2020 presented consumer packaged goods (CPG) companies with both incredible challenges and unforeseen fortunes. Mass disruptions in supply chains meant inventory was delayed, or in some instances, completely unobtainable. Conversely, the tremendous uptick in consumer buying as people hoarded essentials led to average growth rates between 10% to nearly 20% for large, medium, and small businesses. This contrasted vastly with CAGRs that hovered around 1.8% in previous years.
Accounts receivable departments were pressed hard as they scrambled to keep up. Suddenly faced with a barrage of disruptions from all sides, they were confronted with finding solutions to handle an increased workload, a heightened demand for performance from CFOs, reliance on remote teams, and customers who were less likely to satisfy their days payable outstanding. Moreover, with the low to almost no visibility into customer’s creditworthiness and a striking surge in deductions, the AR teams had reduced control over the evolving situation.
2021 presents a host of new challenges as consumer buying begins to slow due to inflation and less panic buying. Additionally, there continues to be fallout from 2020 as CPG companies that could not weather the economic downturn enter bankruptcy. In response, AR departments will be pushed to increase working capital, implement efficiencies in the order-to-cash process, and focus on improving customer relationships.
In a recent panel discussion, AR executives from two leading CPG companies discussed how they pivoted to cope with the COVID-19 crisis. The lessons they learned continue to prove viable as they tackle new issues presented by 2021. Below are some highlighted strategies that other CPG AR departments can learn from.
Accounts receivable is a critical business function that is too often siloed off from other departments. While other areas of an enterprise, such as sales and marketing, are given heightened visibility, the work AR fulfills plays a vital role in allowing a company to afford to continue to operate.
The events of 2020 highlighted the need to secure working capital. Companies with healthy cash on hand were in a better position to survive a crisis, take advantage of the weaknesses of their competitors, and position themselves for recovery and growth. Savvy CFOs recognized AR’s importance in capturing working capital and formulated strategies that centered this department’s operations as the key to staving off economic collapse.
As the pressure to hold on to cash mounted across business verticals, buyers were employing various strategies to bolster working capital. Some of these strategies included extending DPO and exploiting various deductions. As the frontline defense to such tactics, an organization’s AR team was in the best position to proactively address these exploits and inform C-Suite of their impact.
Going forward, savvy CFOs with an eye on building cash excellence within their organization will continue to position AR as not just a function within their business but a principal partner in achieving that goal.
To thrive in the new economy, companies will have to focus on finding opportunities for improvement in their current O2C operations. Enterprise O2C is notoriously complex and multifaceted, often making it a less than desirable prospect for transformation. However, when organizations commit to building greater efficiency into their O2C processes, they’re in an improved position to capture more revenue faster. Below are some suggested best practices.
Embracing digital transformation. Digitization of operations is no longer optional. As customers employ more sophisticated tools to retain cash on hand, AR and other departments must rise to meet the challenge in equal measure. In a best-case scenario, artificial intelligence and other cognitive technologies are deployed to assist your human workforce and automate tasks to capture improved efficiency.
Some examples of where digitization makes a significant impact include: deployment of automated dunning practices, personalization of customer touchpoints, digitization of manual paper processes, intelligent automation of operations, and acceptance of digital payments. It’s important to note that 84% of digital transformation projects fail. With this in mind, it’s incumbent upon a savvy CFO to follow a well-appointed digitization plan.
Improving communication between teams. In a crisis, poor communication between teams and departments could literally translate into lost revue and the breakdown of operations. As mentioned earlier, silos are a persistent problem among enterprises. To defeat this issue, implement a culture of information sharing. As an example, having your AR team regularly communicating with your sales and credit team can bring clarity to which customer deductions are valid and which warrant greater scrutiny.
Capture better data. Big data has become a critical deciding factor between which enterprises remain competitive and which find themselves outmanoeuvred and irrelevant. Every world-class CPG company depends on real-time data to capture an overview of the health of their O2C process, predict customer changes in demand and behaviour, and make improvements to operations. To get the most out of internal and external data, an organization should employ a robust data management platform that unifies all data points within your company.
When a customer is forced to decide between which bills to pay, they will inevitably prioritize the easiest DPOs first. World-class enterprises understand that prioritizing the customer relationship is key to survival and growth. Look for any friction in your O2C process from a customer’s lens. Remove and improve anything that makes it harder for a customer to pay. This can be as simple as providing a secure digital payment link with every invoice or using personalization at any contact point where your customers interface with your company. Treat your customers as partners and put effort into understanding their unique needs and objectives so that your organization is in a better position to serve them.
As CPG enterprises evolve to meet the seismic economic changes that began in 2020, AR departments will continue to face some rough roads ahead. Implementing the best practices of other companies that are winning in the consumer goods space can help your organization leap over obstacles and land where it needs to be to thrive and grow in 2021 and beyond.
If you’re looking to position your AR team for excellence, contact one of our experts today to see how we can help!
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.