By Chris Caparon, COO at Cforia
The consensus directives coming from North American CFOs to their finance and accounting teams include 1) Ensuring business performance by establishing new cost efficiencies, financial plans and analytical approaches and 2) Managing operating risk through risk management strategies and systems.
However, the challenge lies in dealing with projected business changes and the ever-increasing departmental demands with flat or shrinking staff and more complex management requirements, while:
- Reducing Days Beyond Term (DBT) and accelerating the conversion of receivables into cash
- Mitigating credit risk and portfolio roll-up of global client exposure
- Reducing write-offs and diminishing bad debt reserve requirement
- Shortening the discover and resolution cycle times of client disputes and deductions
- Increasing customer O2C lifecycle satisfaction and making it easier to do business with
So, what are the best practices in order-to-cash project management? To answer the question, we need to look at a compilation of data points, and in this case, the findings have been observed over 14 years and 200 enterprise O2C implementations. These companies are managing over $240 billion in open Accounts Receivable portfolios today.
The top ten O2C areas are:
- Accounts Receivable Methodology
- Invoice Dispute and Deductions Resolution Handling
- Order Hold/Release Decisioning and Processing
- Application of Invoice Payments
- Lockbox Handling
- Generating Reports and Departmental Performance Analytics
- Billing Process Methods
- Multi-ERP Consolidation & Global Customer Management
- Credit Risk Management
- O2C Organizational Effectivity
From Paper to Digital
On average, 50-60% of the AR portfolio is being touched within each 30 day O2C cycle. The collections methodology is primarily call-centric, which means that there is little automation within the process. This lack of automation leaves AR departments working off disparate, paper-driven processes.
There tend to be lots of manual filing cabinets with literally thousands of well-used, sometimes decades old file folders. Teams might be working from printed, aged, trial balance sheets and creating collections and resolution notes in the margins of the report. Often there are many other manual, Excel, Access or other non-database driven prioritization of activities, which are not centralised and are specific to the work queue of the individual collector, resolver or credit analyst. With these decentralised, separate workflows in place, collaboration and overall AR visibility is near impossible.
Such environments tend to have little to no hierarchical account aggregation for mid-sized, large, chains and strategic accounts – no way to see the whole exposure of the parent-child portfolio. There are many off-system/manual credit or collections workflows and processes which have little consistency between individual resources, remote locations, or operational disciplines.
A key element to converting receivables to cash are Promise-to-Pay (P2P) reminders, which are located in Lotus Notes, Outlook Calendars, spreadsheet or manual processes. This is a critical success factor to impacting working capital.
There tends to be little ability to separate receivables sub-ledgers to optimise the collections and disputes performance activity and collections/resolutions are “managed to the rule” rather than “managed to the exception”. What this means is that virtually everything needs to be touched, versus segmenting the activity which can be automated to achieve 100% portfolio touched in each 30 day cycle and that there is simply no time to address a large number of small transactions or client accounts.
Observations of Best Practice
Collections environments exhibiting “best practices” are those that can be characterised by the following characteristics:
- Teams have the ability to automatically segregate the receivables that are at risk based on sophisticated algorithms, taking into account payment behaviour patterns, historical performance, degradation of performance, credit bureau data and trade data which is blended and weighted
- This optimises collections, dispute resolution and credit resource effectivity based on activity and calling priorities. This needs to be an automated process so that when resources arrive, their day is planned and can be executed in a “best practice” methodology to minimise the time required to identify high-value daily targets and prepare for daily activity
Your team needs near-time visibility into orders and payments to be most effective. VF Corporation reported “Netsend offers VF Corporation complete transparency. We now have the real-time visibility needed to enable proactivity”.
“Through improved efficiency and visibility, Netsend saves us hours every day”
Head of AR, The Guardian
Introduction of AR Portals
Best practice environments use reporting, analytics, dashboards and automated workflows in order to streamline O2C sub-process and critical steps that deliver the biggest working cash impact. This is true of not only resource activity/productivity but of automated communication and electronic calls-to-action to your clients.
Having links embedded in automated email messages, empowered with solutions like client portals, such as Netsend, for 7/24/365 customer self service enables them to access their digital invoice archive, whenever, wherever.
In many (non-best practice) environments, at least 60% of client inbound calls are about invoice queries that could well be instantly resolved through a self-service portal.
Implementing Best Practice in Your Business
Those using AR portals can create custom statements, make disputes, request contact from a resolver or pay bills immediately via a link provided. These types of businesses use a single solution for managing all aspects of AR collections, so they are not constantly flipping between separate systems which contain bits and pieces of the O2C lifecycle.
These AR collections methodology best practices yield on average a ROI of approx. 25% reduction in DSO, approx. 80% reduction of inbound call volumes regarding invoice related issues, approx. 40% improvement in O2C resource productivity and enable significant sale volume growth rates without having to add corresponding headcount.