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GPO Guidebook

23 KPIs for Shared Services: From Process Manager to Strategic Leader

An actionable summary that deep-dives on the top 23 KPIs using which shared services teams will be able to evaluate process performance, identify actionable next steps for improvement and make strategic impact on the organization.

CHAPTER 01

Executive Summary

GPOs and Strategic Impact

GPOs are responsible for process standardization and cost reduction, however, that role is especially tough in the order-to-cash (O2C) function given the diversity in customer behaviour, geographies and business units. Tracking KPIs is therefore critical to not only deliver on process performance but also deliver on the strategic objectives of a shared services centre.

To facilitate this role transformation of a GPO from a Process Manager to a Strategic Leader, this ebook lists down KPIs and buckets them into the following categories to O2C performance in shared services:

Based on our analysis of global enterprises functioning with shared services model, these are the

Top 23 KPIs for providing GPOs with a holistic visibility of Order-to-Cash cycle.

 

 

CHAPTER 02

23 KPIs for Shared Services

1. Process cost per invoice

Strategic Metric

Definition:

This metric measures the overall process cost in the entire order-to-cash cycle i.e. from generating to delivering customer invoices.

Why measure it

Direct impact on the bottom-line and every business could reduce it by:

  • Improving productivity across order-to-cash
  • Collecting on time
  • Reducing deductions through discipline in upstream processes
  • Reducing write-offs and tolerances

This metric helps in keeping a check of the overall cost of the process.

2. Unbilled Revenue

Strategic Metric

Definition:

Unbilled receivables, also called “accrued receivables”, are products and services delivered, yet for which invoices have not been generated.

Why measure it

When dealing with project-based businesses unbilled revenue has a key role in working capital management. Keeping close tabs on the contracts that govern accrued receivables makes sure that the invoice is sent on time and the revenue is realized fast.

3. Days Sales Outstanding

Strategic Metric

Definition:

The value of receivables outstanding or waiting to be collected from customers, expressed in the equivalent number of days of revenue.

Why measure it

This metric is an accurate indicator of the performance of the accounts receivable department.

Lower DSO indicates a company has a very strict credit policy, which may be hampering the sales. Higher DSO is an indication of an inefficient analysis of the applicants for open accounts.

A healthy DSO is no more than 5-10 days longer than weighted average payment terms. Benchmarking the DSO against companies in the same industry is another way to arrive at a healthy DSO number.

4. Top-Five Reasons for Deductions/Chargebacks

Strategic Metric

Definition:

This report lists the top 5 most frequently occurring disputes.

Why measure it

The dispute team could refer to this report and take corrective action by drilling down on the source of the dispute and prevent them from happening in the future. Some examples include creating sales orders with the wrong pricing details or finding that a certain carrier delivers more damaged goods.

5. Bad Debt Write Off %

Strategic Metric

Definition:

This metric keeps track of the bad debts that are a result of uncollectibles

Why measure it

While maintaining a healthy bad-debt reserve is a best-practice keeping close tabs on the bad-debt write-offs figure is important because the company has to sell many more orders(depending on the gross margin) in order to make up for the loss in uncollected revenue.

6. Monetary Value of Dispute Cases

Strategic Metric

Definition:

It is the disputed value of the dispute case that the customer has specified.

Why measure it

This metric is useful in that it gives a number on the value of deductions that an organization is processing. This metric in conjunction with the next one which is as a % of A/R will be useful especially to estimate revenue leakages that are happening and also understanding figures for the cost of doing business in terms of allowances for deductions.

7. Total Dollar of Disputes as a Percentage of Total A/R

Strategic Metric

Definition:

This metric is to evaluate the dollar value of all disputes that are raised as the percentage of total AR.

Why measure it

This metric as a % of total A/R or as a % total sales is a good one to benchmark within the same industry to identify process gaps and failures.

8. Credit Applications Processed

Strategic Metric

Definition:

It is the percentage of new applications that your credit analysts process or the percentage of new customers that they have onboarded.

Why measure it

Performance of an credit analyst is evaluated based on the number of applications they process.

9. Number of Exceptions Processed

Individual Performance Metric   – Process health Metric

Definition:

Since most cash application processes have some form of automation, the analyst productivity is measured on the number of exceptions they process.

Why measure it

This metric lets you know the rate at which your exceptions are being handled for managing your analysts more efficiently. In addition, it will also allow you to optimize the cash application process to evaluate the most frequently occurring exceptions and remedy the situation.

10. Invoices Issued per FTE

Individual Performance Metric

Definition:

It measures the average number of invoices received and processed per full-time equivalent (FTE) in the accounts receivable department

Why measure it

Some analysts have multiple job roles across credit, collections, billing. So it is essential to have individual metrics for different processes performed by the analysts. Invoice issued per FTE is a measure of the productivity of an employee in billing the invoices.

11. Percentage of Disputes Resolved per FTE

Individual Performance Metric

Definition:

It is the number of disputes resolved with respect to the total disputes raised.

Why measure it

Deductions backlog is a big issue especially in the consumer goods industry and looking at the number of deductions resolved per analyst will allow GPOs to compare the efficiency of the analysts

12. Days Deductions Outstanding

Process health Metric

Definition:

This metric is to keep track of the time required to resolve collection disputes.

Why measure it

This metric gives a good idea of the average time required to identify and resolve a deduction, and information about the longest-running deduction cases of different customers.

13.Percent of A/R Items X+ Days Past Due

Process Health Metric

Definition:

This metric is a ratio of A/R invoices with a certain past-due limit to the overall past-due invoices.

Why measure it

Conventional collections wisdom states that the longer one takes to collect, the greater the chances of it turning to bad-debt. This metric helps in identifying invoices across varied aging periods. For example, to have a clear picture of the invoices with past-due more than 45-day term, we sum up the number of invoices from aging buckets above 45-day term and find its percentage from the total invoices.

14. Credit Limit by Strategy

Process Health Metric

Definition:

This is a comparative relation between different strategies and the credit limits assigned to them. For example in the event where:

Credit Exposure for a new customer having public financials in January is $8 M and for clients without financials is $6 M while in Dec they were $6 M and $7 M respectively. This shows that the company is taking more risk in January.

Why measure it

Credit managers use different strategies for evaluating credit exposure based on customer profiles. Keeping close tabs on the credit exposure will help GPOs in estimating the bad-debt reserve better and prevent fluctuating bad-debt levels.

15. Percentage of Cash Applied Within 24 Hrs.

Process Health Metric

Definition:

This metric measures the efficiency of cash application process within 24 hrs. of payment received.

Why measure it

As the accounting phrase goes,  “Put in the Books!”. A company needs to have all its money in the books for the treasury teams to understand working capital available on hand. Failure to apply cash the same day will affect downstream processes such as collections where there is a risk that collections analysts will contact customers who had already paid.

16. Average Days Delinquent

Process Health Metric

Definition:

It expresses the average number of days the invoices get paid after the due date.

Why measure it

If DSO is an overall performance indicator of the accounts receivable department, then ADD is more specific to the collection team and could be used to design collections strategies tailored to customer payment behaviors.

17. Collections Received within Terms

Process Health Metric

Definition:

It is the monetary value of invoices received on or before the stipulated payment terms.

Why measure it

A time series of this measure will help you evaluate 1) effectiveness of the collections and the pre-payment discounts strategy and 2) payment behavior of customers. An upward trend is very good news for the working capital of the company.

18. Time to generate Invoices

Process health Metric

Definition:

Invoicing being a labor-intensive work involving data entry, paper-work, revisions, approvals, and bookkeeping, there is a need to drive efficiency by monitoring the time taken by analysts to generate invoices.

Why measure it

The faster an invoice is delivered to the customer, the better the chances of getting paid early. Not all customers are looking to delay payments, as long as the invoice reaches them within their payment cycles, there is a good chance that they pay. Reducing the time taken to generate the invoice is critical for collections teams as it enables proactive collections.

19. Invoice Error Rate as Percentage of Total Invoices

Process Health Metric

Definition:

Invoice Error Rate measures the percentage of invoices with an error to the total invoices created by the billing and invoicing team.

Why measure it

Invoice errors cause confusion between suppliers and buyers and lowers supplier credibility. The chain of paperwork for communicating the mistake in an invoice sent by you to the customer causes inconvenience at both ends. A large number of non-trade deductions could be attributed to invoice errors and eliminating these could prevent in faster collections.

20. Number of Credit Reviews/Credit Review Time

Process Health Metric

Definition:

Total number of credit reviews performed and the time taken per review

Why measure it

This will allow in estimating the volume of work for the credit team for planning periodic credit reviews and blocked order reviews

21. Percentage of Collected Amount from Disputed Invoices

Process Health Metric

Definition:

This metric is a measure of the dollar amount collected on the disputes raised for invalid deductions.

Why measure it

This metric could be used to highlight two things 1) customer behavior and the likelihood of disputing invoices 2) efficiency and effectiveness of the deductions team in researching and finding invalid deductions

22. Collections Effectiveness Index

Process Health Metric

Definition:

This metric is the amount that was collected in a given time period to the amount of receivables that were available for collection in that time period

Why measure it

This metric is a proxy for measuring the effectiveness of the collections department. The closer this number is to 100%, the better it is for the collections team.

23. Unapplied Cash as a % of AR

Process Health Metric

Definition:

It is the ratio of unapplied cash to the total payments received during a certain time period.

Why measure it

This metric helps you in determining the effectiveness of the cash application automation in place and also the analysts for resolving the exceptions.

CHAPTER 03

Summary

The table below summarizes the metrics that we discussed in the ebook. By tracking each of these, shared services teams will be able to evaluate process performance, identify actionable next steps for improvement and make strategic impact on the organization.

CHAPTER 04

About HighRadius

HighRadius is a Fintech enterprise Software-as-a-Service (SaaS) company. The HighRadiusTM Integrated Receivables platform reduces cycle times in the order-to-cash process through automation of receivables and payments across credit, electronic billing and payment processing, cash application, deductions and collections.

Powered by the RivanaTM Artificial Intelligence Engine and FredaTM Virtual Assistant for order-to-cash teams, HighRadius enables organizations to leverage machine learning to predict future outcomes and automate routine labor-intensive tasks. The radiusOneTM B2B payment network allows suppliers to digitally connect with buyers, closing the loop from supplier receivable processes to buyer payable processes.

HighRadius solutions have a proven track record of optimizing cash flow, reducing days sales
outstanding (DSO) and bad debt, and increasing operational efficiency so that companies may
achieve strong ROI in just a few months. To learn more, please visit www.highradius.com

HighRadius’ Integrated Receivables Platform

Integrated Receivables optimizes accounts receivable operations by combining all receivable and payment modules into a unified business process. The Integrated Receivables platform provides solutions for credit, collections, deductions, cash application, electronic billing, and payment processing – covering the entire gamut from credit-to-cash.

The HighRadiusTM Integrated Receivables platform stands out by enabling every credit and A/R operation to execute real-time from a unified platform with an end goal of lower DSO, reduced bad-debt, and faster dispute resolution while improving efficiency and accuracy for cash application, billing, and payment processing.

HighRadiusTM Integrated Receivables leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes. The Integrated Receivables platform also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier Accounts Receivable process to the buyer Accounts Payable process.