Four critical priorities for A/R leaders from the consumer goods industry to keep in mind in 2021, summarized from HighRadius’ conversation
with 20+ A/R global executives from major CPG companies across the globe.
For Consumer Packaged Goods (CPG) Companies, the next few years will be very different than usual. Economic conditions are still uncertain and global supply chains continue to remain disrupted. CPG companies are expecting volatility in customer demand this year. To better prepare themselves for this situation, executives across organizations today expect their departments to do more with less. Revenue leaders are under a lot of pressure to build a strong pipeline and convert inventory to cash faster.
But it is finance and A/R executives that need to worry about bringing in the money already owed to the company, that too at significantly lower operating costs.
To do so, A/R Leaders must choose their priorities for 2021 and lay the foundation for sustainable and scalable order to cash operations that can serve global customers and partners.
Outlined below are four critical priorities for CPG A/R leaders in 2021, identified according to HighRadius’ conversation with 20+ A/R global executives from companies across consumer goods, food & beverage, footwear & apparel, consumer products and agricultural products:
Fluctuating economic conditions and high pressure on margins are the CFO’s main reasons of concern regarding the business’s financial health today. Since March 2020, more CFOs are tasking their A/R departments to improve working capital and cash flow by minimizing risk and maximizing past-due collections.
One of the interviewees, the VP of credit at a leading manufacturer of branded chocolate and confectionery products, stated: “The best way to ensure you have enough working capital available is to make sure your cash is coming in on time. To reduce bad debts, you should implement more rigorous credit checks and ensure that effective credit control procedures are in place for chasing late-paying customers. Reassessing your contracts and credit terms with trade debtors at more frequent intervals is necessary to make sure you are not giving them too big a window to pay for goods and services which may negatively impact your own company’s cash flow. A/R leaders should review credit terms with CFO & finance controllers to ensure that the level of credit offered to debtors is appropriate to meet the company’s cash flow needs.”
A/R leaders need to make well-informed credit decisions, fast-track collections and drive electronic adoption for invoices and payments to receive cash in real-time. Additionally, they also need to set up faster and more accurate deductions resolution processes to prevent revenue leakage. Finally, they must ensure real-time visibility into business value metrics for all departments.
Controlling operating costs is not just a target for A/R leaders today but a directive from the CFO and the leadership. To do more with less, CPG A/R departments need to build a process model and optimize the resource mix so it’s efficient and effective.
One of the A/R Leaders (from a leading global FMCG company) we interviewed shared the challenges faced by his A/R teams before and during the pandemic. Their cash application process was manual and leaders allocated a majority of their resources to this department to achieve the SLA’s for same-day cash application. The onset of the pandemic led to the reallocation of these resources to the collections process for expanding outreach to all customers. Despite that, incremental delinquencies led to increased pending task lists for collectors with no time to strategize. There was a spiral effect on the credit process, requiring further reallocation of resources. The performance of resources was already down owing to the work pressure and the highly manual nature of the work. Changing business priorities only added fuel to the fire.
A/R managers today need to devise strategies to achieve the desired objective while significantly reducing operating costs. Some of the top ways to make this happen would be to ensure effective utilization of resources through the automation of repetitive, labor-intensive processes. Another way could be to use electronic platforms to minimize paper and printing costs. It will improve the processes and contribute to margins, which is the need of the hour.
The A/R department is in a unique position where it enjoys a 360-degree view of the customer at all times. They are the ones to keep customers accountable to pay on time and thus drive the company’s cash flow. In 2021, the third key priority for A/R executives would be to ensure that CFOs are aware of this department’s true potential, which has traditionally been seen as a back-office function.
One of the interviewees, the A/R Controller at a global beverage company, recounts: “As soon as the pandemic hit us, the CFO and I became presenters in many of our board meetings. Other functions understood that they could not operate without cash. For the first time in my fifteen years of experience I saw them interested in the A/R business metrics and scorecard. All business leaders wanted to understand the impact of the situation and know how well we were strategizing to maximize collections, perform more credit reviews, and recover invalid deductions. Reporting was focused on high-value and high-risk accounts, their past dues, and balances. They wanted the data from us cutting across business categories and they also wanted to understand what the data meant.”
A/R leaders today should focus on converting raw data about customer’s financial health and past behavior patterns to make strategic decisions around risk segmentation, collection strategies, and order holds. They should also build relevant reports for the C-suite and partner functions like sales to enable visibility into self-financial health across the organization. Today’s credit department can help sales build a strong pipeline by sharing data with them about prospects with robust financial health. This way they can contribute directly to the company’s revenue.
Customer satisfaction is not usually a top priority for finance and A/R teams. It is a general assumption that front-office functions like marketing and sales should be drivers of good customer experience. However, finance and A/R teams should also strive to build a good customer experience given how closely they work with clients on credit, collections, and the deductions front.
Another interviewee (Deductions Manager at a global FMCG company) recounts: “We built a deductions customer portal and were planning to go live in Jan’20, but the Go-Live didn’t happen. The Business development managers (BDM) felt customers were not ready to go digital and would want to continue with the traditional ways of submitting backup data for claims through post. They didn’t want to make customers uncomfortable and expected the adoption to be only 20%. Once the pandemic hit it became very challenging, with none of the customers across regions able to send backup documents, leading to zero claims processing. Thankfully the portal was still available to deploy, and we made a quick decision to go live. It changed the ways of working for all of us in the deductions team and our customers. The adaptability rate stood at 90% in no less than six weeks of going live, and today the majority of customers submit claims only through this portal. Not just that, but it gives a single view and status of the deductions to all the A/R team members and customers, a truly exceptional experience in years.”
A/R departments today should think about enabling an anytime-anywhere digital experience for their customers. It will contribute to the company’s competitive advancement and pave the path to becoming a strategic business contributor.
Like we said before, the next few years are going to be different for consumer goods companies. To emerge triumphant in the new economy it is imperative that A/R executives continuously remind themselves of the top priorities identified above and take strategic actions to achieve the desired goals.
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.