Working with a legacy system that was largely manual, Shearer’s Foods used to rely on the knowledge of long-time employees to match imprecise payments with invoices outstanding. After incorporating advanced automation, the treasury team was able to strengthen working capital and create more efficiencies in their processes.
The AFP Treasury Case Study series is designed to help you build key treasury capabilities and skills by sharing examples of how leading practitioners have tackled challenges in their work, and the lessons learned.
This case study is based on the AFP 2022 session, “Oh Where, Oh Where Has My Data Gone: Overcoming the Loss of Receivables Transaction Data,” presented by Ryan Barkan, Vice President Corporate Accounting at Shearer's Foods, LLC, and Blaine Carnprobst, CTP, Senior Vice President and Receivables Product Advisor at PNC Bank.
INSIGHT: Automation can help companies track remittance information from multiple data sources and learn how to apply deductions and short pays based on historical patterns. This allows for faster posting of customer receipts, strengthened working capital and stronger customer relationships.
|Industry:||Snack Food Manufacturer|
|Topics:||Cash management and forecasting, working capital management, payments strategy and execution, technology management|
BACKGROUND: GENERAL INFORMATION ABOUT THE COMPANY
Shearer’s Foods is the largest contract manufacturing and private label supplier in the snack industry in North America. The company is headquartered in Massillon, Ohio, and has 14 manufacturing facilities across North America.
Prior to the update, the treasury team was using a legacy system that required manual intervention to rely on the knowledge of long-time employees to match imprecise payments with invoices outstanding.
CHALLENGE: THE WORK OR DIFFICULTY TREASURY HAD TO ADDRESS
The Shearer’s team faced three challenges with the cash application portion of the AR posting process:
1. Figuring out who paid them (from customer to vendor)
In large part due to the use of digital payment methods, identifying the payer was becoming more difficult. For example, an increasing number of vendors were paying through payment consolidators (e.g., bill.com) which offer limited identifiable information for the payer. Additionally, the percentage of ACH transactions carrying remittance data was declining at a rapid rate.
2. Figuring out how much a customer paid
At times, customers with multiple outstanding invoices paid a blanket amount, but the payment matched neither a single invoice nor the entire amount.
3. Figuring out why a customer took a deduction
Particularly in the consumer-packaged goods business, being paid the exact amount due is rare. One reason for this is deductions, the volume of which is massive. When a customer takes a deduction, the why is often not communicated. There is also the challenge of figuring out which deduction (e.g., volume, delivery delay, early pay) they’re taking. Additionally, the treasury team may not agree with the deduction that the customer is taking.
APPROACH: HOW TREASURY ADDRESSED THE CHALLENGE
Shearers’ approach to solving the challenge centered on advanced automation. In order to increase the “hit rate,” the ERP system takes data from any details that came with the payment to match it with the information already in the accounts receivable system.
Under legacy automation, there was not a way to connect emails to ACH transactions. This new method uses artificial intelligence via automated website data and email data parsing. It has the ability to download data from the websites the larger retailers provide regarding payments made by ACH.
It takes time for the system to recognize the patterns (e.g., regular deductions a customer takes) but once the pattern is established, it’s able to instantly complete that process. Another example is how the software is able to recognize invoice data that has been provided by the remitter from text embedded in an email or email attachment.
The software is making sophisticated decisions regarding payment processing that with a high enough prediction rate, can free up the treasury team’s time to focus on more strategic, essential tasks.
OUTCOME: WHAT CAME OF TREASURY’S EFFORTS AND WHAT WAS LEARNED
Partnering with HighRadius on an AI solution and leveraging ACH and Payments' data received by PNC, Shearer’s adopted and reaped great benefits from the solution.
In the snack food industry, a manufacturer’s day sales outstanding (DSO) has a tremendous impact on its working capital. The goal is to have the payment come in from the company’s customers prior to paying its suppliers. Shearer’s was able to lower its DSO by three days.
Other benefits were as follows:
- Experienced a 50%+ improvement in processes.
- Lowered overall head count in cash application by 50%.
- Improved auto-match rate with cash application to 80%; where 20% of the volume is dealt with on an exception basis.
- Scaleable solution.
- Manual intervention eliminated to allow head count to focus on other value-added activities.