Accounts Receivable Tune-up

1. Accounts Receivable Tune-up Get under the hood & tweak your A/R system for optimal performance September 10, 2013

2. “Traditional” Accounts Receivables Processing • Two main options: Process in-house or use a Lockbox Provider • Processing in-house • Pickup mail from a P.O. Box once a day or wait for the USPS to bring it to your door • Have assigned staff in place to open and process transactions • Deposit checks over the counter at a branch, via image cash letter or by scanning them to your bank with a desktop scanning device • Manually key any pertinent data into your cash application system • Image or store processed documents • Using a Lockbox Provider • Provider picks up mail from the USPS, typically several times each day • Lockbox staff opens and processes your transactions • Checks are deposited at the bank, typically via image cash letter • Lockbox provider can capture the data you need for cash application, and deliver the information to you online or via direct transmission • Processed documents are imaged and presented online, and/or original paper documents are mailed back to your location

3. Key Factors Shaping the Receivables Industry • Changes to the United States Postal system • Pace of conversion to electronic payments • Moving rapidly in the consumer-to-business (C2B) space • Transition is much slower in business-to-business (B2B) payments • Finding that receiving payments electronically does not typically equate to straight through A/R processing • Data and dollars arrive independently • Cash Application can be a Major Challenge • The payer controls payment timing and how & what data is received • Inconsistent or inaccurate data often accompanies a payment • Dealing with past due accounts/credit holds • Unauthorized deductions impact the bottom line • ‘Real-time’ information is needed across various business units • Handling of stranded payments • For a variety of reasons companies occasionally receive payments at a facility other than a lockbox • Must decide whether to handle locally or reship to lockbox • Using traditional remote deposit still creates an exception for A/R

4. Tumultuous Times at the USPS • The Postal Service continues to face large operating deficits • Over $238 billion in losses projected over the next decade • Mail volume is declining • Down 22% in 5 years • Most concerning is decline of First Class Mail, USPS’ most profitable type of mail Source: USPS – Network Realignment Announcement

5. Fixing the USPS • Closing post offices • Cutting the number of processing facilities in half (see graphs below) • Trimming the size of its work force by roughly 1/3 • Revising First Class mail delivery standards • Eliminate the 1-day (overnight) category • Reduce the extent of 2-day delivery (to within 200-250 miles) • Possibility of 5 Day Mail Delivery Source: Phoenix-Hecht Source: USPS – Fact Sheet: Modified Network Realignment Plan

6. Results of the USPS changes to date • Mail float times have increased • USPS gives special consideration to remittance mail in its planning • The difference between receipt of normal First Class mail and lockbox mail with unique zip codes & prioritized sorting, has increased • Impact on clients that utilize providers with their own zip codes, has been far less pronounced than on clients who use smaller providers or process in-house • Changes to First Class Mail delivery standards have been felt • Impact has been more substantial at the regional level than national Source: Phoenix-Hecht – 2013-1 Fall Phoenix-Hecht Postal Survey

7. Potential Impacts to your OrganizationHow might USPS changes affect you? • Roughly 2/3 of B2B payments, & a significant number of C2B payments are still sent by paper check through the mail, so how might all of these changes impact your organization? • Slower collection times • Larger impact to lockbox clients with early final deposit deadlines • Increased Days Sales Outstanding (DSO) • Increased credit holds • Possible need to adjust Accounts Receivables Department Staffing • Timeliness of intra-day information – Treasury, A/R, Credit • Unauthorized deductions • Invoicing Distribution • General noise • Increased research, customer and bank communication, incentives • In-house processors impact will likely be more dramatic

8. Recommendations for Managing the USPS changes • Talk to your current provider, or if you are processing in-house, talk to your bank about what options might be available to you • Perform a collection study, & adjust your lockbox strategy accordingly • If your company still collects internally, strongly consider a lockbox solution • Some businesses might benefit from adding more lockbox locations • Consider additional cutoffs, later in the day • Monitor performance • Bank clearing, payment processing, etc. • Evaluate grace periods and discounts • Most customers will not change their payment processing to account for the increase in mail float • Encourage electronic payments to ensure faster collections and reduce your costs • Evaluate invoicing methods • Consider expanding electronic bill presentment options, especially if you receive a large number of C2B payments

9. The Challenge of Electronic Payments • A majority of remittances in the C2B space are paid electronically • Challenges remain, especially with payments originated from online banking sites • On the B2B side, electronic payments have been catching on more slowly, for a number of reasons: • Trading partner limitations • Unwilling or unable to pay (or be paid) electronically • IT resources • Collection systems need to be configured to support and integrate electronic payments • Standards • According to a July 2012 Aite Group Survey (Remittance Details: When and How They Arrive for U.S.-Based Companies) • Only 10% of remittances are currently included with payments in a format supported by a standards group, which can ensure straight-through-processing (STP) • Timeliness of delivery & quality of remittance received are the two most important considerations from a Receivables perspective, with respect to electronic payments

10. The Challenge of Electronic PaymentsBringing Data & Dollars Together • Perhaps the biggest challenge in managing electronic payments is the issue of data & dollars arriving independently • The chart below shows how respondents typically receive remittance data for payments made electronically Note: Respondents were allowed to indicate all methods in which they received remittance data from a trading partner, so percentages do not total 100% Source - Remittance Coalition Report - Electronic Payments & Remittance Data: Pain Points and Solutions - December 2012

11. Recommendations for Managing Electronic Receivables • Again, talk to your current provider, or if you are processing in-house, talk to your bank about what options they might have to offer • If you have a largely C2B client base: • Add an E-Lockbox solution • Keeps payments your customers are originating online electronic, rather than having them converted to paper checks that are received without backup • Add an Electronic Bill Payment & Presentment (EBPP) option • The more payment options you offer, the better • If you have a largely B2B client base: • Consider a consolidated Receivables solution • Check, ACH, Wire, Credit Card, etc. • Work with your trading partners who are willing to pay electronically on how best to deliver the remittance information • Take advantage of the new FedWire format • Expanded Remittance Information

12. Receivables Technology has ChangedIs your business reaping the benefits of these changes? • Image Technology • Many providers offer full-color images of checks & associated remittance documents • Images can be viewed online or sent to you via direct transmission • Are you using these services? • Do you still receive processed paper back through the mail? • Handling of items not mailed to your lockbox • Many banks offer remote deposit solutions that allow you to scan a check to the bank • May not address issues with: • Business Resiliency • Separation of Duties • Archiving/Research • A few lockbox providers offer integrated remote capture, that allows items to be scanned directly to your lockbox • Does your provider offer this solution? • If yes, are you utilizing it?

13. Data Capture Technology has also ChangedTraditional Data Capture & Third Party Options • Traditional Data Capture • Lockbox providers have captured data required to apply cash for some time • Data can be downloaded from a website, or sent directly to your accounting system via direct transmission • Has historically been limited by the amount of data that accompanies a payment • Has improved with the additions of Matching logic, Intelligent Character Recognition (ICR) software, Exception Management, Electronic Payment Integration • Third Party Providers now offer alternative, software-based data capture solutions • Use ICR/templates and direct connection to client open A/R details • Key considerations: • Substantial integration between ERP & software is required • Significant up-front effort to create template for existing payments • Continued effort is required to integrate new payments, check only payments, skewed images, and differences occurring in multi-page forms • Many solutions do not currently support electronic payment integration • Concerns with financial stability and continuity of selected providers • Do you still have operators manually entering remittance data into your system? • Would their time be better used focusing on your core business activities?

14. Business ResiliencyAre your Receivables in jeopardy if disaster strikes? • Business Resiliency is something all businesses are concerned with • Most everyone has taken steps to ensure their data is safe & that their business can continue to operate in the event of a disaster • Have you focused similar attention on your Receivables processing? If you process Receivables in-house: • Speak with your bank or a Lockbox Provider about setting up a disaster recovery solution If you outsource your Receivables processing to a Lockbox Provider: • Check with your provider on their disaster recovery preparedness • Will your Receivables still be processed if their processing site has to shutdown? • How would this happen? • Does your current provider utilize more than one processing location? • Do all of their locations utilize the same technology?

15. Closing Thoughts • The Receivables Industry is rapidly evolving, & how you manage your Accounts Receivable should be changing with it • Whatever “isn’t working” for you today is not going away • Will probably only get worse & cost you more money as time goes by • “Living with” what you have now and waiting for a “perfect solution” to any problems you are having with your Receivables is not a good option • Your best bet is to find a “near-perfect solution”, that can be fine-tuned at a later date • Key “to do” items for Receivables success: • Evaluate your current process, figure out what works and what doesn’t • Find out if your current system has any “holes” that need to be filled • Talk to your lockbox provider (or other providers) about what they can do to help you

16. Follow-up Questions Jason Donaldson Receivables Product Manager PNC Treasury Management Phone: 412-762-1439 E-mail: jason.donaldson@pnc.com