From the February 2012 issue of Treasury & Risk magazine

Chucking Checks

Companies succeed in persuading suppliers to accept ACH payments, eliminating the cost and effort involved in paper checks.

Led by concerted efforts on the accounts payable side, projects to convert check payments to ACH are starting to produce real benefits. When $12 billion Dean Foods decided to streamline vendor payments in late 2009, the Dallas, Texas-based company had the foundation for an impressive turnaround—a bloated vendor base of nearly 200,000, roughly 100 employees tied up handling invoices and check payments, only 7% of 52,000 monthly invoices arriving electronically, and 80% of supplier payments going out as checks, requiring a daily check run of up to 5,000. Days payable outstanding (DPO) stood at 19 days.

Now the vendor base is a svelte 60,000. There is only a limited check run because 86% of supplier invoices are now paid by ACH. Settling an invoice with a check is the rare exception, reports Julie Mingus, director of corporate treasury operations and disbursements. About 50 employees now handle invoices and payments, and all but 24% of invoices arrive electronically after a three-stage campaign to get suppliers to e-mail their invoices in TIFF format. 

Converting vendors requires consent, and at the end of the day, supplier acceptance probably depends on “what will happen in their A/R operation,” says Greg Cicero, a principal at consultancy Treasury Strategies. “If they don’t get the invoice detail they need with an ACH payment, or if their back office system can’t apply the payment, it won’t work.”

Often the issue is remittance information. Checks arrive in the mail with paper remittance data that are hard to automate but complete in many cases. Moving to ACH could mean losing some of that data, explains Arthur Brieske, head of product management for the Americas in global transaction banking at Deutsche Bank. The trick is to decouple the information from the payment and send it separately but identified so it can automatically be matched up with the payment for posting and reconciliation in the payee’s A/R system, he says.

Page 1 of 2
Comments

Advertisement. Closing in 15 seconds.