How Consumer Goods Companies Reduce A/R Operational Costs With Automation

What you’ll learn

  • Know why cost consideration is important for consumer goods A/R executives
  • Identify the four key areas where consumer goods A/R departments are losing money today
  • Learn how investing in A/R automation can help you achieve cost reduction

For Consumer Goods companies, especially those dealing in essential goods, 2020 was not the worst year. The panic buying nature of the consumers, coupled with the uncertainty of when things would go back to normal, led to a massive spike in demand for consumer packaged goods. But 2021 will be different. As more and more consumers have become used to the new way of life, and with the slowdown of the economy, consumer goods companies will witness a decline in demand. To make up for this decline and the higher time it is taking for customers to convert inventory to cash and make payments, finance leaders will push their departments to reduce operating costs and drive efficiency at a bigger scale.

Why is the Cost Consideration Important for Consumer Goods (CPG) A/R Executives?

In addition to the fact that CFOs would expect the A/R leaders to bring down the costs and maximize collections to make up for any loss in business, below are other reasons why A/R executives at consumer goods companies must think about optimizing costs of operations:

  • The Continuously Fluctuating Economy: Given its global nature, COVID impacted supply chains and consumer behavior all over the world in varying degrees. The pace at which most countries are reeling with the impact of the pandemic is quite different too. These factors make it difficult to predict when the global economy would go back to its pre-pandemic normal, but it is doubtful that it would happen over the next few months. CFOs want to increase the inflow and reduce the outflow of cash in such an atmosphere of uncertainty. By lowering costs, finance departments (including A/R) can show their commitment to this vision of their CFO.
  • Global Competitive Advancement: The Consumer Goods Industry is highly competitive, and enterprise CPG organizations worldwide are continuously trying to attract and retain more customers. It is not unknown that providing the best services often means higher costs for suppliers. But industry leaders who want to achieve best-in-class don’t compare their services/products against the competition like an apples-to-apples comparison. The cost of processes is an essential factor while doing this benchmarking. The next decade’s best CPG company won’t be the one to provide just the best customer experience; it would provide desired consumer experience at a relatively lower cost and at a global scale.
  • The Finance Department’s Position within the Organization: In the past few months, the finance department has emerged as a true game-changer for the CEOs and the board of directors. They have the most understanding of how a company is doing compared to the market and control the levers to make the organization perform better. Therefore, finance leaders (including the A/R executives) have a personal drive to maintain this strategic position within the organization. By reducing their operating costs and delivering the same value to the business, A/R leaders can permanently change the business stakeholders’ perception regarding finance being a back-office function to being a direct driver of working capital and cash flow improvement.

Where are Consumer Goods A/R Departments Losing Money Today?

  • Large workforce to look after the vast volume of receivables: Consumer goods A/R departments generate a high volume of invoices and receive deductions in almost the same proportion. To minimize lag, A/R executives rely on employing too many people to look after receivables management, resulting in many FTEs spending unproductive hours on a task as repetitive as cash application and collections. This way, most CPG A/R departments are not utilizing their resources judiciously, causing an increase in their operational expenditure.
  • Paper, Print, and delivery: Consumer goods companies with paper-based processes spend a ton of money on printing, packing, and mailing invoices. While these costs look trivial on the surface, HighRadius had received confirmation from one of our leading CPG customers, an apparel and footwear brand, that they spent $250,000 a year on paper before they started leveraging our cloud solutions.
  • Delivering top-notch customer service: Customer satisfaction is one of the top priorities for finance executives. While traditionally, the A/R departments are not always customer-centric, there has been a shift in recent years. A/R executives have accepted spending more time on training their customer-facing analysts to enable a better experience. From enabling 24/7 support for the customers to employing more people on the team to resolve customer issues faster, the receivables department has been incurring additional costs to prioritize customer satisfaction.
  • Integrating with external groups to gain access to the correct data and take action: The A/R department seldom operates independently. In addition to many internal stakeholders, they work with outside groups to access data and perform an action. The most common external stakeholders are banks that charge a lockbox fee and a keying-in fee to capture and process remittances on behalf of the CPG company. Additionally, credit agencies charge a significant amount to provide access to data required for making credit decisions. These two sums amount to a considerable percentage of the A/R department’s operational costs, which they can eliminate with ease.

Introducing A/R Automation To Achieve Costs Reduction

Automation enables significant cost reduction, especially across the four key areas mentioned above, which constitute more than half of the A/R department’s operating expenditure today. Let us take a look how:

  • Automation enables effective headcount utilization with the elimination of non-productive tasks: By deploying an automation solution, A/R departments can eliminate all the repetitive, manual processes, thus allowing the team to focus on more strategic job responsibilities. Processes such as cash application can be automated by as much as 95%, requiring significantly less manual intervention. A/R executives can move the headcount allocated to these departments to a more strategic role that requires the human touch, such as collections. Automation also ensures that the A/R department does not need to grow as the scale of business increases. Thus, automation helps prevent operating expenditure from skyrocketing in the long run.
  • Real-time electronic data sharing eliminates the cost associated with paper-based processes: By enabling electronic delivery of invoices and e-payment options, A/R leaders can significantly eliminate paper and printing costs. Not just that, they can also eliminate the additional float period (time taken for invoices to reach the customer, and the payment to reach the supplier). The price of enabling such a portal is significantly lower than the average money spent on paper and printing, thus ensuring a high ROI  for the A/R department.
  • Automation helps reduce the “Cost-to-Serve” Customers:  By enabling a single platform of collaboration for all departments working on customer issues, automation makes it possible for A/R departments to provide exceptional customer service without a significant increase in associated costs. For enterprise organizations, working with customers across multiple geographies and business units, automation also enables a single view into the customer, thus ensuring that not more than one A/R analyst is required to work on the same customer. Therefore, technology makes it possible for CPG A/R leaders to deliver a better customer experience at lower costs.
  • With automation solutions of HighRadius, companies have eliminated 100% of their integration costs: The HighRadius cash application solution enables automated capture and processing of remittances. Customers can directly share their check remittances with the A/R department, which can read it with an OCR, thus eliminating the need for a lockbox and a keying-in fee. On the credit side, integrations with the credit agencies come as a part of the subscription to the HighRadius credit cloud, thus eliminating the need for an additional fee to access customer and prospect data.

HighRadius works with 9 out of 10 of the  World’s largest CPG companies. Our customers have reported significant improvement in their A/R efficiency and process effectiveness with cloud solutions deployment. Danone (a leading global food & beverage company) achieved a 75% reduction in costs with our cash application solution. If you are looking to make a similar impact within your organization, adopt an A/R automation solution. To know more, get on a call with our expert today.
To learn more about Danone’s cost optimization story with HighRadius,click here

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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.