Treasury Today Country Profiles in association with Citi

Overcoming AR headaches

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In the US, the shift from cheques to electronic payments is complicating life for accounts receivables departments.

As businesses in the US increasingly leave cheques behind and shift to electronic payments, life is paradoxically becoming more complex for account receivables (AR) departments. The reason for this is the typical dislocation between payment and data flow, meaning that AR teams are not easily able to match a payer with its payment.

This trend is putting significant pressure on AR departments in the US and means that many corporates are currently unable to enjoy the cost and efficiency benefits promised by the switch to electronic digital payments.

Digital disruption

The most recent payments data from the US Fed highlights this shift towards electronic payments. The volume of cheque payments has fallen to to 17.3bn, whilst ACH payment volumes increased to 23.5bn.

Although this trend is greatly benefiting payers, reducing both the time and cost of making a payment, there is an increase in complexity for those receiving the payment with electronic payment. It now takes around five days on average to be completed, according to Wells Fargo.

A big cause of this is payment culture. As Seth Blacher, Senior Vice President, Treasury Product Manager at Wells Fargo explains: “Payers have the option to send the remittance information that AR departments need – such as the invoice number and invoice amount paid – along with the payment using the ACH CTX industry standard. However, our data shows that anywhere between 66% and 75% are choosing to send the data separately from the ACH payment, via email, fax or even US post. The same trend is also true for wire payments.”

Blacher believes that this creates a host of problems for AR departments. They must spend a significant amount of time finding the data to manually match this to the payment and key in all the details in the ERP or account system. “This can take hours each day for AR departments. It is an interesting step backwards from cheques which include the remittance information with the payment,” he says.

Even when payers attempt to do the right thing, sending the data electronically with the payment file, quite often they fail to send this in a valid CTX format or worse, they add unwanted characters to the invoice number. “These payments will fail when loading into the ERP or accounting system, causing further manual work,” says Blacher.

Combined, these issues mean that corporates are only achieving between 10 and 30% automation on B2B electronic payments – far below what they should.

AR solution

These issues are also behind a recent set of enhancements to Wells Fargo’s Receivables Manager service. Core to its updated service is a remittance advice matching solution. This is able to capture information sent through any source and match this to the payment. Once matching has been completed, the solution posts the data into an ERP or accounting system in whichever way the corporate requires. If for any reason a match cannot be made automatically, the system will flag this and present it online to a member of the AR team to confirm the match based on its suggestions.

In addition, to solve the issue of data failing to upload due to invalid CTX formats or unwanted characters, Wells Fargo has built an ACH and Wire repair tool. This flags these issues for the AR team to review, structuring the data neatly for them to combine or split data fields so that it can be uploaded into the accounting system.

The repair tool also tracks what the AR team has done, replicating this next time it receives a payment that is incorrect from the payer. Uploads can then take place automatically in the future.

Backing up both of these tools is an integrated receivables file which can consolidate payment and remittance information for the bank’s clients, meaning they and the Receivables Manager system has a complete and consistent set of information to work with.

“One thing that our clients told us is that they didn’t want to force their customers to change behaviour,” says Blacher. “Since AR departments are already receiving remittance information from their payers, our clients can just divert whatever remittance information they get to Wells Fargo and then leverage the remittance advice matching solution to drive more automation in their AR department.”

AR benefits

According to Blacher, the bank’s clients are already reaping the rewards of this solution. “Where AR teams were once only achieving 10% to 30% automation rates, using the solution, they are now achieving between 50% and 80% using the solution,” he says.

AR efficiency rates have also been boosted. “One customer indicated that an eight-hour daily process has been reduced to just one hour,” notes Blacher. “Another has indicated they are saving around four hours a day.”

Finally, Blacher claims that this solution can provide an efficient way for corporates to grow their business. “If you don’t have an efficient way to handle electronic payments, you can’t grow the business without increasing the AR team’s headcount. It also helps significantly improve key working capital metrics.”

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