Published: January 01, 2000
Bank of America’s PayMode is a payments processing and remittance delivery solution for vendor payments and employee reimbursements with robust security features. The solution increases the speed and efficiency of a client’s Accounts Payable payments by converting cheques to electronic card and ACH payments. As one of the few fully-integrated “many-to-many” networks, PayMode allows any company using PayMode to pay any enrolled supplier on the network. The PayMode network has experienced a near 100 percent vendor retention rate due to its flexibility and ease of use. Leveraging the PayMode network, Bank of America has expanded the PayMode offering to include electronic invoice receipt, routing, and processing.
Complimenting PayMode is ePayables, Bank of America’s card-based AP payments solution. Combining Paymode and ePayables, Bank of America’s Comprehensive Payments suite can process all vendor payments - including paper cheques and wire payments - in a single-file solution.
To date, more than $250bn in transactions has been processed through PayMode on its high-performance platform. New vendors are being added at the rate of approximately 2,000 per month. In the past year, transactions processed through the network have grown 42 percent and the client base - now more than 460 companies - has expanded over 40 percent.
Cumberland Farms, Inc. is the largest provider of combined convenience stores and gasoline stations in the Northeast USA, with approximately 570 convenience stores and 7,000 employees across New England, the Mid-Atlantic States and Florida. The company is privately owned and was formed in 1939, with a dedication to convenience and value that has extended to this day.
For many years, Cumberland Farms, like most other firms, has made its supplier payments by paper cheque, along with wire transfers and supplier initiated ACH debits. However, over recent years, there have been significant developments in the electronic payments space, and we saw the potential value of migrating to electronic payments and reducing the number of paper cheques. Consequently, we decided to embark on an automation project with the objective of reducing costs, deploying resources on more value-added tasks and increasing our efficiency.
Such a project represented a major change for a company like Cumberland Farms, and to our suppliers, all of who were very accustomed to the old paper methods. While we had known for some time that we needed to convert from paper to electronic payments, we knew a “winning” business case had to deliver substantial, tangible cost benefits with only limited IT resources. We developed a strong business case that resulted in substantial annual cost savings. In addition to the business case, another factor supporting the decision was that one of the last remaining benefits of issuing paper cheques - namely the cheque clearing float value - had been virtually eliminated as a result of Check 21 legislation. [[[PAGE]]]
Our Cash Management and Treasury support team at Bank of America was already aware of how our business worked and how we operated in Accounts Payable and Treasury. They also understood our key requirements: the solution had to integrate easily with our existing systems, strengthen our current processes, and most importantly, result in a large number of our vendors adopting the solution. Additionally, it had to be deployed quickly with minimal resources or disruption to our core business.
Our Treasury Relationship Manager introduced us to two electronic payment and remittance delivery solutions, PayMode® for ACH payments and ePayables, a card-based solution. We saw a demonstration and knew immediately that PayMode and ePayables could be the solution to the challenges we were experiencing - even then, however, we did not recognize the extent of the value these services would deliver. Not only was the solution right for both our firm and our vendors, but Bank of America provided most of the necessary resourcing, avoiding the issue of securing internal IT resources for this major project.
The implementation was not a long process. Once we had started, the project took around 3 months to the point of initiating electronic payments and 6 months from beginning to end, including completing all the necessary vendor enrolment campaigns. The majority of the work was completed by Bank of America, with a minimum degree of Cumberland Farms project resourcing. We did not need to use third party contractors. A high level of project discipline throughout, including weekly project meetings, kept the project on track.
We went ‘live’ with a small volume of supplier payments in December 2007 as a pilot phase, and then built up to full capacity in January/February of 2008. We are now focusing on enrolling additional Cumberland Farms suppliers within these programmes.
Before the project started, our project objectives were primarily to:
a) Reduce the number of paper cheques issued;
b) Reduce costs and enable internal AP resources to be deployed in areas where greater value could be added; and
c) Bring our accounts payable department payment processes in line with best practices.
The biggest benefit was that we were able to migrate almost 40% of paper cheques to electronic payments with minimal effort on our part. Bank of America has a turnkey programme that includes compiling the target vendor list, contacting, authenticating, and enrolling the vendors. With PayMode, the speed in which the vendors were enrolled, and the number of vendors that adopted the solution exceeded our expectations.
To summarise the results to date, in 2007, we issued approximately 88,000 paper cheques. After the third quarter of 2008 (i.e. in the first nine months) we had reduced our physical paper cheque volume by 36,000 (41%). Our costs have fallen by reducing the number of paper cheques we issue, an expensive and resource-intensive process. As a result of moving to electronic payments, we have reduced our Accounts Payable staffing by 17% as well as reduced our cheque printing process from a daily to a weekly run, a saving of 20-25 hours per week. We were able to reallocate resourcing within the department to more value-added tasks. We also have fewer voided cheques and stopped payments, and we anticipate a reduction in the volume of AP-related escheatment reporting this year. [[[PAGE]]]
Our day-to-day business processes have needed to change very little, which makes it easy to accommodate the new systems. Payment transactions that flow through PayMode are automatically flagged within our new ERP system, a one-time change. As part of our payments run, these payments are passed in a single file, together with ePayables transactions, to Bank of America for processing. Consequently, we have not invested time and money in redesigning business processes or extensive staff training.
...the project took around 3 months to the point of initiating electronic payments and 6 months from beginning to end...
However, our internal controls have improved substantially. Payments are approved within our ERP system, then transferred to Bank of America. Both PayMode and ePayables enforce our dual signatory requirements. Payments over an established threshold requiring secondary authorisation are not released until an authorised individual approves the payment electronically. We do not need to maintain vendor bank account information or manage ACH payment returns, as this is handled within PayMode. Cumberland Farms never has access to supplier bank account information which has eliminated the need to develop controls, policies and procedures related to safeguarding supplier bank account information.
Before implementing PayMode and ePayables, we suspected that our process automation and technology was lagging behind best practice in the industry. We are now confident that we are meeting or exceeding established best practices by using PayMode and ePayables, integrated with our new ERP system. Our ability to project cash flow has been greatly enhanced, which has proven to be a strong benefit to treasury. Our forecasts are more accurate, which limits the amount of working capital we need to maintain.
It is not just Cumberland Farms that has benefited from this initiative. Our suppliers benefit as well, and have therefore been very supportive of this project. Suppliers generally prefer to be paid electronically, rather than receiving cheques. There are no more lost cheques and suppliers have greater certainty over payment timing. The enrollment process for suppliers within PayMode is quick and simple, taking only 10-15 minutes to sign up. Once enrolled, suppliers have the added benefit of accessing their full Paymode payment history online. This also includes complete access to remittance information. As a result, our Accounts Payable department has seen a reduction in the number of internal phone calls and emails related to the status of supplier payments.
We are fortunate in that we now have a strong payments solution that is working very well for Cumberland Farms and our suppliers. The project implementation was both efficient and successful as a result of the excellent support from Bank of America and the co-ordinated efforts of both the bank and Cumberland Farms teams. Most importantly of all, the performance of the PayMode and ePayables solution has far exceeded our expectations. Looking ahead, we would like to reduce the number of paper cheques even further. We plan to work with our purchasing/procurement departments in an effort to accomplish this goal.
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