card billing statement on a monthly basis. It also expects savings of more than $200,000
annually from reduced check printing, banking and mailing costs, combined with earnings
from annual bank rebates, based on the volume of enrollees.
Fuller solutions generate more electronic payments
For suppliers that are unable to accept card-based payments, a more comprehensive solution The Duval County Public
is in order. Governments can increase the number of automated payments they issue by
making it possible for suppliers to also be paid via the automated clearinghouse. As with School District expects to
card payments made via e-Payables, ACH payments made through a comprehensive payables
save more than $250,000
program offer remittance detail, which is sent to the supplier and also viewable through a
custom website.
annually through its
The Duval County Public School District in Florida turned to a comprehensive electronic
comprehensive electronic
payables solution when it was tasked with finding ways to improve business practices
that would result in large annual savings. By embracing a full suite of electronic payments, payments plan.
the school district has improved float, accelerated payment times and helped achieve its
budget goals. The district expects to generate more than $250,000 annually in cost savings
and rebates through its comprehensive electronic payments plan.
E-invoicing takes hold
Another way for state and city governments to eliminate paper from the payment process
is through electronic invoicing. A growing number of organizations are seeking to receive
invoices electronically, rather than as paper documents. Twenty-nine percent of respondents
surveyed by Paystream Advisors said they are using or deploying an e-Invoicing solution,
while 42% are evaluating the use of one.9 Paystream surveyed more than 300 accounts
payable and procurement professionals at U.S.-based companies in a range of industries.
9
eInvoicing Adoption Benchmarking Report (Q1 2012). Paystream Advisors, Inc., 5.MOVING FROM PAPER TO ELECTRONIC | 5
E-Invoicing offers a number of benefits, including reduced processing costs (cited by 52% Working with a proven
of respondents), fewer lost invoices (cited by 51%) and quicker approval cycles (cited by
50%).10 But the barriers to adopting e-Invoicing are high, given the perceived difficulty of electronic payments
managing the migration of moving so many supplier relationships from paper to electronic
provider that has the
systems. Paystream found that 23% of respondents believe that their current paper
processes work well enough, 18% think they do not have an adequate budget and 16% resources, technology and
think there would not be a return on investment from e-Invoicing.11
knowledge to facilitate a
Many of these organizations, however, do not realize that new e-Invoicing solutions are
available that make it easy to move suppliers from paper to electronic billing. These solutions project’s success is critical.
let vendors enroll via a web-based system, eliminating the need for organizations to oversee
the payee enrollment process, manage payee bank information or even make changes to
existing payables software. Once vendors are enrolled, they send electronic invoice data
in their preferred format, allowing organizations to initiate approved payments through
a simple file transfer.
With so many avenues into electronic payments now available, government agencies have
more reasons than ever to get serious about eliminating paper from their payment processes.
A first step toward that goal is to identify a high-level director within the organization who
will sponsor the project and support it throughout its life cycle. It’s also important to designate
a team responsible for making the transformation happen.
Working with a proven provider that has the resources, technology and knowledge to
facilitate the project’s success from beginning to end is also critical. The ideal provider
will not only provide a solution, but will foster a hands-on working relationship aimed at
ensuring smooth implementation and optimal usage of the system. Finally, a well-rounded
education and training effort that includes other departments, such as audit and controls,
will get a paper-to-electronics program off the ground on the most solid footing possible.
With city and state budgets still tight, and the federal government pushing hard for savings
and efficiencies, there has never been a more opportune time for agencies to explore
electronic solutions. The variety and maturity of options now available makes moving
from paper to electronic more practical and feasible than ever before.
10
Ibid., p. 6.
11
Ibid., p. 7.
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