Optimizing A/R performance: Both Sides of the Coin

4 April, 2018
5 min read
Brett Johnson, AVP, Global Enablement
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What you'll learn

  • Learn how to optimize the A/R reporting cycle through the right technology and out-of-the-box Reporting Dashboard.
  • Gain insights from reporting and analytics and leverage them to make proactive decisions in long-term areas of improvement.
  • Ensure Executive Visibility into top metrics including trends in DSO, bad-debt, past-due A/R, A/R processing cost, and DDO.
The Vicious Cycle of  Manual A/R Reporting
A/R reporting: A Finance Executive’s Perspective
A/R Reporting: A Functional Manager’s Perspective
Optimizing the A/R reporting cycle with the right technology
In Conclusion
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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 ability to leverage data and analytics is necessary to optimize credit and A/R processes. It is also what separates strategic finance leaders from execution-focused credit professionals. 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 having a vicious cycle of manual A/R reporting. These reports fail to meet the expectations of two distinct consumers who have different perspectives while information needs to be relative to drive actions that optimize A/R performance.

The Vicious Cycle of  Manual A/R Reporting

Most companies’ credit reporting goes through a manual cycle of getting multiple inputs from different teams, data extraction by analysts, and importing into spreadsheets, ERPs, etc. It is inefficient, inflexible to generate customized reports as per the different demands of the leadership roles.

The traditional cycle of A/R reporting

Challenges in Manual reporting

Let us first understand and explore the primary pain point in the Manual/Traditional reporting cycle. At the start of the process, the analyst has to extract the necessary data, manually build the report and send the report to the managers and executive. The four major challenges for companies that are still following outdated manual reporting are outlined below.

  • No Real-Time Information–There are multiple versions/sources of truth
  • A Resource and Time-Intensive Process– Reports need to be built manually in spreadsheets and/or BI tools
  • Data Overload with a High Scope of Error– Too much data without enough control over the quality and dissemination of data
  • A Lack of Drill Down Capability Based on Requirements– Quite a bit of back and forth for report consumers to extract value from standard reports

Understanding and meeting the expectations of report consumers are much more critical. There are two key groups of report consumers – finance executives and functional managers.

Finance Executives (CFO, VP of Credit, VP of Finance, etc.)

People who drive long-term strategy that has a direct impact on the financial well-being of the company. Every decision cascades into improving free cash flows for the organization.

Functional Managers

People who are responsible for the seamless functioning of each process Let’s take a closer look at the two consumers of the dashboard.

A/R reporting: A Finance Executive’s Perspective

A well-designed dashboard is the most efficient method of reporting for finance executives. An effective order-to-cash dashboard must offer a single-window view of key accounts receivable processes and visuals that enable executives to monitor the overall effectiveness and cost of A/R operations. They should also be able to identify A/R trends that show how metrics and processes have improved or degraded over 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 varies with every executive, but a four-panel view is a decent starting point.

The Four Panel Finance Executive A/R Dashboard

A/R reporting cycle according to a finance executive's perspective

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 monthly trend of Days Deduction Outstanding (DDO) and Open Deductions by Aging Buckets. Days Deduction Outstanding shows how effectively a company manages its deductions, whereas open Deductions by Aging Buckets show how fast the deductions team has been able to close open deductions based on distinct aging buckets.

The traditional 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.

A/R Reporting: A Functional Manager’s Perspective

An efficient managerial dashboard must perform three functions:

  • A process health indicator
  • Individual analyst productivity indicator
  • The deliverance of customer-level insights

A process health indicator answers the question “How well is the process performing?” by enabling functional managers to monitor key process results and quickly spot trends in-process metrics, allowing them to make course corrections that increase performance. A process health indicator for collections, credit, deductions, and payment processing would be beneficial to functional managers. A four-panel dashboard of process health indicators is depicted below.

A/R reporting cycle according to a process owner's perspective

An analyst’s productivity indicator answers the question “How well are analysts performing?” It enables a functional manager to keep track of each analyst’s performance, spot areas for improvement, and recognize and appreciate the 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 is depicted below.

An Analyst Productivity Indicator showing the performance

Metrics designed to deliver customer-level insights answer the question “Which customer needs more attention?” Examining trends in the top 10 delinquent customers, top 10 customers by average deduction resolution time, top 10 deduction reason codes, and the adoption rate of payments through a portal provides functional managers with information to help them enhance customer relationship management and A/R performance.

Customer risk level identification

A four-panel dashboard of these customer-level insights is depicted below.

A four-panel dashboard customer-level insights

Now that we’ve discussed how to meet the expectations of major A/R report consumers, financial executives, and functional managers, we’ll look at how technology might help break the traditional reporting cycle.

Optimizing the A/R reporting cycle with the right technology

The right technology will transform the legacy reporting cycle into one that optimizes A/R performance.

A/R reporting cycle by using the right technology

In Conclusion

A/R reporting, if done right can have a meaningful impact on accounts receivable performance. However, most companies are stuck in the traditional reporting cycle with inefficient processes, wrong reporting tools, and an inability to meet the expectations of the consumers of these reports. With the right technology in combination with an understanding of the expectations of A/R reports, consumers can empower companies to deliver A/R reports that optimize O2C  performance.

Watch this session by Elaine Nowak, Director of Product Management and Marketing, HighRadius, and gain more insights on how to create A/R dashboards and optimize A/R performance.

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