Traditional Outsourcing Model is Dying – Three Reasons Why GBS Leaders Need to Adopt Captive Centers

With the increased pressure on profit margins from the CFOs, GBS and Shared Services leaders are shifting the Order to Cash processes away from traditional outsourced processes to move ahead of transactional operations that lack predictive insights. Consequently, these factors result in rising Operating Expenses (OPEX) and a reduction in team efficiency across the different O2C processes:

Invoicing and Payments

According to the survey respondents, 43% of payments came through ACH & Wire transfers, while nearly 30% of payments still came through checks. This trend highlights that digital payment channels are still lagging in customer adoption and are incurring high costs in terms of bank lockbox and processing fees.

Cash Application

For cash application, missing remittances have been a significant challenge – nearly half (47%) of respondents had received between 50% to 69% of payments with missing remittance information.

These remittance irregularities require the cash application function to allocate most of its FTE bandwidth to aggregate the missing information from internal (sales, credit teams) and external sources (customers, banks), which further contribute to the rising OPEX.

Collections

GBS and Shared Services leaders have started doubling down on collection efforts to meet the CFO’s objective of safeguarding cash flow. But that ended up negatively impacting the collector-to-customer account ratio for most businesses.

The collector-to-customer account ratio denotes the number of customer accounts every collector has to deal with daily. The survey showed that 45% of the collections teams in GBS organizations fall in the 1:20 collector-to-customer account ratio.

The lack of automation and analytical insights into the customers’ risk class meant that the collectors could not prioritize their worklist effectively and spent more time on low-priority accounts, resulting in even slower receivables conversion.

Deductions

In the survey, nearly 65% of respondents stated that more than half (50%-90%) of their deductions/disputes require manual identification of deduction reason codes. This process also requires them to manually match each claim to the correct deduction, which can be highly labor-intensive and prone to human errors.

The commitment of an additional workforce to the manual identification process can result in a delayed resolution process while driving up the OPEX of the O2C function. In addition, the lack of predictive capabilities of technology to identify the dispute validity contributes to the delayed resolution of disputes, resulting in the growth of KPIs like DDO.

Unlike centralized captive centers, traditional outsourcing models fail to leverage internal collaboration. This lack of internal collaboration created by disconnected O2C processes leads to extended resolution time for the customer’s requests like credit limit upgrades. Consequently, the inefficiencies of these functions create a poor customer experience in the following ways:

Increase in customer onboarding time

The onboarding time for new customers has seen a downward trend due to a lack of a single-point user interface for customers to interact. This has led to delays and inaccuracies within the team in aggregating customer information, negatively impacting the customer experience.

This downward trend can be evident in how most survey respondents (46%) stated that onboarding a new customer takes 7 to 10 working days, while only a third of respondents can onboard new customers in 2 to 6 working days.

Blocked order resolution

The disruption of communication channels and a lack of access to the latest customer credit data has prolonged the process of blocked order resolution for businesses worldwide. 47% of the survey respondents confirmed that they require more than a few hours – and up to two days – to resolve a blocked order, with 26% taking anywhere from 2 to 5 working days to resolve blocked orders.

Rising costs, inefficient working capital management, and low levels of customer satisfaction are some significant challenges making GBS and Shared Services leaders shift their O2C processes from outsourcing to captive centers. However, migrating SSOs to a captive operational model goes beyond implementing a software solution for each O2C process – each process needs to collaborate internally to maximize efficiency.

This blog elaborates on why 60% of GBS leaders claim they see a lot of value in integrated O2C solutions. Leaders must focus on creating an integrated O2C process that accommodates all the functions on a single platform to create a standardized and agile global Shared Services process.