Insights from the SSON Report: State of Order to Cash in Shared Services
O2C processes operating on traditional outsourcing models work as separate entities and rarely communicate with each other, creating process silos. Additionally, conventional outsourcing models work with inflexible Standard Operating Procedures (SOPs), which cannot keep up with the evolving customer payment trends. These factors can negatively impact the working capital and critical O2C metrics like DSO and DDO.
Today, GBS leaders are observing a delayed cash conversion cycle and loss in working capital, with 2/3rd of survey respondents claiming they witnessed an increase in DSO by 30%.
While DSO had been steadily improving between 2019-2020, this trend reversed in 2021 with the pandemic. For context, 29% of receivables took 60-120 days to convert in 2019, while in 2020, this number hit 18%. As a result, GBS leaders saw only 24% of receivables converted within 60-120 days in 2021, resulting in a sharp decline in working capital for GBS organizations.
In a similar trend, 74% of survey respondents confirmed increased DDO, with almost a third of respondents confirming a 30% growth in DDO over the past two years.
The concerning growth in DSO and DDO indicates the presence of process gaps across the core O2C processes like deductions, invoicing, and collections. These inconsistencies primarily result from A/R teams working in silos across traditional outsourcing models, which cannot leverage technology to upgrade the efficiency of these O2C processes.
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:
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.
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.
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.
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:
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.
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.
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.