To meet CFOs’ agenda of improving working capital and cash flow, A/R leaders across industries are mitigating credit risk exposure 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 ensure you are not giving them too big a window to pay for goods and services. This may negatively impact your own company’s cash flow. A/R leaders should review credit terms with CFO & finance controllers to ensure the level of credit offered to debtors is appropriate to meet the company’s cash flow needs.”
When it comes to optimizing working capital and safeguarding cash flow, A/R leaders must work with their teams to:
A/R leaders must eliminate manual and paper-intensive processes and aim to keep up with their A/P counterparts, who heavily operate on automated systems.
When asked about business challenges faced during the pandemic, an A/R executive from a leading FMCG company had this to share:
“Our cash application was highly manual, and we allocated a majority of the resources to this team to achieve the SLAs 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.”
Today, A/R managers need to devise strategies to reduce the company’s operating costs. Some of the top ways to make this happen are:
Many people have considered the A/R department to operate as a transactional, back-office function. But the evolving business climate has made CFOs realize the true potential of A/R. As a result, A/R teams are now expected to rise from the low-impact tasks and get involved in more high-impact strategic tasks that help create an actual dollar-value impact.
For example, credit executives today require more in-depth visibility into day-to-day finance operations and customizable reports with a 360-degree view of their credit risk performance and assure this department’s true potential to the CFOs.
In one of our discussions, an A/R Controller at a global beverage company cited:
“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 the customers’ past behavior patterns to make strategic decisions around risk segmentation and blocked orders. Some of the more effective ways to do that are:
Most A/R teams in the CPG industry have to deal with dissatisfied customers because they don’t have customer experience as one of their KPIs. Hence, they usually deprioritize it, leading to an extended Turn-Around Time (TAT) in resolving deductions.
A Deductions Manager at a global FMCG company recounts this story about deductions customer portals:
“We built a deductions customer portal and were planning to go live with it 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 the post.
They didn’t want to make customers uncomfortable and expected the adoption to be only 20%. Once the pandemic hit, it became challenging since none of the customers across regions could 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 only that, but it gives a single view and status of the deductions to all A/R team members and customers; a truly exceptional experience in years.”
Finance executives are looking towards A/R teams to retain their customers in this turbulent economic period. A/R leaders should work with their teams to:
The next few years will be significant for consumer goods companies to develop a best-in-class A/R function. To strive with the changing business dynamics, A/R executives must constantly remind themselves of the top priorities identified in this blog and develop their technology stack. It is high time that A/R teams shift their bandwidth from working on transactional operations and create a real dollar-value impact in the CFO’s office.
Learn how automation makes post-crisis deductions management easier for your team from a seasoned A/R practitioner who shares her first-hand experience transforming the finance function in a leading CPG company.
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.