With the transition from responding to the impact of changing business dynamics to recovering from it, A/R executives from consumer packaged goods (CPG) will have to manage several priorities simultaneously. These priorities include tracking evolving consumer preferences, identifying micro pockets of growth to prioritize in future plans, modifying dunning strategies, and, most importantly, cutting operational costs.
Three Major Aspects Why Cost Consideration is Important for CPG Companies
1. The Continuously Fluctuating Economy: CFOs today are looking towards the A/R function to safeguard cash flow and optimize working capital. Lowering the operating costs is one of the critical ways A/R leaders can show their commitment to this vision of their CFOs.
2. Global Competitive Advancement: The CPG industry is highly competitive, and enterprise organizations worldwide are continuously trying to attract and retain more customers to thrive in such a turbulent economic climate. But providing the best services often means higher costs for suppliers. So the next decade’s best CPG company won’t be the one to provide just the best customer experience – it would be the one that knows how to balance meeting consumer demands while making improvements in cash flow.
3. The Finance Department’s Position within the Organization: The finance department (including the A/R function) has emerged as a true game-changer for CEOs and boards of directors over the past couple of years. A/R leaders today have a golden opportunity to evolve the perception of their teams as a back-office, dial-for-dollar function to being one that can drive significant working capital impact in the CFO’s office.
Where are Consumer Goods A/R Departments Losing Money Today?
- Large Workforce to Supervise Vast Volumes of Receivables: CPG A/R departments generate a high volume of invoices and receive deduction claims in almost the same proportion. To fast track the resolution, A/R executives rely on adding more resources to the team, but most of their bandwidth is spent working on low-impact tasks like manually aggregating relevant backup documentation. This restricts them from focusing on more strategic tasks like performing root-cause analysis for deductions.
- Integrating With External Groups to Get the Correct Data: A/R teams work with multiple external agencies to access data and perform actions. 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 A/R team. Additionally, credit agencies charge a significant amount for access to customer credit data. Such fees amount to a considerable percentage of the A/R department’s operational costs.
Leveraging A/R Automation to Achieve Costs Reduction
Automation enables A/R leaders to significantly reduce costs, especially across the four key areas mentioned below. Today, these areas constitute more than half of the A/R department’s operating expenditure. Let us take a look how:
- Enables Effective Headcount Utilization: By deploying an automation solution, A/R departments can eliminate manual processes and allow 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.
- Reduces 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 teams to provide exceptional customer experience without a significant increase in associated costs.
- Eliminates the Cost of Paper-Based processes: By enabling the electronic delivery of invoices and e-payment options, A/R leaders can eliminate the high paper and printing-based costs. They can also eliminate the additional float period.
- Reduces 100% of Banking Costs: Automation of processes like cash application enables the team to capture and process remittances automatically. With all the data in their hand, the team can simply allocate their time to exception handling. This eliminates the need for a lockbox and a keying-in fee.
