A/R Leader’s Guide to Tackling Four CPG-Based: Collection Challenges to Improve DSO

Challenge #1: Handling Global but Disparate Collections System

Some CPG companies operate on shared service models and have their business units spread out globally; most of these models have a decentralized system for collections operations. With their A/R teams spending most of their time in cash processing, dispute identification, and resolution, there is not enough emphasis on the collections process.

Danone S.A. is a multinational food-products corporation based in Paris with roots in Barcelona, Spain, and the United States. Dedicated to bringing healthy food to as many people as possible, Danone is a leading global food & beverage company built on four businesses: Essential Dairy and Plant-based products, waters, early life nutrition and medical nutrition.

Danone’s biggest challenge was the lack of visibility into the collections process. This prevented them from focusing on more strategic tasks like creating targeted dunning strategies for different risk categories (high, medium, and low-risk). Delays in collections affected their overall cash flow and working capital.

Best practices for A/R leaders:

• A/R leaders must work with their teams in tandem to harmonize global processes with a centralized system that shares information across the team in real-time.
• This would enable their teams to course-correct their dunning strategies proactively and reduce Days Sales Outstanding (DSO).

Challenge #2: Limited Control on Outsourced Accounts

A/R teams in most CPG companies rely on third-party vendors, outsourcing their collections and other A/R operations to optimize their operational costs. This leads to limitations such as restricted access to and control of critical customer accounts. Additionally, the lack of transparency over the performance metrics of outsourced collections teams leads to process inconsistencies and complications for internal A/R teams.

Keurig Dr Pepper relied on such third-party vendors, outsourcing their collections to control costs. Their A/R team did not have any visibility on high-priority accounts, and they could not discontinue their services due to contractual obligations. Only after insourcing collections and leveraging technology was the team able to streamline their A/R operations and achieve end-to-end process visibility.

Best practices for A/R leaders:

• A/R leaders must leverage AI, and automate and gain control of restricted data. This can be achieved with technology that performs data-based customer prioritization and creates reports and dashboards that are easier to access.
• A/R leaders must upskill their teams to provide them with a better understanding of standard industry dunning practices so they can resolve and address disputes quicker

Challenge #3: Limited Number of Resources who Manage a Large Volume of Receivables

Most CPG companies have to work with a limited number of resources to take care of a large volume of receivables.
The Staples A/R team encountered the same problem. Their team had seven collectors managing 900-1000 accounts individually, with aging buckets up to 1000 days. It did not help that their collectors had to gather information from across 20 different customer portals. This led to manual errors in the process, a lack of visibility across critical accounts, and little to no transparency on the outsourcing team’s performance.

Best practices for A/R leaders:

• A/R leaders must leverage technology that prioritizes consolidated work lists providing centralized access to data for their teams.
• These work-lists are essential for the intelligent gathering of data and task prioritization.
• The technology must monitor payment commitments and automate reminder calls, reminder e-mails, and blocked orders.

Challenge #4: Inability to Take Real-Time Action Due to Siloed Collections Operations

CPG companies have a diverse volume of customers and operate across several business units globally. A/R teams in such organizations require high collaborative efficiency between different departments. However, with siloed systems, collection teams fail to take real-time actions on critical accounts.

There was no real-time update on when a customer’s payment comes in and gets applied, leading to instances where the collections team follows up with a customer who has already paid. The result is both a waste of the analyst’s bandwidth and a poor customer experience.

With siloed systems, Ferrero’s A/R team was failing to address critical accounts. There was also a lack of inter-team visibility regarding customer communication.

Best practices for A/R leaders:
A/R leaders must leverage technology that would enable their teams to:

• Automate correspondences and follow-ups for collections.
• Deploy different rules to put orders on hold for customers belonging to different risk segments.
• Identify whether deductions made by customers are valid
• Allow for real-time payments with no lag.

Conclusion

Safeguarding cash flow is on every CFO and finance leader’s plan for 2022. To comply with this, A/R leaders need to work with their teams to improve collections operational efficiency and devise targeted strategies that help them collect faster and improve DSO.

A/R leaders must adopt the cash excellence strategy to achieve the finance executive’s goals and elevate the A/R function to a strategic role that creates a real dollar impact. HighRadius recently interacted with Geroge Uko, Credit and Collections Manager at Staples Promotional Products. George shared his journey to building a cash culture that elevated his A/R team in the CFO’s office. Discover his story below.