Turning today’s AR struggle

into tomorrow’s strategy Patti Davis, Carhartt

Seth Blacher, Wells Fargo

NACHA Payments

April 25, 2017

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1

Current AR environment challenges

3

Opportunities to improve

4

How do you achieve it

2

Best practices

1

Current AR environment

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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%

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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

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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.”

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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

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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

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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

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Best Practices and

Opportunities

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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%

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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

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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

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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

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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.

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Opportunities

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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

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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

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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%

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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.

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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

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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

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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

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How do you achieve it

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1

Assemble your resources

3

Design a plan

4

Execute on that plan

2

Identify your missing pieces

Thank you!