The ability to leverage data and analytics is essential for efficient and scalable credit and A/R processes. It is also what separates execution-focused credit professionals from strategic finance leaders. For many companies, there is no shortage of data within credit and A/R processes. However, most fall short in unlocking the strategic value of this data by falling into a vicious cycle of reporting that fails to meet the expectations of two distinct consumers of reports who have different perspectives and information needs relative to driving actions that optimize A/R performance.
This blog will focus on how companies can meet the reporting expectations of finance executives and functional managers by delivering dashboards that allow each A/R reporting consumer group to maximize their impact on A/R performance.
The current state of the union for most companies relative to credit reporting is being in a vicious cycle that breeds inefficiency, does not meet the needs of report consumers, and fails to have a meaningful impact on accounts receivable performance. The vicious reporting cycle most companies experience is represented in figure 1. below:
The challenges faced for companies caught in the vicious reporting cycle include:
Leveraging the right technology to develop and deliver reports is key to breaking the vicious reporting cycle, but it is even more important to understand and meet the expectations of report consumers. There are two key groups of report consumers finance executives and functional managers.
The most efficient form of reporting for finance executives is a dashboard done right. An effective order-to-cash dashboard in our case offers a single-window view of key accounts receivable processes and visuals that allow executives to monitor the overall effectiveness and cost of A/R operations and spot A/R trends showing how the metrics/ processes have improved or degraded over the course of time. An example of such a dashboard includes graphs of the monthly trend of Days Sales Outstanding (DSO), the yearly trend cost of A/R operations, the monthly trend of bad-debt write-off, and the monthly trend of cash projections. The amount of information an executive can and wants to consume in one view depends on the executive, but I would propose that a four-panel view as I described, and that is illustrated in Figure 2., below offers a good baseline.
A few other key metrics that finance executives may want to add to the aforementioned dashboard view (or replace a panel or panels with) are a monthly trend of Days Deduction Outstanding (DDO) and Open Deductions by Aging Buckets. Days Deduction Outstanding illustrates how well or how poorly a company is managing its deductions while Open Deductions by Aging Buckets effectively summarizes how fast or slowly the deductions team has been able to close the open deductions based on different aging buckets.
A/R reporting done right can have a meaningful impact on accounts receivable performance. However, most companies are stuck in the vicious reporting cycle with inefficient processes, the wrong reporting tools, and an inability to meet the expectations of the consumers of these reports. The vicious cycle of reporting must be broken, but meeting the expectations of report consumers is just as important as the effective dissemination of accurate and timely information.
There are three essential functions for an effective managerial dashboard: a process health indicator, individual analyst productivity indicator, and the deliverance of customer-level insights.
A process health indicator answers the question “How well is the process performing?” by allowing functional managers to monitor key process results and easily spot trends in the process metrics to drive course corrections that improve performance. Functional managers would do well to have an interest in a process health indicator for collections, credit, deductions, and payment processing. A four-panel dashboard of process health indicators for these four processes is depicted below in Figure 2.
An analyst’s productivity indicator answers the question “How well are analysts performing?” It allows a functional manger to monitor the performance of each analyst, identify opportunities for improvement, and identify opportunities to reward exceptional performance. Functional managers would do well to have an interest in analyst’s productivity indicators for collections, credit, deductions, and payments processing analysts. A four-panel dashboard of analyst’s productivity indicators for these four types of analysts is depicted below in Figure 3.
Metrics designed to deliver customer level insights answer the question “Which customer needs more attention?” Examining trends relative to top 10 delinquent customers, top 10 customers by average resolution time for deductions, top 10 reason codes for deductions, and the adoption rate of payments through a portal offer functional managers information to improve customer relationship management and A/R performance. A four-panel dashboard of these four types of customer-level insights is depicted below in Figure 4.
Now that insights have been offered relative to how to meet the expectations of key A/R report consumers, financial executives (Part I of blog series), and functional managers, we turn to the role of technology in breaking the vicious reporting cycle. The right technology will transform the vicious reporting cycle into one that helps optimize A/R performance as illustrated in Figure 5 below.
A/R reporting done right can have a meaningful impact on accounts receivable performance. However, most companies are stuck in the vicious reporting cycle with inefficient processes, the wrong reporting tools, and an inability to meet the expectations of the consumers of these reports. The right technology in conjunction with an understanding of the expectations of A/R report consumers can empower companies to deliver A/R reporting that optimizes A/R performance.
If you want to learn more about how to create A/R dashboards that drive accounts receivable performance I invite you to read the e-Book The Perfect A/R Dashboard: 5 Reporting Dashboards Fundamental for Every Credit and A/R Leader and view the webinar recording 20 Must-Have KPIs: Creating a Perfect Dashboard that Evaluates A/R Performance.
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.