Finance organizations face continued budget contraction. At the same time, they are being asked to respond more quickly to rising management and customers’ expectations. Hackett Group research indicates that world-class finance organizations have lower-cost, yet more effective, customer-to-cash processes. Further, these organizations deliver a better customer experience thanks to process redesign and greater automation. Achieving top performance in customer-to-cash requires:
- Automating more activities.
- Leveraging data and analytics to produce better insight.
- Establishing end-to-end process ownership.
- Addressing talent and skill gaps proactively
Doing More With Less
Disruptive technologies, new business models, intensified competition and increased customer expectations are compelling finance organizations to transform how they deliver services to stakeholders. The challenge is to enhance process performance while managing cost. According to our 2018 Key Issues Study, finance functions have seen their budgets contract for the past several years, with more cuts expected. In fact, finance has experienced the greatest year-over-year declines in operating budget of all the business services we study (Fig. 1)
According to our process taxonomy, customer-to-cash consists of five elements: credit management, customer billing, cash application, collections management and dispute management (Fig. 2). Each has several sub-processes. To realize the greatest gains in efficiency and effectiveness, all these elements must be well-aligned. This is particularly important given that different parts of a company (including finance as well as front-office functions and shared-services teams) are jointly responsible for delivering parts of the overall customer-to-cash process.
As a result, it’s critical that finance executives assign an end-to-end process owner who
is responsible for policies, procedures and measurement. For example, credit policies
developed in the finance function inform order-management activities performed by sales
personnel. Using best-practice credit management approaches achieves little if they aren’t
applied properly during order management and subsequent parts of the customer-to-cash
process. Instead, there will be downstream consequences. For example, collections will
need more time to address delinquent accounts.
Action Item # 1: Automate
World-class finance organizations exhibit a higher level of customer-to-cash process
automation. They outperform more typical organizations (i.e., the peer group) in metrics
such as percentage of automated order entry, automated customer invoices and straight through processing of customer remittances. Research based on our 2018 finance
benchmark data illustrates just how significant is the gap in automation levels between
world-class and peer-group organizations. World-class finance functions:
- Automate the processing of 71% of orders received, compared to 25% for peers. As a
result, they can process nearly twice as many orders per FTE.
- Automate 75% of credit modeling and scoring, compared to just 16% for peers. Thus,
they can complete credit reviews 50% faster, leading to improved customer experience.
- Generate and distribute 58% of customer invoices electronically, compared to 50%
for peers. Consequently, it takes them 50% less time to bill customers, leading to
faster payment. Our benchmark research also found that average days delinquent in
organizations with a high degree of invoice automation (i.e., over 75%) is half that of
companies with low levels of invoice automation (i.e., 25% or less).
Fig. 3 illustrates how greater automation affects cash application. Top-quartile finance
functions with 95% or higher rate of electronic remittances spend $0.37 per cash application transaction, compared to $3.03, when electronic remittance occurs in under
25% of transactions. Furthermore, top-quartile organizations with high (>95%) use of
electronic remittance enjoy a 76% cost advantage over the median company with the
same degree of electronic remittance. This example illustrates the vast potential to
accelerate improvements by increasing process automation.
Action Item # 2: Leverage Analytics and Data Management
To meet elevated performance demands, senior management expects better insight so it
can make faster, smarter decisions about resource allocation. Sophisticated analytics are also
critical for anticipating and responding to customer expectations. Not surprisingly, the finance
function’s top priority this year is supporting enterprise information/analytics needs (Fig. 4).
In addition to supporting enterprise information needs, data and analytics play a central
role in driving customer-to-cash process excellence. For example, using sophisticated
analytics tools that are fed by big data, finance can improve the credit-evaluation process
by combining internal customer payment history with external data such as industry
performance and credit ratings. For example, finance can make collection activities
more effective with more accurate identification of at-risk and critical accounts, using
sophisticated analytics tools and machine learning algorithms that are fed by big data.
Advanced analytics also enables finance to refine customer segmentation for the
purpose of applying credit and collection policies.
What Customer-to-Cash Process Excellence Looks Like
The Hackett Group’s research has isolated 10 critical capabilities of a top-performing
customer-to-cash process. These represent the most important best practices for driving
enhanced efficiency and effectiveness, as well as a better experience for stakeholders.
Collectively, these capabilities establish a useful target for organizations aiming to
achieve world-class performance in finance (Fig. A).
Becoming Digital Leaders
To isolate and assess the impact of automation on customer-to-cash process performance, The Hackett Group developed a model that considers 40 proxy metrics for automation. We then applied this model to our benchmarking population to identify performance differences between organizations with low technology enablement and those that are highly technology-enabled – what we call “digital leaders.”
Our analysis produced some striking results. Digital leaders have customer-to-cash process costs that are one-half those of the peer group (Fig. B). At the sub-process level, e.g., customer billing and cash application, the differences between the two groups are even greater – 58% and 61%, respectively.
The higher level of automation and growing use of digital technologies like robotic process automation (RPA) and artificial intelligence (AI) also affect the number of FTEs required to execute the customer-to-cash process. Our analysis found that digital leaders have 54% fewer FTEs per $1 billion of revenue (Fig. C).
In addition to running more efficiently, digital leaders operate more effectively. They experience 37% fewer errors in invoicing and are 17% more likely to collect credit sales on time. Because they get paid faster and within terms, digital leaders are optimizing the company’s working capital (Fig. D).
By applying process analytics, customer-to-cash executives can integrate data from different source systems and identify patterns such as increases in delinquent payments or decreases in timeliness of billing, so they can proactively address the issue.
Our research has shown that finance’s adoption of advanced analytics tools – big data analytics, artificial intelligence and machine learning – will grow substantially during the next two to three years. More than 80% of finance executives surveyed expect to use advanced analytics tools on either a mainstream (i.e., used broadly across the enterprise) or limited basis within that time frame.
Action Item #3: Establish End-to-End Process Ownership
An end-to-end process view drives complexity out of the customer-to-cash process. Because the process involves so many different activities, without a holistic view and greater accountability it’s very difficult to identify bottlenecks and sources of inefficiency that affect cost, quality and service. It is imperative that finance leaders assign a single process owner to ensure comprehensive insight into process performance. End-to-end process ownership also permits more collaboration among sub-process owners so that the hand-offs between different elements of the process – for example, credit management and customer billing – are seamless.
Our research found a correlation between end-to-end process ownership and process performance. For example, finance organizations with formal, end-to-end customer-to-cash process ownership have a 55% lower process cost (labor plus outsourcing) than the peer group (Fig. 5). In particular, customer billing cost is 75% lower than the average, dispute management is 64% lower, and collections is 58% lower.
The impact of end-to-end process ownership goes beyond cost. Finance organizations with a high degree of end-to-end process ownership are 25% more likely to collect credit sales on time, compared to those with a low degree of process ownership. They also have 78% fewer invoices that require corrections. Plus, the streamlined process allows them to spend 27% less time collecting and compiling data, freeing up staff to work on more knowledge-based activities (Fig. 6)
Action Item #4: Improve Finance Talent Skills
According to our 2018 Key Issues Study, access to talent is one of the top three business risks that companies face (Fig. 7). While 43% of finance executives surveyed considered it a “high” current risk to the business in 2017, 74% see it as a high risk in 2018 – a 31% jump, greater than for any other risk driver measured.
As the finance function’s role changes, so does its talent profile. The combination of digital transformation, decreased emphasis on transaction/administrative work, and greater focus on working closely with business partners is elevating the importance of skills such as analytics, technology and communication. Yet finance, which reports large gaps in several critical skill sets, is not ready for this new challenge (Fig. 8).
Conclusion: Technology Maturity Self-Assessment
No single path leads to the creation of a top-performing customer-to-cash process. Finance executives must pursue several strategies simultaneously, e.g., end-to-end process ownership, leveraging analytics and upskilling talent. The degree and breadth of process automation has a dramatic impact on the efficiency and effectiveness of the process. The maturity model below illustrates the four levels of technology maturity within the customer-to-cash process and the characteristics of each (Fig. 9). It can help customer-to-cash process owners to assess their own
organization’s technology maturity and identify what steps they need to take to move to the next level.
About the Advisors
Senior Research Director
Ms. Essaides has over 25 years of experience researching, writing, and speaking about finance and treasury issues, with a focus on the way finance adds value to the enterprise through excellence in financial management and planning processes. Previously, she worked at the Association for Financial Professionals, where she led the FP&A practice.
Ms. Essaides, a prolific blogger with thousands of LinkedIn followers, writes for external publications such as Digitalist Magazine. In addition, she co-authored a book about the internal transfer of best practices, If Only We Knew What We Know (Simon & Schuster, 1998).
Associate Principal, Finance Advisory Services
In his current role, Mr. DeGraw conducts topical research, supports client inquiries, leads member webcasts, performs client briefings, and
speaks at conferences on topics including working capital, purchase-to pay and customer-to-cash processes. His expertise includes credit/risk
modeling, customer segmentation, collection strategies, supplier risk
analysis, buy/pay transactional strategy, and leverage of automation. He
has over 20 years of corporate and consulting experience in business
process creation and reengineering, cost reduction/management, planning, budgeting and financial analysis. Mr. DeGraw’s previous experience with The Hackett Group has included managing and delivering finance, procurement and other benchmark projects for clients in both the public and private sector.