The Hackett Group: 15 Recommended Metrics to Evaluate Order To Cash Processes

The Hackett Value Grid:World-Class Finance Performance on an Empirical Level

Comparing your organization to peer group and world-class organizations

The Hackett value grid shows how your baseline performance compares to your peer group and world-class performers.

World-class performance is defined as the top quartile performance in operational efficiency and effectiveness process metrics.

What is World-Class?

What does it look like, and how is it different?

EFFICIENY
World-Class organizations are more efficient, by having:

• Lower total costs
• Faster cycle time
• Higher Productivity

EFFECTIVENESS

World-Class organizations are more effective, by having:

• Accurate decision making
• Better alignment to business
• Optimized working capital

Monitoring performance helps organizations identify process issues before they become a significant problem that affects business outcomes

The Hackett Group has identified the top 15 success metrics and benchmarked them against world-class companies based on the processes’ efficiency and effectiveness. In this eBook, we delve deeper into how the best-in-class organizations compare with the rest in the O2C cycle.

2.1. Credit Management

1. Average Days It Takes to Complete New Credit Reviews

Efficiency Metric

World-class organizations are 33% faster in onboarding customers.

Best Practices from World-Class Organizations:

• Implementation of best-of breed online credit application
• Automated  correspondence for missing information such as bank/trade references, backups
• Providing real-time tracking of application status

Benefits:

• Improve customer experience with greater visibility
• Reduced manual errors

2. Automated Versus Manual Credit Modelling Tools

Efficiency Metric

World-class organizations have faster Improved productivity to work on high value customers and more accurate credit operations with the help of sophisticated, automated and dynamic credit modeling tools.

Best Practices from World-Class Organizations:

• Automated stakeholder correspondence for all credit decisions
• Integrating with country-specific and industry specific credit agencies, public financials and Insurance bureaus
• Automated capture of the fields from  the credit application form

Benefits:

• Standardize credit operation across various platforms
• Improved productivity to work on high value customers

2.2. Billing and Invoicing

3. Percentage of Invoices Generated & Distributed Electronically

Efficiency Metric

World-class organizations reflect lower billing process costs by 8% in comparison to the overall database.

Best Practices from World-Class Organizations:

• Adopt automated e-invoicing portal
• Deliver invoice according to customer preferred channel such as portal and e-mail
• Track conversion of customers from paper to   e-invoice

Benefits:

• Self-service customer portal saves print+ mail costs
• Eliminate low-value tasks in billing and invoicing such as dealing with paper, doing back-and-forth

4. Average Time It Takes to Bill

Efficiency Metric

World-Class organizations have been able reduce their average time to bill by 33% thus improving their cash inflow.

Best Practices from World-Class Organizations:

• Self-service customer portal for viewing invoices
• Using a single portal which includes all relevant backup documents such as PODs, BOls
• Streamlined collaboration between internal teams

Benefits:

• Lower payment cycles
• Improved customer experience

5. Percentage of Invoices Corrected for Billing Errors

Efficiency Metric

World-class organizations reduced billing errors by 1.8% by automating their billing and invoicing

Best Practices from World-Class Organizations:

• Automated invoice generation from ERP open invoices
• Inbuilt correspondence templates and packages with auto-attached documents

Benefits:

• Lower deductions
• Faster collections
• Better customer experience

6. Percentage of Customers Who Access Accounts via Web-based Application

Efficiency Metric

Automated billing and invoicing helps top performers to reduce billing errors and create an exceptional customer experience

Best Practices from World-Class Organizations:

• Invoicing customers electronically via email, portals
• Allowing customers to pay in electronic payment formats ACH, Credit cards and e-Checks through payment portal
• Offering incentives to customers to bring them onto Web-based portals

Benefits:

• Faster payments
• Improve E-adoption
• Better customer experience

2.3. Cash Application

 7. Process Cost per Customer Remittance

Efficiency Metric

Best Practices from World-Class Organizations:

• Standardized processing for different e-remittance types
• Automated aggregation of remittances from portals,e-mails and EDI

Benefits:

• Easy e-adoption in payments
• Lower cost in process payments

8. Automatic Remittance Posting Matching Rate

Efficiency Metric

World-class organizations have twice the percent of hands-free cash posting with lower process costs

Best Practices from World-Class Organizations:

• Template-agnostic remittance capture
• Aggregating the remittances from multiple sources( mails, EDI, web-portals)
• AI enabled payment matching & exception handling

Benefits:

• Reallocate users
• Reduced costs

2.4. Deductions Management

9. Average Dispute Resolution Cycle Time

Efficiency Metric

Top performers have established a dispute resolution process that requires less escalation and speeds time to dispute closure

Best Practices from World-Class Organizations:

• Identifying deductions at Cash Application
• A single repository for all the backup documents such as notes, claims across internal and external teams
• Track deductions aging

Benefits:

• Improved recovery of invalid deductions
• Better adherence to big box retailers such as Walmart

10. Percentage of Disputes that are not Resolved by the Initial Resolver & Needs to be Escalated Within the Management Team

Efficiency Metric

World-class organizations established a More bandwidth to work on invalid deductions dispute resolution process that reduced escalation by 5% (half).

Best Practices from World-Class Organizations:

• Providing visibility into resolution status and progress of the dispute
• Seamless collaboration between internal teams
• Easing the research process by having all the documents at one single place

Benefits:

• Lowers DDO
• More bandwidth to work on invalid deductions

2.5. Collections Management

11. Process Cost per Collection Contact

Efficiency Metric

World-class organizations have established automated collection process that enables lowered process costs by 66%.

Best Practices from World-Class Organizations:

• Providing a prioritized worklist for collectors
• Adopting automatic correspondence approach versus dial for dollar approach
• Having single source of truth across various platform to access backup documents such as invoices copies, claims documents

Benefits:

• Design scalable collections operation
• Facilitates reaching out to a broader customer base

12. Collection Contacts per FTE

Efficiency Metric

World-class organizations have established proactive and strategic collections process that enables 30% more contacts per FTE

Best Practices from World-Class Organizations:

• Inbuilt correspondence templates and packages with auto-attached back-up documents to save time
• Sending pro-active reminder to customer prior to the payment due date
• Automated correspondence to different customer buckets

Benefits:

• Restricting phone calls to only select high-risk customers
• Reduce aging/ past dues

13. Average Days Delinquent

Efficiency Metric

World-Class organizations leverage smart automation and create direct bottom-line impact by improving metrics such as ADD

Best Practices from World-Class Organizations:

• Sending automated proactive reminders before payment due date
• Predict when the customer is about to pay using Artificial Intelligence
• Provide customers with self-service portal for viewing invoices and making payments

Benefits:

• Improve working capital
• Reduce dependence on banks for short-term banking

14. Percentage of Credit Sales Collected within Terms

Efficiency Metric

World-class organizations leverage smart automation to improve process effectiveness by 12%

Best Practices from World-Class Organizations:

• Provide incentives for early payments
• Enable payment features such as auto-pay, schedule pay

Benefits:

• Improve Days Sales Outstanding
• Minimize missed payments

2.6. Order-to-Cash

15. Process Cost as Percent of Revenue

Efficiency Metric

World-class organizations are able to reduce process cost by 56% in total by leveraging automation technologies.

Best Practices from World-Class Organizations:

• Ensure high employee productivity by eliminating manual error prone tasks
• E-adoption from paper
• Keep a track on high-risk customers to ensure there is minimal bad-debt and write-off

Benefits:

• Improved working capital and cash flow
• Easier cash management

What Drives World-Class A/R Performance?

What should your digital transformation initiative focus on?

We have gone past the point where there is a debate over whether or not businesses should undergo digital transformation. It is now a matter of experiencing the temporary disruption caused by the transformation process or suffering disruption from your competitors’ digital initiatives.
To start with the digital transformation journey, finance execs should consider heavy investment in the following areas:

Automation of clerical repetitive tasks across C2C
Core automation means that costs are low, and effort is allocated to the right tasks

A single, integrated platform
More effective in delivering services to internal and external stakeholders

AI-driven automation technology
Low-error rates in tasks

Integrated reporting and analytics
Better decision making and insights

Using big data and machine learning
Improved outcomes of A/R actions – meaning faster, more effective collections

Digital transformation can play a major role in helping peer-group organizations catch up to their world-class competitors. However, the reality is that the definition of world-class will continue to evolve as leading financial operations deploy smart technologies to transform themselves.

Thus, the quest for achieving world-class status never ends. Its future will require continuous improvement of cost structure, effectiveness, and stakeholders’ perceptions of how finance adds value to its performance.

HighRadius is a Fintech enterprise Software-as-a-Service (SaaS) company that leverages Artificial Intelligence-based Autonomous Systems to help companies automate Accounts Receivable and Treasury processes. The HighRadius® Integrated Receivables platform reduces cycle times in your order-to-cash process by automating receivables and payments processes across credit, electronic billing and payment processing, cash application, deductions, and collections.