2020 was an extremely difficult year for the consumer goods industry. In the early months of the pandemic, major CPG companies saw a steep rise in demand owing to global lockdowns and the general public’s tendency to stock products in the face of uncertainty. Most of these companies could not keep up with this rise in demand and ended up with cleaned-out inventories. Remember the time when there was no toilet paper or sanitizers available in your nearest Walmart? Yeah, we are talking about that time.
As per a study: in these early months of the pandemic, the average sales volume spiked up to 10-20% across businesses, in contrast to the modest 1.8% in the previous years.
Now that we are in 2021, however, things are different. But are they really “good” different? With the world, a little bit more in order than it was amidst the chaos of 2020, most CPG organizations today are experiencing a decline in demand. While this is bad news for everyone, HighRadius spoke with A/R practitioners at 20+ leading CPG companies to dive deep into what this means for their department. Should they shift their focus to a certain task? Or should they explore different sales channels? Read on to learn more about our findings.
With continued loss of business, the Accounts Receivable (A/R) departments are facing increased pressure from executives to optimize working capital and collect past-due receivables. Increased awareness of potential roadblocks towards attaining these goals and conscious, proactive action is the only way ahead for the A/ R leaders today.
In summary, we understood that 2021 might be a more difficult year for CPG A/R practitioners than even 2020. Below are a few key concerns that our practitioners spoke about which brought us to this conclusion:
As a result of panic buying, companies dealing in essential goods such as sanitizers, toilet papers, packaged food, and office equipment experienced a tremendous surge in demand in the first few months of 2020. As inventories started cleaning up, many of these organizations put a lot of money into producing a high volume of products to keep up with the market. This continued until the last months of 2020 in a few cases.
Now, in 2021 however, consumers are more rational while shopping and panic-buying are not as prevalent. This means that CPG companies are expecting a decline in demand and sales for goods they invested a lot of money in producing.
The decline in demand would negatively impact the company’s revenue. As a means to make up for this loss, A/R departments will face high pressure from executives to collect past-due receivables, prevent revenue leakage via deductions and maintain a steady cash flow.
In order to collect receivables effectively, A/R leaders will not only have to drive better visibility to identify in real-time where receivables are stuck, but they will also have to figure out the appropriate technology and automation for tactical A/R tasks so that larger mindshare of the A/R team can be deployed towards collections. Practitioners also need to come up with a solid strategy to tackle the ever high volume of deductions in the CPG industry to minimize revenue loss.
Since March 2020, uncertainty has become the new normal. One would expect that with a year and a half into the crisis, things would be looking better by now. But according to experts, that is far from the truth. While it is true that in some areas, companies have adapted well to disruption (such as remote working), there are other areas where things are still not looking up. The challenge is more evident in global businesses, who have different business units impacted to varying degrees and recovering at different speeds.
For example, while businesses that were regional to US (production and supply were all in the same country) had a good Q1 in 2021, many CPG organizations which had raw materials being sourced from eastern countries, or had shared service centers there were negatively impacted due to the second wave of the pandemic wreaking havoc in this part of the world in the first few months of 2021. Recovery all through 2021 would continue to occur at varying speeds, and disruption irregularities would exist at least for the remaining half of this year.
The ability to forecast the future using the available customer and payments data becomes the greatest asset for organizations in an era of uncertainty. A/R teams today must be able to predict the impact of disrupting market trends on the overall business and make strategic recommendations to partner finance and non-finance functions to help the company emerge successful by the end of 2021.
A/R departments should frequently track information such as the following: Are more and more companies becoming delinquent? Are we getting paid in time? What line of business is most of our revenue coming from? What line of goods/products is completely out of demand? By getting a hold of this information, A/R can help partner teams such as sales, treasury and customer success to proactively take action, pivot strategies, and minimize loss to business despite disrupted supply chain and market conditions.
Also Read: Real-time credit risk monitoring by HighRadius allows credit departments to get real-time updates on the customer credit information.
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