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Turning today’s AR struggle
into tomorrow’s strategy Patti Davis, Carhartt
Seth Blacher, Wells Fargo
NACHA Payments
April 25, 2017
2 2
1
Current AR environment challenges
3
Opportunities to improve
4
How do you achieve it
2
Best practices
1
Current AR environment
4 4
Audience poll question
What percentage of your payments received are electronic (ACH, Wire or Card)?
a) Below 25%
b) 25-50%
c) 51-75%
d) Above 75%
5 5
Top accounts receivable (AR) pain points
75% Payers sending remittance detail via US mail, email or fax
73% Companies say they receive incomplete or inaccurate A/R data
#2 A/R challenge is matching payments to invoices
75% Companies handling A/R application and posting manually
Sources: Aite Group and AFP Payment Survey 2014
6 6
Audience poll question
Please rank your receivables pain points in order from most to least painful:
a) Invalid/Poorly formatted CTX
b) Logging on to payer portals to retrieve remittance data
c) Remittance sent separately from the payment and must be manually matched
d) Short-pays, unauthorized discounts, bad data sent with payments
e) Lack of IT resources/system limitations to automate
Separate remittance from payment
Invalid CTX records and wire remittance
Remittance on a “payer portal”
Limited online capabilities
“With transition to ACH from Lockbox, auto posting has dropped from 75% to 46%.”
“80% of our CTX transactions come in with invalid data.”
“We are managing receivables exceptions from spreadsheets and customer lists.”
“Wires auto posting would be a game changer.”
“Managing these is painful.”
“Retrieval, matching, and posting turns what should be a one-step process into three steps.”
8 8
Carhartt’s accounts receivable organization Accounts Receivable: 9 Associates–Supervisor 1, Cash Ap 2, Pre-Deduction 1, Dispute Management 2, Invoicing 2
– Cash Ap Team – Supports 3,900 active customers; remitting 7,500 payments; 375 line items on average per payment/per month.
– New ERP system implemented in 2012; SAP FSCM (Financial Supply Chain Management) to manage our Credit/Collections and Accounts Receivable processes.
• Credit Management
• Cash Application
• Dispute Management
Cash Application
Pre-Deduction
Phase
Dispute Management
Customer Payback
Customer
Payment
Lockbox
Cash Application
Cash Application
Research and/or Reconciliation
9 9
Carhartt’s “Pre-Adoption” Environment
Receivables Payment Mix – Check 98.0% – ACH/EFT 2.5% – Wire 0.5%
Process Improvements since adopting a lockbox solution – 5-6% increase in Auto-Hit Rate for customers paying by check – Virtual Lockbox Terminal–same day scan/deposit – Positive File: daily load of open items transmitted for lockbox payment match – Electronic Payments Auto-posting, Partially Applied or On-Account
Carhartt Current Metrics – DSO Average: Mid-50 Range – DDO Average: 32.31 Days – Auto Hit Rate: 76.5% Hit Rate (USD @ 75%, CAD @ 78%)
• Checks: 74-78%
• Electronic: <1%
“We love making payments electronically to
automate AP, but when our customers ask to
send us ACH payments, we say:
‘No thanks, please send a check.’"
Treasurer
11 11
Carhartt’s “Pre-Adoption” Environment Electronic Payments:
a. Remit not transmitted with payment.
b. Remit sent in various formats (Mail, Email, Fax, Access Vendor Portal, CTX, EDI).
c. Remit not available-contact customer.
d. No EDI 820 or 812 available, or incorrect mapping for the 820 and 812.
e. Limited customer information – can’t identify customer or invoice (Wires).
Paper Checks/Money Orders:
a. Hand-written/Illegible.
b. Incorrect Invoice Numbers.
c. No Remit or customer information.
d. Pay by Invoice #, Amount Only, Oldest, Order, or P.O.
e. Short-pay with no information.
f. Remit on scrap paper, sticky note, adding machine tape, napkin.
g. Remit written across entire face of check
2
Best Practices and
Opportunities
13 13
Audience poll question
What percentage of your electronic payments are applied and posted automatically?
a) Below 25%
b) 25-50%
c) 51–75%
d) Above 75%
14 14
Best practice: Electronic payments – AR Partnering with suppliers to receive payments electronically
65%
86%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Peer group World class
Percentage of customer remittances that are electronic
43%
66%
0%
10%
20%
30%
40%
50%
60%
70%
Peer group World class
Automatic remittance posting match rate
Source: Almanac 2014 Functional Benchmark
15 15
Best practice: Electronic payments – AR Receiving customer payments electronically drives cost savings
$6.44
$5.27
$3.47
$1.26
$0
$1
$2
$3
$4
$5
$6
$7
0% 1-25% 26-75% Greater than 75%
Cash application process cost per remittance
Source: Hackett Benchmark
16 16
Best-in-class accounts receivable
Source: Aberdeen, May 2012
1.3
4.1
11.7
Best Average Trailing
Time for payment to clear
(days)
9x better
16.2%
44.9%
79.9%
Best Average Trailing
Manual intervention
(% invoices)
3.3%
8.6%
16.1%
Best Average Trailing
Accounts Receivable past due
5x better 5x better
17 17
Carhartt’s process improvement goals
What Carhartt hopes to achieve:
Overcome cash application and deduction challenges with our
electronic pay customers.
Transition more customers to electronic pay.
Increase accuracy and efficiency.
Improve our customer’s experience.
Positively impact the bottom line.
3
Opportunities
19 19
SOLUTION
TARGET
Reduce DSO
Scale your business
Automate cash application and posting
TACTICS
Correct the data
Post the data
Get the data
Manage the
exceptions
Dollars Remittance advice with or without dollars
Invoice record
Solution | Capture
Re-association Matching invoice record to open AR
Matching outcomes
Perfect match
Fixable error
Research
Solution | Clean: payments without data
Reformat Matching invoice record to open AR
Matching outcomes
Perfect match
Fixable error
Research
CTX R
em
itta
nce
tem
pla
tes
Wire
freeform
Solution | Clean: payments with data
Electronic data file
Information reporting
to your ERP
Solution | Connect
24 24
Data repository
Customer remittances
email, paper, portals
…to provide clean payment files for automatic processing
Clean file Clean data
Decisioning portal
Payments with data
Open invoice file
…and payment data from multiple sources…
…all three are auto-matched…
…as is remittance from customers…
…fallouts are matched online…
…and other payments are combined and formatted…
Open invoices are received from your ERP…
ERP system
Matching engine …errors can be corrected…
Repair
How it can all come together
ACH, wire & checks
Download reporting
25 25
Carhartt’s process improvements
Areas of improvement a. Automation and integration between Data File, Cash Application and
Deduction Management modules. b. Integration of external remittance advices. c. Increased Productivity within the Accounts Receivable Department. d. Reallocation of Resources. e. Improvement in Reporting and KPI’s.
February Metrics # Items %
Auto Matched 134 78%
Expired Advice 9 5%
Manually Matched 6 3%
No Payer 9 5%
Payer Found 14 8%
Remove Advice from Display 0 0%
Total 172 100%
26 26
Carhartt’s process improvements
Benefits
Automation of electronic payments and remittance
– Significant increase in matching, hit rates, and time
savings for the AR team and Finance.
Non-AR ACH and Wire Payments identified and posted
directly to the right Budget/General Ledger Account.
– Finance team no longer required to search for this type of
payment and manually record the transaction.
27 27
Results
Metric October 2016 Goal Outcome
Days Sales Outstanding DSO Days Deduction Outstanding DDO
55 Days
32.31 Days
50 Days
< 30 Days
Low-Mid 50’s
28.3
Overall auto-hit rate 76.5% Mid 80’s 77.6%
Paper auto-hit rate 74-80% Mid 80’s 74-80%
Electronic auto-hit rate <1% 25% for 2017
25% Auto Applied
Faster/more accurate application
3-5 Days Post Complete
Same Day
1.65 Days Post
Complete
28 28
Implementation experience
Manage Support Purpose and Objectives Project Identification/Discovery
Cost-Benefit Justification Requirements Gathering Scope Benefits
Costs-Development/Operating Training Reporting System Access
System Load Impact Stabilization Changes Enhancements
Post-Implementation Support Communication X10
What did we learn from implementation?
• Project Development and Implementation is a partnership – and a two way street!
• Management Buy In is Key – Clear Expectations - Frequent Communication (Weekly)
• Timely Responses – Calls when email is not clear – Training Documentation
• In House Training is a plus! – TESTING, TESTING, TESTING
• Post Implementation Meeting (What worked, opportunities?) – Post Implementation
Team
29 29
Audience poll
Please rank your top AR goals over the next 12 months from most to least important:
a) Improve automation rates for ACH, wire and card payments received
b) Enable payer movement to electronic payments
c) Reduce days sales outstanding
d) Continue to grow business without adding AR headcount
e) Enable AR staff to focus on exceptions and other value added activities
4
How do you achieve it
31 31
1
Assemble your resources
3
Design a plan
4
Execute on that plan
2
Identify your missing pieces
Thank you!
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