Three-Step Guide For CPG A/R Executives Striving For Cash Excellence

What you’ll learn

  • Understand The Concept of Cash Excellence and How You as an Enterprise CPG A/R executive must think about it
  • Know how A/R teams can emerge as a strategic business partner achieving cash excellence using three actionable steps
  • Learn more about automation use cases that would help A/R leaders build a culture focused on cash excellence

The impact of the COVID crisis varied from one industry segment to another. The consumer goods industry, in general, was affected too, though the actual impact varied based on the nature of a business (essential vs. non-essential goods), its scale of operation (regional vs. global), and the preparedness to handle a crisis.  

Very few businesses were actually prepared to tackle a crisis, such as COVID. For most companies, 2020 was about survival and not growth. CFOs and finance leaders in such companies immediately focused on optimizing costs aggressively, cutting budgets, and putting caps on planned investments. Managing spending became an important focus, wherein business leaders were unwilling to let go of cash unless absolutely necessary. This short-term focus was described through a “cash preservation” strategy.

Fifteen months in, the situation has improved significantly. This is the time for business leaders to restrategize and correct some of their decisions from the last year. 2021 is the year of transition. According to Deloitte, companies with fresh ideas in 2021 will be rewriting the rules of their industry. 

In such times, HighRadius’s recommendation for the office of the CFO is to let go of cash preservation strategies and focus instead on achieving cash excellence.  

Cash excellence refers to a long-term culture shift that enables proactive liquidity and cash management.

To better understand cash preservation and cash excellence, think of these concepts in terms of your finances. For example, cash preservation would mean simply keeping all the money you earn in a bank, whereas cash excellence would involve strategically investing the money for long-term returns. The shift to cash excellence is an ideological change. A conceptual change, if you may, not a physical one. 

HighRadius analyzed this concept of cash excellence from a CPG perspective to determine how A/R departments could contribute to this vision at an organizational level. Based on our interactions with George Uko, A/R manager at Staples, we concluded that the A/R departments of today need to take three steps to help the larger finance function be more strategic.

Step 1: Leverage automation to free up the mental bandwidth of the analysts

According to Deloitte, one of the most discussed topics coming out of the pandemic is digital acceleration, with leaders expecting a continued increase in digital engagements through 2021. According to George, automation is the key to eliminating repetitive, manual tasks with less business value. For example, by bringing in technology to run transactional processes like backup document aggregation for deductions resolution, and remittance capture for cash application, you would be able to free up the ‘mental’ bandwidth of your analysts for value-added tasks and strategic thought. 

At Staples, for instance, the A/R department moved to automated collection correspondences from manual mail, which gave the collectors more time to build meaningful relationships with clients and hence get more payment commitments

Step 2: Use data to make strategic and well-informed business decisions

The next step towards a more strategic A/R department is to leverage available data for business decision-making. The A/R departments of today are uniquely placed such that they have customer data at their fingertips. This data could be from internal and external systems and include historical payment records, data from credit agencies, public financial statements, etc.

A/R executives must leverage this data to make well-informed decisions relating to credit, collections, and deductions resolution. Some of the examples shared by George on how CPG organizations could leverage customer data are: rely on the unique positioning of their department that delivers a 360-degree view of data-rich customer profiles for strategic decision making. With this data, teams can:

  • Use credit information to segment customers into different risk categories- low-risk, medium-risk, and high-risk
  • Create targeted collection strategies for customers in different risk categories to maximize past-due recovery
  • Decide which orders to keep on hold and which to release based on the historical payment behaviour of a client
  • Predict whether a dispute is valid or invalid based on the account’s deductions history

See More: AI-powered deductions validity prediction for CPG companies.

Step 3: Collaborate with other departments for long-term organizational growth

While collaboration is the key to resolve most customer conflicts and receive cash faster, it is also true that collaboration becomes more and more challenging as the size of a company grows. Enterprise CPG companies with a global supply chain and A/R operations based in multiple geographies need to find a way to collaborate to minimize duplication of efforts when working with the same customer and resolve downstream process gaps for improved productivity.

A great example shared by another one of our CPG customers goes as follows: As the deductions team, while you can always work towards resolving a deduction, what you can also do is collaborate with the logistics and shipment teams to understand why the deductions are occurring in the first place, and eliminate the root cause.

Through collaboration, you can play a crucial role in driving faster inventory to cash conversion. For example, one way to drive purchases of overstocked inventory is for the A/R teams to collaborate with the sales department for collections outreach. In short, collaboration is the key for A/R departments to contribute to revenue growth and improve customer experience. These are critical to a culture of cash excellence, which is the ultimate goal you should be working towards customer experience.

See more: Connect credit, billing & invoicing, cash application, deductions, and collections into a single business process using Integrated Receivables: a one-stop-shop for 360 views of all your A/R functions. 

In conclusion, CFOs today are prioritizing cash excellence for better liquidity management, budget planning, and spend management. The important thing to understand, however, is that cash excellence is not a change that will happen overnight, it is a long-term culture shift that every department working under the CFO (including the A/R department) needs to inculcate. 

The way to do so for A/R practitioners is to leverage automation for clerical tasks, make data-driven decisions, and collaborate with partner functions to deliver more value to the customer. By making these changes, A/R leaders would be able to make a significant contribution towards the CFOs vision of cash excellence and hence be able to elevate themselves to a more strategic position within the business.

See how A/R teams at Staples increased collections productivity and efficiency and reduced bad debt by 20% with HighRadius.

There’s no time like the present

Get a Demo of Integrated Receivables Platform for Your Business

Request a Demo

Request Demo Character Man

HighRadius Integrated Receivables Software Platform is the world’s only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It 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 and 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. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway – covering the entire gamut of credit-to-cash.