Treasury Solutions for Today and Tomorrow

1. Treasury Solutions for Today and Tomorrow NASACT 2005 Annual Conference August 15, 2005 Portland, Oregon NASACT 2005 Annual Conference

2. Capturing the Efficiency Opportunity • Why shift to an electronic environment • Trends in the market and treasury, legislation, economics • Making transition to an automated treasury department • Tap into technology including imaging • Automate manual processes • Squeeze free money out of your working capital So you can . . . • Optimize your balance sheet • Strengthen your company’s competitive position • Maximize your company’s growth from internally generated sources • Free up your time for more strategic activity NASACT 2005 Annual Conference

3. What Your Bank Should Focus On: • Monitor trends • Anticipate and respond to client needs • Drive high-impact solutions • Consult as agents of meaningful change • Share our industry specific expertise • Invest in technology NASACT 2005 Annual Conference

4. Electronic Conversions Checks Payment Volumes 2001-2010 3.5% total payment growth, 8% electronic payment growth U.S. Payment Trends 120 100 80 60 40 Billions 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 • Since 1979, Total Non-cash Payments Have Doubled (AGR 3.5%) • Approx. 37 billion to 80 billion • Checks have declined from approximately 85% share in 1979 to about 60% • By 2010, nearly 40% of existing check volume could be converted to an ACH via lockbox (ARC) NASACT 2005 Annual Conference

5. Technology Trends • Institute for Supply Management Index • Composite of supply above 60% for 15 months • Imaging technologies • Broadband • Integration • Automation • XML Technologies Sector Snapshot NASACT 2005 Annual Conference

6. Business Trends Affecting Treasury • Global economies • Specific U.S. economic trends • Disappearance of geographic boundaries due to technology enablement • Legislative forces • Security and threats NASACT 2005 Annual Conference

7. Trends – Financial Leaders - Strategies • Successful Tactics • Streamline all Treasury functions • Payments • Receipts • Liquidity / Information • Remove persistent process complexities • Reposition human capital from tactical, repetitive work to intellectual capital • Advance business by leveraging other’s IT investments • Drive an enterprise that operates close to “Real Time” NASACT 2005 Annual Conference

8. What is a Real Time Enterprise? An organization that progressively removes delays in managing and executing its critical business processes by • Removing redundancy and reworking activities • Focusing on operational transformation • Extending reach and reacting faster to the needs of its customers • Accelerating business performance with the aid of carefully chosen technologies NASACT 2005 Annual Conference

9. Trends – The Real Time Enterprise 1980’s 1990’s Today Future Leaders want more from technology investments Project teams attempt to integrate systems Focus on Y2K New “front-end” websites stole the show Focus on client / end user experience Small time / dollar investments in tying business strategy to process improvement The dot com “burn” reduced IT budgets Focus is on core competencies Process improvement is critical Organizations analyzing how to get the most out technology investments Tech systems much more capable of accommodating strategies. Those that play RTE will win. Partnerships with those that deliver RTE Internal and external clients rewarded with time reduction when dealing with RTE centric organizations, NASACT 2005 Annual Conference

10. Marketing Sales Force Automation Order Entry Inventory Shipping Accounts Receivable Service Purchasing Payables Business Process Leveraging Real-Time Activities for Improved Business Performance • Faster, more accurate information = Better decisions • Contract to Cash Cycle streamlined • Better cash position (payments, receipts, investments etc..) • Fully Automated Processes • Business Agility • Holistic Business Intelligence • Enhanced customer satisfaction • Better partnerships with suppliers • Business continuity • Innovation NASACT 2005 Annual Conference

11. Real-Time Enterprise by Segment Small Business Mid Sized Large Enterprise Government Already Invested Oracle SAP PeopleSoft Siebel Real-time initiatives underway at several levels Bank of America drives Standards committees that Determine future integration solutions Several custom systems Many systems already integrated Now moving into Advanced imaging systems Advancing web services to citizens Quickbooks Act Outlook Excel Access Banks provide Web services to Improve process And fulfill technical needs Great Plains MAS 90 Peachtree Not easily Integrated Banks providing Easily integrated solutions NASACT 2005 Annual Conference

12. Solutions that Help Organizations Achieve Their Objectives • Let’s take a look at some strategies for today’s challenging environment • Financial Trends • Winning strategies • Advances in technology • How to get started NASACT 2005 Annual Conference

13. Accelerating Receipts… Opportunities For Improvement NASACT 2005 Annual Conference

14. Receipts – What are your goals? • Reduce Days Sales Outstanding • Faster Conversion of Receipts To Working Capital • Improve Risk Management • Reduce Cost of Collections Process • Improve Customer Service • Increase Sales! • All of the Above NASACT 2005 Annual Conference

15. Receipts – How Can You Achieve Your Goals? Going Electronic – why now? • Adopt Image Technology • Leverage Internet Capabilities • Convert more paper payments to Electronic • Automate the posting of your AR • Assess Check 21 Solutions How will your company benefit? • Improve cash flow • Provide better overall productivity • Improve employee satisfaction • Eliminate the need to go to the bank NASACT 2005 Annual Conference

16. Why Use Image Technology? How can image technology help you meet your goals? • Enables distributive access – many people accessing the same information at the same time • Better decision making • Enhanced customer service Receipts Images available online: • Lockbox • Deposit tickets • Deposited items Images also available via Image Transmission NASACT 2005 Annual Conference

17. Lockbox Image Solutions Key Features • Images captured on the front end • Allows for faster, same-day access to images • Option to capture envelopes, correspondence, and dual-sided documents • Lockbox retains paper for a number of days before destroying • Intelligent character recognition may be available for selected reference fields from checks and selected detail • Reduces errors and speeds processing • Banks may offer online “highlighter” and “magnification” features • Improves accuracy and completeness of data capture • On-line processing specs and activity • Provides account and operations monitoring NASACT 2005 Annual Conference

18. West Enterprises Glasgow, KY 42141 Sou PO Atla 33¢ rprises 42141 Southeastern Industrial Co. PO Box 277654 Atlanta, GA 30384-7654 303847654 Image Lockbox Workflow Checksto Item Processing Check Encoding Mail Processing Extraction Station 33¢ checks and data checks • negotiability review • check scanning • system capture of dollar amount • voice entry of check amount • dollar amounts keyed from images for exceptions • all items encoded • mail sorted to lockbox level paper data Image Capture Lockbox Database Client Information Delivery • online reports • online images • CD-ROM • image transmission • information to DDA • availability assigned • output file data data • remittance documents and envelopes are imaged • supplemental key entry from images NASACT 2005 Annual Conference

19. Offering Internet Payments – Remote Payments Online (RPO) Workflow Printed on Customer’s Checking Statement AccountStatement RPO Your web site Hyperlink Web/Data Transmission ACH Checking or Savings Credit Card Your Business Credit Card Network Credit Card ACH File ACH Item Customer’s Bank Automated Clearing House Bank of Deposit NASACT 2005 Annual Conference

20. Customer Payments via Card • Know and understand how your customers want to pay • Develop payment methods they want • Some small businesses want to pay with plastic • Auto billing using credit card • Take card payments via the Internet • By developing payments methods that your customers prefer, you are more likely to: • reduce your returns, • improve customer satisfaction, and • increase your customer base. • -You may also accelerate the conversion of payments to working capital. NASACT 2005 Annual Conference

21. Internet Solutions • Connects your business/Web site to a banking network • Provides technology and services to: • process payments in real-time • screen for potential fraud • report & reconcile payments • get technical support NASACT 2005 Annual Conference

22. Internet Solutions - Processing Options • Virtual TerminalEasy online web order form for phone and fax orders. • Shopping cartsConnection to Vendor comes built-in to your shopping cart software. • Link to Hosted Order PageVendor-hosted secure order page for real-time processing. • Simple Order APICustomizable interface from your order pages to Vendor. NASACT 2005 Annual Conference

23. Surcharging and Convenience Fees - Card Applications • Surcharge • An additional charge added onto the transaction amount by the merchant if the customer chooses to pay by card, either credit or online debit. The amount tends to be a fixed amount but is variable based on goods sold. • Surcharging is strictly prohibited by Visa, MasterCard and Discover • A very small number of merchants was grandfathered by the debit networks to surcharge on PIN Debit transactions • Convenience Fee • An additional charge added onto the transaction amount by the merchant if the customer chooses to pay the merchant in a non-traditional environment, such as a website or an IVR. The amount is generally fixed, but can be percentage based. NASACT 2005 Annual Conference

24. Summary of Regulations • In order to comply with all regulations, to charge a convenience fee: • Visa • The payment channel must be truly convenient for the customer. • Online payments can not be the only payment environment available to the cardholder. • The transaction can not be taken over the counter or face to face. • The fee must be a flat fee. • The merchant must state up front that a convenience fee will be charged to the cardholder, specify the amount of the convenience fee and allow the cardholder to accept or decline to proceed with the transaction and be assessed the fee. • The amount of the fee must be included in the total transaction amount. • The fee can not be split out and charged as a separate transaction. • In no circumstances can the fee be charged by a 3rd party. • Visa and MasterCard • The fee must be applied equally to all payment types offered through the same environment. • The merchant can not advertise that the merchant fee will be charged to the cardholder for the purpose of off-setting the cost of processing or discount fees. • American Express • The transaction is related to; (i) federal, state, provincial or municipal government mandatory revenue payments, (ii) public utility payments, and/or (iii) mandatory fees at public higher education institutions. NASACT 2005 Annual Conference

25. Voice of the Customer – Public Sector • Government entities are being governed by legislation to accept Credit Card Payments via alternate payment channels. • Most legislatures have also mandated that public entities can not collect more than the amount of the fee, tax, etc. from the paying party since it would constitute an additional tax. • No additional funds are being allocated to the public entities to pay for processing fees related to accepting card payments. NASACT 2005 Annual Conference

26. Voice of the Customer – Public Sector • 3rd party service providers are offering a solution to public entities which would allows them to take card payments for “free” online. • Global Payments, EDS, and Official Payments are examples of 3rd party providers offering this model. NASACT 2005 Annual Conference

27. 3rd Party Convenience Fee Model • This model only violates Visa regulations. • If the public entity and the 3rd party provider limit card acceptance to MasterCard transactions only, technically they would not be in violation. • However, if the entity wishes to take multiple payment types, they can not utilize the 3rd party convenience fee model or they will be in violation. NASACT 2005 Annual Conference

28. Addendum:VISA Convenience Fee Regulations • A merchant that charges a convenience fee must ensure that the fee is: • Charged for a bona fide convenience in the form of an alternative payment channel outside the merchant’s customary payment channels. • Disclosed to the cardholder as a charge for the alternative payment channel convenience. • Added only to non-face-to-face transactions. • A flat or fixed amount regardless of the value of the payment due. • Applicable to all forms of payment accepted in the alternative payment channel. • Disclosed prior to the completion of the transaction and the cardholder is given the opportunity to cancel. • Included as part of the total amount of the transaction. • A convenience fee may only be charged by the merchant that actually provides goods or services to the cardholder. • A convenience fee may not be charged by any third party. • A merchant may provide a discount to its customers for cash payments. • A merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used. NASACT 2005 Annual Conference

29. Addendum:MasterCard Convenience Fee Regulations • A merchant that charges a convenience fee must comply with the following: • A merchant may not directly or indirectly require any MasterCard cardholder to pay a surcharge or any part of any merchant discount or any contemporaneous finance charge in connection with a MasterCard card transaction. • A merchant may provide a discount to its customers for cash payments. • A merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used. NASACT 2005 Annual Conference

30. Addendum:American Express Convenience Fee Regulations • American Express allows convenience fees to be imposed ONLY when ALL of the following criteria have been met by the merchant. • The transactions are made via telephone, Internet or other method where the Card is not physically presented to the merchant’s representative for processing. • The method of payment provides a true convenience for the Cardmember. • The transaction is related to; (i) federal, state, provincial or municipal government mandatory revenue payments, (ii) public utility payments, and/or (iii) mandatory fees at public higher education institutions. • The amount of the convenience fee is clearly disclosed to the Cardmember and the Cardmember is given the opportunity to cancel the transaction. • Any explanation describing why the convenience fee is being imposed, or how it is calculated, does not characterize the convenience fee as a charge from American Express or as necessary to cover the merchant’s cost of accepting the Card. • The convenience fee is the same regardless of the form of payment product chosen (i.e., credit, debit, charge or smart card or other similar product). • Examples of transactions where convenience fees are permitted: • Taxes, Licenses, Court Fees, Fines, Public utility payments, Tuition (Public Higher Education), Room and board (Public Higher Education), [1] Mandatory government revenue payments refer to those payments wherein governments must collect 100 cents on each dollar charged (such as taxes, fines or fees). NASACT 2005 Annual Conference

31. Check Truncation: The Check Clearing for the 21st Century Act Purpose of Act • To facilitate check truncation • To improve efficiency in the U.S. banking system by eliminating the need to transport paper checks for presentment between banks • To facilitate broader use of electronic check processing without mandating any bank change its current check collection process Requirements of Act • Banks must process substitute checks if received; substitute checks are often called Image Replacement Documents (IRDs) • Banks must notify consumers who receive paper checks in their statement that they may not receive their original check • Banks must abide by a new set of rules for re-crediting consumer’s accounts under certain circumstances, on an expedited basis Check 21 was signed into law on October 28, 2003 and became effective October 28, 2004 NASACT 2005 Annual Conference

32. Check 21: What does this mean for you? Impacts & Benefits • You may no longer get the Original Check in Your Statement • Checks Will Eventually Clear Faster • Clients can consolidate their Banking Relationships • Loss of anti-Fraud control tools based on the physical Check • Eventually banking fees are anticipated to go down • Banks are Developing New Service Offerings so Clients can take advantage of Check 21 NASACT 2005 Annual Conference

33. Operator keys amount field and any accounting referencedata is entered • Check can be scanned a 2nd time to void the item • Credit transaction created. Image and MICR files transmitted to Remote Staging Server at the bank Remote Deposit Workflow Client’s Location Bank . . Check payment is received by the client or presented at point of sale Customer may issue a check , money order, etc. drawn on a personal or corporate account Remote Staging Server Decision Gateway NetDeposit NetDeposit Balancing, deposit review, image quality review Checks are imaged with a desktop scanner in the client’s back office or scanner . Clearing: (IRD Only or ARC/IRD Combo) For clients choosing to clear via ARC, eligible checks are converted to ACH debits and ACH file is processed; non ARC eligible items are cleared through IRD/image exchange. For banks that cannot receive images, Banks will clear those checks as IRDs. • Benefits • Improve cash flow • Eliminate trip to bank • Improve efficiency NASACT 2005 Annual Conference

34. Electronic Send/Receive Systems: Key Features • Browser-based applications that are offered by some U.S. banks that interface with any accounting software or ERP system • Uses existing inter-bank settlement networks to move funds between accounts at different banks and supports Internet Explorer and Netscape • Fully integrates with your current accounts payable and receivables processes and business procedures • Typically provides quick and easy online client enrollment • May offer an Accelerated Enrollment Program where the bank actively enrolls suppliers and vendors on the client’s behalf • Enables real time reporting • May provide security to prevent fraud, theft and misuse: • Protected systems access and user controls • Tamper-proof, authenticated payments • Secured transmission NASACT 2005 Annual Conference

35. Electronic Send/Receive Benefits - Why should I care? • Enables you to more efficiently manage your working capital by creating better control and predictability of cash flow • Lowers transaction costs • Reduces payment processing errors • Streamlines your reconciliation process by providing “one-stop processing” for both paper and electronic payments • Adds a new level of security, audit control, and confidentiality to your receivables process • Enhances the return on your company’s existing technology investments • Strengthens relationships with vendors, suppliers, customers and employees NASACT 2005 Annual Conference

36. How Do Electronic Send/Receive Systems Work? Electronic Send/Receive Applications enhance existing processes and systems… NASACT 2005 Annual Conference

37. Send/Receive Systems: Payments and Reporting • Payments • Provides the option of making single and/or multiple payments and including related remittance information • Allows clients to import payment files directly from their A/P system through a browser, in their specified file format • Accepts electronic delivery of files from your AP system and transmits them to the Bank via FTP with PGP encryption without requiring the user to log on to secure website • Provides flexible e-mail notifications for payment confirmations • Reporting • Allows you to customize payment and remittance reports based on your personalized information needs • Displays all payments paid to and from client accounts • Provides the ability to view and filter payment data to support AP and AR reconciliation, cash forecasting, and monitoring • Displays detailed remittance information sent by the buyer NASACT 2005 Annual Conference

38. Send/Receive Systems: Cash Concentration • Funds Concentrator • Allows you to process consumer-to-business payments • Lowers handling costs by aggregating daily consumer payments for deposit to your collection account • Adds efficiency and accuracy to your A/R payment process by consolidating all consumer payments remittance detail for posting to your A/R system • Provides ability to receive remittance information in your preferred format (i.e. EDI, Web Reporting Printing or Downloading, or A/R specific file transmissions) NASACT 2005 Annual Conference

39. Receipts Summary Do the solutions and strategies your organization is using today help meet your goals? Partner with Your Banker to Help You Assess Solutions that will: • Reduce Days Sales Outstanding • Improve Risk Management • Reduce Costs • Accelerate Posting of Receivables • Enhance Customer Service • Incorporate Electronic Processing NASACT 2005 Annual Conference

40. Payment Strategies… Efficiencies Beyond Imagination NASACT 2005 Annual Conference

41. Payments – What are your goals? • Maintain controls • Streamline payment process • Convert payments from paper to electronic • Minimize risk and fraud NASACT 2005 Annual Conference

42. Payments – Why make a change? Going Electronic – why now? • Wider acceptance of electronic payments and plastic • Technology and the Internet How will your company benefit? • Improve cash flow process • Provide better overall productivity • Improve employee satisfaction NASACT 2005 Annual Conference

43. Payments – Today’s Solutions & Strategies • Use of image technology • Convert paper to electronic • Use Plastic • Increase ACH participation • Evaluate outsourcing payments • Fraud mitigation tools • Positive Pay • ACH blocks/ filters NASACT 2005 Annual Conference

44. More Ways to Adopt Image Technology • How can image technology help you meet your payment goals? • Images available via the Internet • Checks cleared • Deposit corrections • Returned items • CD-ROM media • On-line access • Image Transmission NASACT 2005 Annual Conference

45. Leverage Technology with Card Payments • Purchasing Credit Card Programs • Travel Credit Card Programs • Prepaid Debit Card Programs • CashPay Cards • Commercial Prepaid Cards NASACT 2005 Annual Conference

46. e-Purchase Transactions Replace/reduce petty cash Mail or phone orders Office supplies & furniture Computer software/hardware Electrical/electronic Industrial supplies Building supplies Subscriptions, publications Field office supplies Employee benefit payments Payroll Business/facilities services Client Entertainment Safety supplies, uniforms Security services Temporary services Utility bills Contracting services Facility and vehicle maintenance Marketing and promotional Travel Per diem checks Welfare payments Card Usage Possibilities NASACT 2005 Annual Conference

47. Extend ACH beyond Payroll Use of electronic remittance information • Banks often provide reports designed in response to the market demand for web-based payment advice reporting vehicle. NASACT 2005 Annual Conference

48. Typical ACH Advice Workflow Bulk Payment File Post Remittance Bank Your Company World Wide Web EmailNotificationof Payment Payment View or Download Remittance file Payment Systems Payment Vendor/Payee (Trading Partner) NASACT 2005 Annual Conference

49. Trading Partners notified via email of unique user ID and password Email sent notifying Trading Partners of remittance data availability Summary level information (i.e., gross dollars by client) Detailed information for multiple invoices included in a single payment Accessing Remittance Data Payment details NASACT 2005 Annual Conference

50. Consolidated Payment Network Workflow Account Reconcilement Corporate Check Issue Remittance Advice ACH/EFT • Money Transfer • Wire Transfers • Book Transfers • SWIFT • CHIPS Global Banking System (International Payments) Network (ECS) NASACT 2005 Annual Conference Client’s Payable System