In 2020, we observed how the pandemic impacted the cash flow of most mid-sized companies resulting in an increased Days Sales Outstanding
. Let’s take a look at the challenges faced by mid-sized companies concerning the maintenance and management of cash
1. Lack of Access to Real-Time Data:
The increase in the volume of invoices and rise in the dataset of customers makes it difficult to keep track of payments, customer history, and back-up documentation. Moreover, the lack of access to real-time data makes it difficult for teams to process receivables effectively and on time.
2. Paper-Based Invoicing:
Companies that follow the traditional route of paper-based invoicing often find it difficult to keep a track of invoice delivery. Not only do these cost more, they are also error-prone and time-consuming and increase the overall time-to-cash.
3. Lack of Access to Digital Payment Formats:
Many companies still rely on checks and cash as a mode of payment for their accounts receivables and payables. The major drawback of this payment format
is the processing time and overhead costs associated with it. As payments take longer to reflect in the open AR, there is an increase in DSO which affects the cash flow.
4. Absence of Customer Segmentation:
One of the most crucial tasks in order-to-cash processes is segmenting customers according to priority. In the absence of proper customer segmentation, companies find themselves rummaging through a large pool of mixed client details. This often leads to a delay while finding differentiators between higher and lower priority customers.
5. Manual Correspondence Systems:
Companies often face the challenge of manually sending correspondences to the customers which requires a lot of time and effort on the analysts’ end. With an increase in the volume of customers, it becomes tedious to keep track of all the accounts.
6. Lack of Proper Dispute Management:
Companies often face a huge loss in cash flow, because of the delay in payment processing and lack of access to real-time data. Dispute identification, in general, takes a lot of time for companies who keep a paper trail for all the transaction-related documents such as invoice, remittance information, PODs, etc. This leads to a longer resolution and recovery timeline and negatively affects the customer relationship.
7. Lack of Standardization:
A collection of ambiguous data often leads to redundancy and errors. Different sources and formats of invoices and remittances makes payment reconciliation
8. Mishandling the Credit Requirements:
In the absence of an effective credit management system, it is hard to track credit data of existing customers and also hampers new customer on-boarding. This may lead to an increase in bad-debt while impacting a company’s credit score and profitability.