When the payment mix at Tronox, a $2 billion global chemical company, went from 80% check, 20% ACH/Wire to 70% ACH/Wire, 30% check, Assistant Treasurer Marguerite Versacci expected faster cash availability and lower processing fees. She didn’t expect exceptions to become the rule in the cash application process.
Check payments had a 100% auto-posting hit rate because they come with addenda records containing invoice numbers and other payment information. “I didn’t connect the dots to see that, when we moved to ACH, we’d be missing the addenda,” says Versacci.
The case of the missing addenda
Missing addenda created a myriad of exceptions that kept ACH payments from posting automatically. The AR department had to research short pays and discounts, split payments, and payments for customers with multiple accounts. Missing invoice numbers had to be manually matched to payments. Separate remittance advice arrived one to three days after payments. Corporate trade exchange (CTX) formatted payments are Tronox’s preferred payment method because they allow 9,999 addenda lines. But they were often invalid due to improper formatting.
There were so many exceptions that, of total payments received, both paper and electronic, 65% had to be manually posted.
A benchmark for improvement
To understand where they stood with ACH payments, Versacci worked with Wells Fargo, the company’s U.S. bank, to evaluate customer receipts. Volume analysis showed Tronox receives 150 ACH payments per month on average. Only 44%, could be straight-through processed and auto-posted, including payments that were in proper CTX format. The remaining 56% of the ACH payments required manual advice matching or repair before posting.
Wells Fargo advises businesses to expect the same level of automation across all payment types. If you have an 80% auto-posting rate in your lockbox environment, you should expect 80% for ACH. This is an achievable goal, but it takes thoughtful planning and partnership among your Treasury, AR, and banks to get there.
Setting and achieving high goals
In moving payments from check to ACH, Versacci’s goal was to record cash more quickly. Now she added two more goals:
- To streamline and further automate AR processes
- To reach 90% straight thru processing, auto-application, and online matching of ACH payments
To achieve these, she implemented the Receivables Manager service from Wells Fargo.
With this service, Wells Fargo receives the company’s remittance advices and payer portal data, if applicable, in addition to its receipts. This information is loaded into proprietary matching technology that systematically matches dollars to data based on the customer’s criteria.
Incorrectly-formatted CTX payments or those with unwanted data can be repaired to ensure the information stays with the payment. Items the Receivables Manager service is unable to match, are presented through an online receivables reporting and decisioning portal for the customer to match.
The new normal
Now at Tronox, the AR clerk logs into Wells Fargo and cleans the data received current day. The AR clerk adds missing invoice numbers and contacts customers to inform them they are sending invalid data or using incorrect formatting. The next day when prior-day file arrives, the data is clean, and cash can be auto applied.
Within two months of implementing the Receivables Manager service, the auto hit rate for ACH payments went from 44% to 74%, on track to meet Versacci’s 90% goal.
She says, “In our pre-Receivables Manager world, it took a full-time employee half her day to apply the cash. Post Receivables Manager, it averages under two hours. We use our ERP platform to apply cash. Now that the files are clean, we need to work with our IT department to get ERP rules set up, so cash can be auto applied. When that’s done, we expect our two-hour average to drop even further.”
For more information, contact your Wells Fargo representative or fill out the Contact Us form on this site.