Challenges
Danone with 1000+ customers has a diverse customer segment consisting of mom & pop stores as well as big-box retailers such as Wal-Mart. With a global presence and geographically distributed operations, Danone had shared services for its A/R present across multiple business units globally. Due to a decentralized system, the receivables landscape, at Danone, faced 3 core challenges- Increased process complexity with high volumes of short pays, high Manual processing of deductions, and poor visibility in the collections process.
Multiple payments and remittance formats and 100% manually processed Cash Application increased process complexity and number of short pays
Danone’s global presence coupled with a huge customer base resulted in multiple lockboxes spanning across different geographics and an increase in process complexity. They had multiple remittance and payment formats that were processed manually.
Their AR department largely dealt with payments coming in via ACH, Wire, and Checks with multiple remittance formats, ranging from EDI 820, emails and check images. Where EFT such as ACH & Wire comprised 65% of the total payment volume and contributed to 92% of the overall dollar value, paper-based payments such as checks occupied 35% of the payment value but only had an effect of 8% on the dollar value.
Danone had 24 different portals for remittance data aggregation since no remittance data for e-payments were provided by the bank.
The A/R team at Danone had to manually aggregate the remittance information from these portals, link them to the payments, and identify disputes. These de-coupled electronic remittances and payments were processed 100% manually increasing the process complexity further.
The A/R team spent 128 hours per week to process electronic payments and 140 hours per week to process check payments. Spending a large chunk of their time in identifying, matching, and processing cash, caused a delay in dispute identification further delaying the dispute resolution process and decreased customer satisfaction.
Manually identifying and processing deductions caused a delay in dispute management and increased DDO to 45+ days
Similar to cash application, the deductions management at Danone was a completely manual process. 85% of the overall disputes were a result of trade promotions deductions and required a 100% manual intervention.
With 90% of the deductions being valid, a huge manual effort was required to identify and process the 10% invalid deductions. Delay in deductions resolution due to lack of adoption of automation increased the Days Deductions Outstanding (DDO) to 45+ days.
With the A/R team spending a majority of their time in cash processing, dispute identification and resolution, the collections process at Danone took a hit. Danone had no automation in place for its collections process. The analysts dealt with more non-value-added activities including customer segregation, rather than focusing on at-risk accounts that required dunning.
A lack of visibility in the collections process prohibited them from focusing on more value-added tasks, such as updating the ERP system in a timely manner with the information needed for escalation or de-escalation on various accounts.
The delay in collections affected their cash flow and working capital. Apart from this, the collections team’s inability to identify the right customer to approach hindered their customer-client relationships.
