23 Key Order To Cash Metrics Every GPO Must Track To Improve Working Capital
How does this ebook help me?
These KPIs highlighting the strategic impact, individual performance, and process health metrics will allow shared services leaders to evaluate their receivables performance and identify the next steps to achieve a best-in-class order to cash function in the industry.
In any rapidly unfolding situation, it would be an understatement to say that decision-making is challenging. Traditional KPIs, as lagging indicators, are inadequate. – McKinsey Insights
Key Takeaways
Discover how GBS and SSC leaders are evolving beyond their traditional roles to drive significant value in the office of the CFO.
Gain insights into metrics critical to revenue, employee productivity and overall A/R performance for better decision-making.
Learn how to achieve 360-degree visibility across global processes to optimize working capital.
Stay on top of the receivables' health using the KPIs checklist provided at the end of this e-Book.
Over the past several years, organizations are making steady progress toward increasing Global Business Services (GBS) and Shared Services Center (SSC) maturity as well as driving benefits beyond just cost savings – supported by investments in automation.
Only 21% are seeing benefits organizational flexibility and scale, compare with 62% in reduced operating costs
Source: The Rise of Strategic Shared Services, PA Consulting
As GBS/SSCs adopt a target-operated model and evolve into a strategic partner to sales, Supply Chain Management (SCM), finance, and the entire continuum, the role of a Global Process Owner (GPO) also needs to evolve from driving transactional activities to driving value. This is especially true when leading a dynamic and challenging function like Order to Cash (O2C), which presents diversity in customer behavior, geographies, and business units.
Today, forward-thinking GPOs are creating impact and generating value by intelligently tracking key KPIs, which is critical to successfully delivering on process excellence goals and the strategic objectives of a shared services center.
To facilitate this transformation of a GPO’s role from a Process Manager to a Strategic Leader, this ebook lists helpful KPIs and classifies each metric into the following categories:
Chapter
01
Strategic Metrics
01. Process Cost Per Invoice
STRATEGIC METRIC
Definition:
An indication of the overall process cost of the entire Order to Cash cycle, i.e., from generating customer invoices to delivering them.
WHY MEASURE IT ?
Process Cost per Invoice has a direct impact on the bottom line. Businesses can minimize this cost by:
Improving productivity across O2C
Collecting on time
Reducing deductions through discipline in upstream processes
Reducing write-offs and tolerances
Keeping track of the overall cost of the process
02. Unbilled Revenue
STRATEGIC METRIC
Definition:
Unbilled receivables, also called “accrued receivables,” are products and services delivered for which invoices have not been generated.
WHY MEASURE IT ?
When dealing with project-based businesses, unbilled revenue has a key role in working capital management. Keeping close tabs on the contracts that govern accrued receivables ensures that the invoices are sent on time and that the revenue is realized as quickly as possible.
03. Days Sales Outstanding (DSO)
STRATEGIC METRIC
Definition:
DSO represents the value of receivables outstanding or waiting to be collected from customers, expressed in the equivalent number of days of revenue.
WHY MEASURE IT ?
This metric is an accurate indicator of the current performance of the accounts receivable department.A lower DSO indicates that a company has a stringent credit policy, which may hamper sales performance. A higher DSO is an indication of inefficiency in the analysis of applicants for open accounts.A healthy DSO is no more than 5-10 days longer than weighted average payment terms. Another way to determine if a DSO is healthy is to benchmark against DSO numbers of companies in the same industry.
04. Top-Five Reasons for Deductions/Chargebacks
STRATEGIC METRIC
Definition:
A report that generates the most frequently occurring disputes.
WHY MEASURE IT ?
The dispute team could refer to this report and take corrective action by drilling down into the source of the disputes and preventing them from happening in the future. Some examples include creating sales orders with the wrong pricing details or finding that a particular carrier delivers damaged goods more frequently than others.
05. Bad Debt Write Off %
STRATEGIC METRIC
Definition:
This metric keeps track of the bad debts that are a result of uncollectibles.
WHY MEASURE IT ?
While maintaining a healthy bad-debt reserve is a best practice, keeping closetabs on the bad-debt write-offs figure is vital, as the company needs to sell more orders (depending on the gross margin) to make up for the loss in uncollected revenue.
06. Monetary Value of Dispute Cases
STRATEGIC METRIC
Definition:
The disputed value of the dispute case that the customer has specified.
WHY MEASURE IT ?
This metric is valuable because it gives a number on the value of deductions that an organization is processing. In conjunction with the next metric, which is ‘as a % of A/R,’ this metric will be particularly useful in estimating revenue leakages and understanding the cost of doing business in terms of allowances for deductions.
07. Total Dollar of Disputes as a Percentage of Total A/R
STRATEGIC METRIC
Definition:
This metric evaluates the dollar value of all disputes raised as the percentage of total A/R.
WHY MEASURE IT ?
This metric is helpful for identifying process gaps and failures, which can be benchmarked against companies in the same industry – either as a % of total A/R or as a % of total sales.
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.
