Optimizing Invoice-to-Cash with Automation vs Outsourcing

Madhurima Gupta:
With CFO offices struggling with a mountain of open invoices, high DSOs, and more receivable management challenges, there’s a question that is on top of every CFO’s mind. Should they be outsourcing the labor-intensive processes or should they be automating them for ensuring a seamless customer experience while aiming to solve the common challenges? Welcome to the Mid-Market CFO Circle Live. I’m your host Madhurima Gupta. On the CFO Circle community, we bring you a wnew podcast every Thursday, where we talk about CFO office challenges and how you can solve them with emerging technologies. If you are not already a subscriber of the CFO Circle community, please subscribe today to not miss every episode that we launch, which is free access to peer insights, trends, and more for the office of the CFO. We’ll now get started with the fourth CFO Circle Live with two of your peers, Ray del Valle and Terrell Turner.
We’ll talk about how CFO offices can level up their strategies while they decide to manage repetitive and labor-intensive operations and how they can pick between automation tools for setting up autonomous finance capable CFOs offices versus outsourcing. First up, I’d like to introduce Ray del Valle, who has over 20 years of experience working at Fortune 50 companies, building scalable financial processes for a world-class CFO’s office. He’s currently an interim CFO and a consultant and has worked across multiple industries, including ticketing, eCommerce, SaaS, and digital media. He has successfully deployed machine learning tools that have helped in improving ROI for finance departments. Welcome to the show, Ray. I hope you’re doing well.
Rey del Valle:
I’m looking forward to the discussion.
Madhurima Gupta:
Our next panelist is Terrell Turner. Terrell has held businesses in the food and beverage industry to simplify accounting and finance so that the numbers actually help them run a more effective and profitable business. He is a New York Times featured CFO and 40 under 40 CPA. Prior to starting his Fractional CFO services company in 2012, he worked as Director of FP&A at Passport and held Senior Manager position in FP&A and operations at GE Aviation. Hi Terrell, how are you doing?
Terrell Turner:
I’m great. Thank you for having me.
Madhurima Gupta:
Let me start with you Ray for our discussion on this topic. In your opinion, given the economic uncertainty post-pandemic, do you think outsourcing critical functions such as managing accounts receivable is a reliable approach for CFO’s office today?
Rey del Valle:
Outsourcing. It has a lot of challenges, right? Because, and especially when it comes to receivables. There’s some areas which may be more easily outsourced, but receivables are gonna be a lot more challenging because it’s driven by contracts. And so, it involves knowledge of your company’s contracts and business practices. And clearly some of the other issues that you mentioned too, are, just as you, would have with the internal staff, there’s training issues. So, and a lot of times your outsource partners are sometimes several time zones away, which also raises a lot more challenges in terms of communication and follow-up. So, I don’t necessarily see outsourcing as a go-to strategy, um, much more, um,personal style and, a lot of other CFOs that I interact with is really more about automating processes and looking for the best tools that will fit with our current enterprise software.
Madhurima Gupta:
Yes. But why is outsourcing a preferred solution for the CFO’s office? Is it because building a team is much more difficult in this turbulent economy given training and later retaining trained talent challenges?
Rey del Valle:
It’s an interesting question. It’s a great question. There’s a lot of challenges, as you’ve alluded to, in terms of hiring. Here in the States and I think elsewhere as well in the world, there’s a lot of issues that we’ve been discussing called the great resignation, right? So a lot of people are just leaving their jobs. And so in those cases, I can see where a CFO needing to make sure that they’re collecting their receivables may tend to outsource because oftentimes. Automating processes takes a lot of work, right? So there’s a lot of front-end work in terms of scoping the process. Then you have to do the integration, then you have to do the testing. And so there’s a long lead time in order to get to the point that, um, automation works. So there may be a willingness given the alternatives of collecting money or not collecting money to go outsource.
Madhurima Gupta:
What are your thoughts about outsourcing the accounts receivable processes, Terrell?
Terrell Turner:
I definitely think it is very, very viable, you know, process to outsource. And one of the rules of thumb that I go by when it comes down to outsourcing processes, is this something that has a very clear process, and is that process repeatable? And when it comes down to accounts receivable, credit management, credit reviews, like those are very, very clear processes that can be created around those things. And if you can create a clear process, you can probably educate a outsource team, who’s probably gonna be less expensive than your internal team to really focus and make sure that they stay on top of that process. So then you can use your internal team to do more of the things that require judgment and a deeper knowledge of the business. Because if you can, you know, really strike that great comparison, I think you’ll have a great opportunity to really do what’s best for the business.
Madhurima Gupta:
Do you believe it is critical for CFO’s office to change their credit policies in light of current economic uncertainty?
Terrell Turner:
Absolutely. I mean, I definitely think that CFOs should be even aware of what are their current credit policies. And then what does their business need and then start looking at, Hey, how do we change some of those policies to accommodate the current needs of the business?
Madhurima Gupta:
What are some of the significant red flag signs that mid-market CFO offices should be looking out for while monitoring their customers?
Terrell Turner:
Yeah, I think one of the first ones is I think this is more of an internal process as a start is, do they even have accounts receivable or a credit review process? Because I think sometimes businesses are so eager to close a deal or to get more sales that they don’t even have a process to review to the right people. And then once you start to actually have a process to review it, I think of really asking yourself, you know, how frequently is this person paying? Like when we follow up with them, how do they respond? Do they say anything back, or do they give us any kind of updates or any kind of estimates, or do we send them email after email and they never respond. Like, to me, that’s a red flag. If you don’t have an open line of communication with your clients because you’re never gonna be able to get on top of your credit issues if you don’t have an open line of communication with them.
One of the things that I, you know, depending on the size of the business is you start to look at the, I guess, the trends of your customer’s orders. If your customer’s activity is going through massive fluctuations, that may be a sign that their cash flow isn’t as stable. So you wanna make sure that you are on top of that, that you’re having some of those conversations with them. And maybe that means you need to change your credit terms because they could be at risk of not being able to pay your bill when the invoice comes due. And maybe that means looking at some options of asking for certain, a higher percentage upfront, or maybe that means changing the terms and the due dates. And I do think some of that becomes a factor of, you know, the finance team working with the sales team and really talking through that and discussing some of those changes. And I also think that from a finance team is really a red flag. Maybe some of the things that the sales team is hearing from the client, whether it is, Hey, the client is talking about some challenges that they’re having in their business, you know, challenges in one business could mean, Hey, those challenges are just gonna cascade and impact the supply chain and also negatively impact your business. So you wanna make sure that you’re listening or are there any disruptions that are happening in your customer’s business? Because if they’re going through significant disruptions, chances are their cash flow is gonna go through disruptions, which could impact your cash flow. And then I think you have some of the obvious things of when you, you know, you look at some of the credit ratings of some of your customers. I mean, obviously, if they have a bad credit rating, you know, it may not immediately mean, Hey, don’t do business with them at all, but it may very well warrant an honest conversation with that client, and then maybe, Hey, that client needs to have different credit terms than some of your other clients who have more stability.
Madhurima Gupta:
Rey, my next question is for you, customer experience is an important element for any business today, including their CFO’s office, especially for those who are in hypergrowth stage. Do you think businesses that outsource their accounts receivables give away control of the customer experience they offer to some extent?
Rey del Valle:
And that’s super important, right? Because if you’re talking about customers, but any kind of constituents, right? The last thing you want is somebody having an interaction with someone who is not, you know, well informed or well understanding of the company’s products. So you really that could be a huge pitfall, right? Because if you have somebody who really doesn’t understand your business, doesn’t understand your client relationships, um, then you could really be in a real problematic area because they’re getting a call from someone and, you know, that may not be well trained, may not be very fluent or other issues that happen. And they’re calling on an important customer and telling them to pay or do whatever they need to do, and it’s gonna be a terrible customer experience. So what we always, and, and this that’s an excellent question where what you really need to be mindful though, is of all the touchpoints with your customers and other constituents in your company, to make sure that they’re as seamless as possible, really
Madhurima Gupta:
One of the common reasons why businesses choose to outsource their finance function is to cut costs. But if you consider the long-term quality versus cost impact, do you think outsourcing is an effective solution or a cost-effective solution?
Rey del Valle:
I would disagree, I think from what I’ve seen in whether it’s gigantic companies or even smaller and medium sized companies, I think that the there’s a little bit of confusion, or just maybe like not really understanding the true cost because while your bill might be less than for what you pay for having people inhouse. There’ll be issues with cost, there’ll be issues with missed payments. There’ll be, um, or missed collections. There’s a lot of other costs that have not been figured and there’s time. There’s, um, again, a lot of times you’re outsourcing is overseas different time zones. Then there’s a cost to having to have calls in the middle of the night to work with BPO, if you will. So what’s critical is to make sure that all those costs are considered and, in the end, it may not actually save you a lot. It might save you something, but then the headaches may outweigh the savings.
Madhurima Gupta:
What is the best possible alternative for mid-market CFO offices to overcome the challenges of outsourcing AR?
Rey del Valle:
The most important aspects of this are to make sure that, uh, that’s from the platform up and out. And then you need to make sure that the people that you have are all well versed in the products and understanding, uh, of all the nuances, because every product, whatever automation, um, process that’s out there, they’re gonna have nuances. And we need to make sure that the staff is properly trained and that it is, um, a repeatable process. And so that everyone understands how the whole financial flow is working. So it’s really important to think of it as an ecosystem where, and then your platform, your enterprise system is at the center of it. And then all of these different services, if you will,all plugin smoothly and easily. And again, as we’re talking about it is to make sure that it’s all really thought through so that the processes make sense with the systems that you have and that the systems also work with your processes, right? Because the one thing that you’ll have as you scale up and things start to move really fast is if you have bad processes, then they’ll just get amplified through automation. So it’s going to be critical to ensure that you have really good fundamental processes from the beginning, and then that way, whatever automation and systems that you’ve integrated are going to then just, uh, multiply off of that. It’s a positive multiplier. It’s a virtuous circle.
Madhurima Gupta:
Shifting the discussion to credit risk management specifically for a bit. Terrell, I wanted to understand that since we discussed managing credit rating and credit limits better in today’s shifting economy, do you believe in manually managing credit trade?
Terrell Turner:
Absolutely not. I mean, you know, if you’re a small business and you have four customers, maybe you can do it. But if you’re really a mid-market company, you have way too many customers to manage it manually. Plus they, you know, it is gonna cost you a lot of money to hire a bunch of people to manage it, you know, manually. And right now there are, you know, there are some cost-effective services and tools out there that can help, you know, develop, you know, you can program in some critical KPIs or some trigger points, and the software gives you the data that you need. So you don’t have to monitor it manually.
Madhurima Gupta:
Interesting. The companies that you advice, uh, how do you encourage them to leverage the right tools for managing customers’ credit data better?
Terrell Turner:
I think the first one is really just looking to say I care. And we see that they are, they’re having to take out, you know, short term loans or they’re having to make some, you know, some decisions on not investing in growth, because they just don’t have the cash there to make that investment. Then I look and say, okay, all right. If we had a, you know, a process, and if we had an automated process for collecting on your receivables, we wouldn’t be having this debate. Like you would be able to invest in the growth. So we are missing out on a growth opportunity because we don’t have a process in place. And then I also think for, you know, for other situations, just asking the, you know, the finance leaders or asking just the sales team is how much time are you spending, having to go back and follow up with people about, you know, their credit and them paying their bills? What if we had a more, you know, a better process, a more automated way of this flowing to where you didn’t have to spend as much time trying to chase these people down to get this, like how much more time would you have to then go talk to new customers and to grow the business, you could probably hit your sales targets and the business could probably grow. So we really look at it from an opportunity cost of what investment opportunities are you not able to make because you’re missing out on this. And then also what sales opportunities are you missing because you’re having to spend time chasing behind people because you have a manual process,
Madhurima Gupta:
All right. Can outsourcing AR processes be viewed as a long-term solution? Do you think these CFO officer are missing out on all the latest tech, especially when they scale because, um, they may or may not be able to control the quality after the point?
Rey del Valle:
One of the things that they’ll miss out on is efficiency because to the extent that you still have outsourcing is still a manual process. So what you’re going to be giving up is efficiency because, uh, there’s gonna be a direct correlation between volume and cost. And what you will also have too is more opportunities to introduce errors and glitches. And because the beauty of having systems and automation is if you do have an error or a glitch, you can fix it and it doesn’t repeat. But oftentimes that doesn’t happen with people because people are, um, will make mistakes and there’s um, and then if you bring in somebody new into a process, they can make the same mistake, unwillingly, or unwittingly. So it’s just a matter of, um, automation is really the key to success in terms of scaling up.
Terrell Turner:
I mean, I do think that it can be a great, I guess you would say transition process, of being able because if you’re in hyper-growth, you probably don’t have the time to manage it internally. So if you’re in hypergrowth, I do think that you can use outsourcing. And one of the things that, you know, that I’ve advised some clients to do is, Hey, right now we’re in hyper-growth for all the internal employees. You need all hands on deck focused on being proactive and really helping the operating and the sales team navigate this growth. For now, let’s outsource this and when you outsource it, let’s make sure the out the team that we outsource it to is laying out the process and they’re perfecting the process of this. And then once we get to a more, you know, a more stable time, we can then look, take that process that they’ve created. And we could possibly look at some automated tools because the thing that you have to have before you really, you know, go with an automated tool is you have to have a clear process. And so sometimes using that outsourcing temporarily could allow you the time to get that process down and get that process clarified. So when you wanna go with an automated tool and bring it back internally, you have clear processes around it.
Madhurima Gupta:
All right. When you take convenience and efficiency into account, what do you think is the better option for growing with market companies, for managing their finance functions? Would that be keeping operations in-house with intelligent automation or outsourcing it?
Rey del Valle:
I think just for peace of mind, you’d rather control the process than have it in-house. We live in some very challenging times. So what’s really important is to understand what your options are and then try to determine what’s the best possible outcome and strategy. So, as we talked about earlier, in the case where we might be short-staffed, you may need to actually go outsource. And then in the meantime, work on your automation strategy, right? Because one of the things that’s happening right now with businesses, um, is that especially some of the smaller companies, many companies are experiencing some dramatic growth and, you know, one of the things that will be critical to success is to actually try to get ahead of it, right? So not wait till you get to that point where you need the tools and the resources. So some of the more strategic CFOs now are looking at, uh, earlier in the company’s evolution to bring in some automated processes like receivables, like payables, like some accounting practices and things like that, where reconciliations and things like that. And to try to really automate as much as possible, which allows a couple of different things, one of which is, um, will allow the company to scale. But again, in this current environment right now, where it’s so difficult to hire and retain staff, having automation gives you some security and peace of mind knowing that your company’s process will continue to run.
Terrell Turner:
Yeah. I mean, I definitely think that when it comes down to, you know, any process that you have, you know, or let me say any step that you have developed clear processes around, and you’ve actually tested your processes like you’ve looked at it from different scenarios. Well, what if this factor changes, does the process still hold? And I think that’s where using outsourced talent is you can test your processes like, Hey, based on the process we designed was the outsourcing team able to handle it. And I think once you get clarity that, Hey, we have a really good process that is flexible enough to accommodate, you know, the typical or the expected type of scenarios. And that can also handle some one off scenarios. I think then you kind of have a little bit more confidence that, Hey, now that we know the process, now we can actually work with someone or some company or some software to actually automate this because we know the different factors that need to be programmed into the automation. And so I think by using an outsource team to test the reliability and test the durability of your process, then I think you can probably look at some automation. Because one of the things that I have seen from, you know, some, some large companies that I’ve worked with where they tried to go directly into automation before they had a reliable and a consistent process. And what they found is every time a factor changed, they were trying to reprogram the automation tools. And that just defeats the purpose of having automation is if you have to reprogram it every two months, I mean, the the benefit you get from automation is that as you start to add new clients, you don’t have to reprogram it. You can scale a lot faster, but I think that first starts with really making sure that you have a reliable process and then working with a reliable tool that can accommodate that process. So you can scale and really bypass. Like I said, some of those headaches you would have is if you had to hire a new team, every time you got to a critical mass and you had to go through and train that person. But if you are using an automated tool, typically an automated tool can adjust with the push of a couple buttons.
Madhurima Gupta:
As we approach the end of the session, now I wanted to get your parting thoughts or tips for hyper-growth ready CFO offices that are in dilemma of choosing automation versus outsourcing of their accounts receivable. So what would both of your advice? Terrell, would you like to go first?
Terrell Turner:
One of the things that I would say is during the phase of hypergrowth, there are gonna be so many things that are changing and the goal is not so much just to focus on, Hey, how do we get the work done? But I think it’s really, how do we create the systems and the processes that will then those systems and processes will get the work done. So even for myself, as I’m using outsourcing talent and different functions within my own business, my goal isn’t, Hey, let me give it to them and they’ll have it forever. It’s Hey, let me give it to them, leverage them to help create a good process. And then how do we find an automated tool to do what they’re doing? Because then it frees their time up for me to give them the next thing that needs to be, you know, systematized. And once that does have a good system, then it can go into an automation tool. And it just becomes this ongoing cycle of, Hey, leveraging the outsourcing or leveraging my internal team of how do we build a system around it, and then pass that system onto an automated tool. Because as you’re navigating growth, there are gonna be so many things that keep changing. But if your outsourcing team is solely dedicated to doing this one process, the next change that your business goes through, you’re gonna have to try to train a new outsourcing team, or you’re gonna have to go find an additional outsourcing team. And eventually, it’s not gonna make financial sense for your business. So I would say, look at it like a cycle of you’re on the front end, you’re dealing with a lot of the subjectivity, you get it to a clean enough process to hand it off to an outsourcing team. They can help perfect the system. And then you hand that to an automation tool. And then that way you have freed up their time to hand them the next project. And you just continue to keep that cycle going, which allows you to scale at a faster pace and a more efficient pace than you could imagine.
Madhurima Gupta:
How about you Rey?
Rey del Valle:
Three tips are, and then we just covered it a few moments ago is you really need to understand your business, understand how your business works, the relationships with your customers, the relationships with your vendors. And then once you understand how that works and how the pieces fit together, then make sure that, um, call it the plumbing of your systems works to accommodate your business so that how you do business is in sync with how your system will work, not vice versa. You don’t want to make your systems and processes dictate how you do business. You want to do business and then have everything work. So again, know your business, make sure that you bring in experts early that understand what it takes to, to be able to set up finance process for the company to scale. And thirdly, I would just say you know, know your limitations and then know when you should bring people in to help.
Madhurima Gupta:
Thank you so much for joining the CFO Circle Live today. And I hope that this made for an interesting conversation for you as well. And you’ll be able to decide between outsourcing your processes, especially AR processes versus ringing in solutions that’ll help you enable autonomous finance for your organization. Stay tuned, we’ll be back with more.