Playbook for Order-to-Cash Management
in the New Economy


Order-to-Cash teams are long due for an upgrade!

To avoid irrelevance and to meet the expectations in the new economy, teams must embrace a ‘new playbook’ to bolster
their day-to-day operations.

Contents

Chapter 01

EXECUTIVE SUMMARY

Chapter 02

MAJOR TRENDS IN THE WORLD OF ORDER-TO-CASH

Chapter 03

WHAT HAS CHANGED IN THE NEW ECONOMY

Chapter 04

READY, SET, GO: NEW PLAYBOOK FOR BEST-IN-CLASS ORDER-TO-CASH PROCESS IN THE NEW ECONOMY

Chapter 05

MOVING BEYOND ERP TO THE CLOUD AND THE PLATFORM APPROACH

Chapter 06

FRAMEWORK FOR SUCCESSFUL ORDER-TO-CASH DIGITAL TRANSFORMATION

Chapter 07

CONCLUSION
Chapter 01

EXECUTIVE SUMMARY


The Order-to-Cash department has long played a crucial role in helping organizations maintain seamless business flow, avoid unnecessary risks, recover cash tied up in receivables quickly, and much more.

However, in the current economy, as corporations face increasing pressure to reduce costs, improve working capital, and critical metrics like DSO and bad debt, the Order-to-Cash department, like every aspect of the business, is under pressure to demonstrate increased value to the company’s bottom line. Order-to-Cash teams can no longer afford to only focus on preventing bad credit decisions or increasing collection efforts; finance executives also expect the Order-to-Cash department to strategize and contribute towards their company’s profitable growth.

Teams that realize the shift in the executive perception towards the Order-to-Cash function have the opportunity to command tremendous leadership respect by enabling the cautious and profitable growth of their organizations, even in a volatile economy.
To approach the Order-to-Cash process holistically in the new economy, businesses are now looking to implement various technology solutions in the market that can help overcome the process gaps, increase their teams” productivity, and improve key metrics like working capital DSO, and bad debt.

One emerging pattern in leading enterprise companies is connecting and bringing all their different Order-to-Cash processes – credit, collection, cash application, billing, and invoicing, on a single platform driven by robotic process automation and artificial intelligence.

In this whitepaper, we highlight the popular trends reshaping the world of Order-to-Cash in the new economy. We also discuss the renewed perception towards the Order-to-Cash department in the eyes of Finance executives and a new playbook that can help one beat market trends and establish a best-in-class order-to-cash management process.

EXECUTIVE SUMMARY

Chapter 02

MAJOR TRENDS IN THE WORLD OF ORDER-TO-CASH


KEY HIGHLIGHTS:

The unexpected economic downturn triggered due to the COVID-19 pandemic in 2020 exposed several weaknesses that have always existed in Order-to-Cash processes. Despite these weaknesses, Order-to-Cash teams worldwide put their best foot forward to continue their operations and maintain their KPIs and goals for the year.

We studied 200+ Order-to-Cash teams to understand how they responded in this situation and handled the crisis. Here were some key observations from our research on the biggest trends that influenced Order-to-Cash in 2021, strategies and solutions used by teams to combat these trends, and how they will continue affecting the Order-to-Cash departments in the present decade.

1.1 Biggest Trends in Credit Management

In 2020, credit teams became more vigilant as there was a need to analyze more information and tighten controls on extending credit limits. This is how teams responded:

Six-fold Increase in Frequency of Credit Limit and Risk Class Changes:Most credit departments responded by tightening control on extending credit limits and increasing the number of credit reviews they conduct each month. The number of credit limit changes made by a credit department in a month, on average, increased six-fold. These risk class changes were mostly in the same direction: the number of customers in the high-risk category increased by almost 4x in 2020.

Fivefold Increase in Number of Order Lockouts/Blocked Orders

  • In 2020, credit teams were being hyper-vigilant — scrutinizing every single order coming in to make sure only the least risky orders were released.
  • The number of orders being blocked on an average each month increased by 5x in 2020, when compared to 2019

Fivefold Increase in Number of Order Lockouts/Blocked Orders

Twofold Increase in the Frequency of Credit Reviews

  • In 2020, the number of credit reviews done by companies, on average, increased by 2x compared to the previous year.

Twofold Increase in the Frequency of Credit Reviews

Twofold Increase in the Need for Latest Credit Data

  • Data is ubiquitous in the modern world, and it’s a powerful asset for credit teams. In a risk-prone world, with changing customer financials and uncertainty, teams are forced to rely on credit and financial reports more than ever to ensure the right credit LIMITS always assigned to customers.
  • The number of credit reports pulled by organizations to review the creditworthiness of customers increased by 89% in 2020. Plus, the average number of financial reports pulled by credit teams has now increased by 4x.

Twofold Increase in the Need for Latest Credit Data

Twofold Increase in Due Diligence in Conducting Credit Reviews

  • The amount of time spent specifically on credit reviews for new customer accounts increased by 4x in 2020, and the time to review a blocked order increased by 35% during the same period.
  • A volatile economy has forced credit teams to spend more time than usual in thoroughly examining the latest financial hewidth=”600″ alth of their customers and updating their credit ratings, and this has given rise to a major challenge in finding a way to do this easily and consistently — ensuring this diligence is always performed.

Twofold Increase in Due Diligence in Conducting Credit Reviews

1.2 Biggest Trends in Collections Management

With a lot of executive focus coming in on “cash,” collection efforts became top priority across the finance department. Collectors and AR specialists tasked with collecting invoices saw the double pressure of balancing the customer relationships with the need to collect receivables as fast as they could. Here are some of the most interesting trends that we noticed:

7.1% Rise in the Average Days to Pay

  • While an increase in payment cycle time was anticipated, teams using an automated cloud based collection process exhibited a lower increase in payment cycle time in comparison to industry benchmarks. We expected this number to be much higher as a result of increasing payment terms and late payments but were pleasantly surprised to see it only at 7.1%.

15% decline in Customers Paying Monthly

  • In our experience working with over 200+ industry-leading companies, we’ve observed a common trend where companies rely on an 80-20 approach to collections activity. This means organizations are expending 80% effort collecting on the 20% most crucial accounts in their portfolio. This results in companies leaving a hefty amount of accounts receivable uncollected.
  • As a result of the pandemic, collections teams switched focus towards their most critical accounts (based on the customer’s credit limit, payment history, accounts receivable balance, reference checks, etc.) thus contributing to the drop in the number of customers paying.
  • Though this might have been acceptable in the short term, collection teams must prepare themselves to scale their operations and increase their collections customer portfolio coverage to 100% to survive in the new economy.

21.50% Decline in Payment Commitment Honoring

  • One of the most important metrics that helped us understand the contentious relationship that exists between AR departments and their AP counterparts was the number of payment commitments honored.
  • Many companies use payment commitments as input for their cash forecasting models. If these commitments are not honored, it has a substantial impact on their ability to forecast and manage working capital accurately.
  • Potential Causes for Payment Commitments Not Being Honored:
    • Collectors were under increased pressure to deliver and were capturing payment commitments even when they were not fully confident about those commitments being met by the buyers.
    • On the Accounts Payable side, a lot of buyers were unsure about their cash flow and were making payment commitments to maintain business continuity and definitely did not want their credit lines to get impacted.
    • Whether a buyer had the money to make a payment, or how high of a priority an AR supplier was to a buyer. If a supplier sells something non-essential, then a buyer can more easily opt to keep an invoice unpaid while continuing to pay more essential suppliers.
  • This is a clear call-to-action for a system that enables collectors to analyze the integrity of these payment commitments and truly understand the ability to pay of each customer — this is far more important than an actual payment commitment, which might not have any value.

Twofold Increase in Due Diligence in Conducting Credit Reviews

  • In response to market volatility, collections teams are getting more aggressive with their efforts to collect payments ASAP. The economic uncertainty has pushed collections teams to more aggressively focus on the 0-30 day aging buckets as compared to the 60+ day bucket, which used to be a typical priority.
  • This may work in the short-term; however, it’s not sustainable over the long-term for two reasons:

Twofold Increase in the Need for Latest Credit Data

1.3 Buyer AP Teams will keep on Pushing the Line of Scrimmage on Payment Terms

  • The global pandemic took a significant toll on business spend negatively affecting 60% of global counts payable by volume. In response, payment terms for large accounts were pushed from 30 days to 60 days and even 90 days.
  • The first response of the Accounts Payables team of any company in 2020 was to stretch the payment cycle and maximize working capital.
  • Below is an example from the food and consumer goods industry showing that DPO (Days Payable Outstanding) in Q1 2020 increased significantly from the previous year.

Buyer AP Teams will keep on Pushing the Line of Scrimmage on Payment Terms

1.4 Get Ready to Deal With More Customer Web Portals, Disputes & Deductions, and Longer Payment Terms

  • Your buyer’s AP department is looking to reduce the time spent on emails, telephone calls, and in-person transactions with their vendors/suppliers. As a result, there is an influx of automation solutions entering the market that not only helps buyers utilize their time more effectively but also increases their cash position by optimizing payment time.
  • What does this mean for you?
    • Customers of all shapes and sizes will migrate toward AP Portals, which will require you to upload payment information & invoices, fetch remittances, and spend more time tracking payment status.
    • A/P teams have become meticulous about reviewing invoice line items — and when in even small doubt they are quick to create a dispute to stall payments. As a result, AR departments must brace for an increasing volume of disputes and deductions.
    • Buyers are tightening their cash management with AI-assisted payment decision-making tools. These systems will study early payment discounts, stretch Days Payable Outstanding (DPO) and make a sum-total optimization of which invoices to pay on a particular day. Hence, you may need to re-evaluate early payment discount strategies

1.5 Existing Technology Was Unsupportive and Processes Had A Lot of Gaps

During our interviews with several Order-to-Cash teams, the most popular pain point shared was that their current processes had many gaps and their existing technology and systems were supportive in handling the challenges triggered by the crisis in 2020.

Siloed Structure of Working Teams

  • We were struggling most because of the broken flow of information between teams. As we already noted, a lot of orders were being blocked. But the information was not flowing in a timely manner to counterparts who were responsible to collect from the customer. This led to missed opportunities to make a sale in a time when business was already under so much topline stress. This is just one example — but this pandemic revealed all the gaps that exist in the flow of information across the A/R process from cash app to collections.

Siloed Structure of Working Teams-Quote

Inflexible Legacy Systems

  • The other challenge was that anytime during the last 12 months when AR leaders or teams tried to introduce technology they were faced with the challenge of integrating it seamlessly into their existing ERP landscape. The problem was even more accentuated for large enterprises that operate A/R through a complex combination of multiple ERP versions and instances across geographies.

The fragility of RPA systems and rule-based automation

  • The other trend that we noticed was that companies with heavy investments in RPA and rule-based automation for processes like remittance and payment capture faced a lot of issues. Since the automation relies on hard-coded sets of rules, the ever-changing scenario meant that those rules required 3 extremely frequent updates.

A recent Gartner report forecasts a 7% YoY growth in companies investing in enterprise technology and automation. However, for O2C the technology options need to deliver on creating a more integrated receivables process, ability to manage global A/R complexity as well as more robust automation through AI and ML and looking beyond RPA.

Chapter 03

WHAT HAS CHANGED IN THE NEW ECONOMY


2.1 Global, real-time credit risk data is the need of the hour

A fluctuating economy demands more credit data in real-time. The most common and immediate response in 2020 by credit teams has been the reassessment of customers’ creditworthiness.
The months of June-July 2020 saw a whopping 6x increase in the number of credit limit changes done on average by any company.

Global, real-time credit risk data is the need of the hour
Executives need to know which customers are likely to default on a daily basis, and the short-term solution used by most companies worldwide was simply to pull more financial and credit reports, analyze them, and conduct frequent credit reviews.
As a result, the number of credit reports pulled by an organization, to review the creditworthiness of a new/existing customer increased by 89% in 2020, compared to the same period in 2019.
This was a good approach for survival in the moment, but in the long run the need for more frequent credit reviews means an increase in cost, as credit reports need to be pulled from credit agencies like Experian, D&B, and Equifax.
What credit teams really need is a commercially viable solution to capture and analyze different risk indicators like credit agency data, news alerts, and payment behaviors. This way, they can monitor credit risk for every single buyer in real-time and proactively identify at-risk buyers, reassess creditworthiness, and reduce bad debt.

Global, real-time credit risk data is the need of the hour

Huntsman Corporation Improved Credit Operations for over 63,000 customers, worldwide

Huntsman Corporation Improved Credit Operations for over 63,000 customers, worldwideHuntsman Corporation, a publicly-traded global manufacturer and marketer of differentiated and specialty chemicals with revenues of approximately $6.8 billion, was facing many challenges with its credit management process.

 

Credit Management was one of the biggest challenges for the A/R department. With a heavy reliance on outdated paper credit applications that were faxed to the credit department, onboarding new customers or releasing blocked orders was a lengthy and tedious process. Credit reviews were performed with no scoring system in place.

To solve these problems, they used an automated cloud solution. It delivered the following:

  • Real-time centralized credit management in one place
  • Efficient workflows for automatic credit, group, and opportunity reviews
  • Seamless integration with external agencies with single click access along with a fully integrated scoring system
  • They were able to reduce the time taken to conduct each credit review by 96%.

2.2: Proactive approach to collections is required to win the game

A/R leaders are starting to embrace the reality that a new strategy is required to ensure they win in 2021. This will involve reducing the cash conversion cycle by collecting payments faster and more cost-effectively while also focusing on strengthening customer relationships.To accomplish this, collections teams must ensure that cash from a sale is received within its due date according to payment terms to maintain a healthy DSO (Days Sales Outstanding) and to meet a company’s obligations of safeguarding working capital.

Huntsman Corporation Improved Credit Operations for over 63,000 customers, worldwide

A Proactive Approach to Collections is Required to Win the Game.

Historically, collections teams have relied on a reactive dunning model. This meant waiting for customers to become past-due before signaling collectors to reach out to them. In the new economy, waiting for an invoice to go past-due before acting on it is akin to casually sipping water on the sidelines and only jumping into action after you see a runner back from the other team heading full-tilt for the 20-yard line.

Huntsman Corporation Improved Credit Operations for over 63,000 customers, worldwide

While a reactive dunning model may have been adequate in the old economy, current realities have rendered it high-risk if not totally obsolete. With more customers falling into delinquency, greater effort and cost is expended to capture overdue payments when the AR department doesn’t take timely preemptive action.
If an organization lacks advanced digital technology and an effective workforce to follow up with overdue customers, they end up defaulting to the 80/20 pattern of expanding 80% of their effort to collect on 20% of the highest value accounts. With cash-in-hand being so important, this is obviously not the most practical method to follow.

Huntsman Corporation Improved Credit Operations for over 63,000 customers, worldwide

World-class organizations have proactive collections teams that are embracing the advantages provided by Big Data, Machine Learning, and Artificial Intelligence. Utilizing these resources allows them to receive real-time risk signals from public financials, credit agencies, and customer payment patterns and to take preventative action to stave off a delinquency event.

Huntsman Corporation Improved Credit Operations for over 63,000 customers, worldwide

World-Class organizations deliver more effective receivable portfolio management

World-Class organizations deliver more effective receivable portfolio management

Switching to a modern proactive dunning model means taking full advantage of the power of digital technology. In the game of getting paid quickly and on time, using such technology is like receiving valuable silent hand signals from the head coach before your opponent makes a move. Instead of focusing on customers who are already behind on payments, proactive collections is all about having your collections team focus on customers who have a high probability of becoming delinquent and thus can work on changing the outcome.

2.3 Investing in Order-to-Cash technology will become imperative

Automation can deliver more than just cost savings

As companies struggle to find more cash, Accounts Receivables executives are under more pressure than ever before to find opportunities to reduce operating costs.

The Hackett Group Credit and Collections Performance Study (2019) clearly highlighted the advantages enjoyed by companies that had invested in automation. The study found that the top-performing teams held a strong lead over their peer group across most process metrics. For example, top-performing credit teams employed only one-third as many staff as the peer group and spent only half as much on the credit process as a percentage of credit sales. This was attributed in large part to the fact that top performers had automated 40% of their credit reviews, compared to only a 15% automation rate in the peer group, resulting in less need for manual intervention while increasing the completion rate for new credit reviews. Top performers’ billing process was also more automated, resulting in 75% fewer billing mistakes, so they had much lower dispute-resolution expenses and higher customer satisfaction.

Huntsman Corporation Improved Credit Operations for over 63,000 customers, worldwide

It is clear that automation not only results in freeing up cash by providing managers the ability to reallocate resources across the organization but also in improving process performance and saving time spent in remedial work such as reviewing billing disputes and cash application exceptions.

World-Class organizations deliver more effective receivable portfolio management
FIG.2 Accounts receivable KPIs
These differences in automation levels also reflect in the overall quality of the receivables portfolio. The same Hackett Group study further concluded that organizations that had invested in automation enjoyed dramatically lower average days delinquent (ADD), at 0.6 versus 8.0 days for the peer group. They also carried five times less bad debt as a percentage of credit sales. There’s even more bad news for the peer group: Top performers were able to reduce ADD and bad debt levels since 2017, while peers’ scores had worsened.

Automation in Order-to-Cash lags behind other enterprise finance functions

Accounts Receivable as a function has lagged behind automation and transformation when compared to other enterprise finance functions including accounts payable, FP&A and treasury. As an example, many organizations still have their AR specialists managing their collection portfolios with spreadsheet-based aging reports and decide whom to contact based on the largest aging amounts. Only one in five AR teams have some form of automation for the creation of a dispute case from an incoming short payment, and fewer than one-third have automated credit-risk scoring and modeling.

World-Class organizations deliver more effective receivable portfolio management

FIG.3 Extent of current automation, by activity

The focus is shifting from outsourcing AR to transforming it with technology

It is no surprise that Order-to-Cash and Accounts Receivable teams have not received a large focus during most digital transformation projects. The typical tendency has been to outsource O2C processes at the earliest possible instance and then enter a cycle of constantly renegotiating performance-linked contracts with BPM (Business Process Management) providers towards lower-cost targets.

However, the fallout from the COVID-19 situation revealed that while offshoring and outsourcing were useful ways to reduce costs, they didn’t necessarily translate into business results such as lower DSO, highly-regulated credit risk and overall customer experience. Pressure to quicken the cash conversion cycle has increased interest in cloud-based digital solutions that provide real-time monitoring/alerts of the total customer portfolio, accurate capturing of details from bad-check images and seamless collection of data from multiple sources. As conclusion, investing in function-specific technology solutions can deliver both efficiency (lower costs) and effectiveness (better business results) gains much faster than other approaches, such as building bolt-on solutions for the ERP system, or simply outsourcing the AR problem and hoping it will solve itself.

A Covid-19 Response Poll (April 2020) found that, despite the recession, almost all finance organizations are powering ahead with digital transformation initiatives already in flight, and some are even accelerating them. Even more encouraging, 64% are launching select new digital projects. It helps that 77% of CIOs responding to the poll reported they plan a moderate or significant increase in technology investment.

2.4 Leaders will need to focus on building a high-performance culture for better business outcomes

High-performance culture drives better business outcomes — this could be in the form of hitting annual sales targets for a business team, or keeping DSO under control for the A/R team.

How is a high-performance culture created?

Business is like a sport – and for a consistently high-performing team, the most essential components are the right players, the right playbooks and the right player analytics. Most companies spend a lot of time in their recruitment process to ensure that they are picking the right players. Then they spend a lot of time creating detailed SOPs and defining the guardrails for people to do the work. But what they miss out on is the importance of player analytics. Think about a football match with the coach giving real-time feedback to the Quarterback on the next play. Companies need to invest in systems that can provide real-time, actionable feedback to front-line staff and ensure that their daily work and decisions result in the right long-term business results.

This will require incorporating two levels of KPIs — leading indicators and lagging indicators.

World-Class organizations deliver more effective receivable portfolio management

Companies that can institute a system to deliver real-time info to managers and individual contributors on their leading indicators will be able to create more impact on the performance. Further, if a company can make these numbers available in a transparent manner across the board, then it drives the accountability, ownership and long-term high-performance culture.

Chapter 04

READY, SET, GO: NEW PLAYBOOK FOR BEST-IN-CLASS ORDER-TO-CASH PROCESS IN THE NEW ECONOMY


Our conversations with A/R leaders from 200+ Fortune 1000 companies over the past six months reveal two contrasting truths about the state of Order-to-Cash in this new economy.

The new economy, triggered by the COVID-19 pandemic, was assailed by a series of employee safety concerns and economic shocks. During such turbulent times, most organizations realized that Order-to-Cash teams hold the potential to do a lot more than number-crunching and updating spreadsheets. They can be important drivers in improving major finance metrics and KPIs like bad debt, DSO, working capital, recovering cash quickly and much more.

However, even though the Order-to-Cash department has a lot of potential just waiting to be unlocked, it is almost a goose chase to try to achieve anything in a complex IT landscape with multiple ERP systems handling your data, heavy paper and excel based operations and outdated credit policies and collection strategies. Order-to-Cash teams are long due for an upgrade!

Today your Credit teams really need a commercially viable solution to enable automatic updates to the credit health of their entire customer portfolio in real-time. Your collection teams need more time in strategizing how to decrease their bad debt and write-offs, so they can’t afford to keep losing days in just identifying which customers to call and write dunning emails, especially as the number of delinquent customers keeps piling up. Your customers need a better experience with fewer touchpoints across credit, cash application, collection and deduction teams. And let’s face it – basic ERP advancements or process improvement tactics are not enough to achieve all this.

To avoid irrelevance and to meet the expectations from Order-to-Cash in the new economy, teams must embrace a ‘new playbook’ to bolster their day-to-day operations.

3.1 Real-time Credit Risk Monitoring

The months of June and July 2020 saw a massive 6x increase in the average number of credit limit changes undertaken by companies.

During the early months of 2020, credit teams witnessed a higher demand from executives for up-to-date information about which customers are likely to default in making payments.

The short term solution applied by most credit departments worldwide was to pull more financial and credit reports, analyze them, and conduct frequent credit reviews. This helped them survive in the short term, however it was very difficult for credit professionals to maintain this strategy in the later months of 2020.

This is because the immediate need for frequent credit reviews means an increase in cost as more credit reports need to be pulled from credit agencies like D&B, Experian, and Equifax. Looking at innumerable credit reports might help you be on top of risks to some extent, but it will also burn a hole in your pocket.

Real-time Credit Risk Monitoring

Real-time Credit Risk Monitoring

To avoid all this grunt work which is also prone to oversight and human error, credit departments need real-time risk monitoring, done by an AI-powered automated credit management solution, which is also a commercially viable solution that gives you:

  • Access to unlimited credit reports
  • Monitors of all your customers in real-time to track changes to their credit profile, payments profile, filings, and other key parameters.
  • Captures and analyzes different risk indicators, such as credit agency data, news alerts, payment behaviors, bankruptcy and court filings
  • Eliminates the need for periodic reviews by giving alerts and suggestions on revised credit terms, all in real-time.

3.2 AI-driven Proactive Collections

In collections management systems, AI is a prerequisite for preemptive dunning. It can assist teams in multiple capacities such as: identifying at-risk customers before they default, generating prioritized worklists, and predicting the date on which a customer is most likely to pay.

It can also identify the appropriate actions on customers at any given point in time and then trigger them; actions such as automated dunning of customers by sending out automated emails, scheduling notices of default by mail, and by making automated phone calls for “touchless” collections.

*Collections payment date prediction: Collection rules and prioritization are based on static customer segments that do not change with time. Artificial Intelligence and Machine Learning algorithms can help Collections Management become proactive by predicting payment dates at a customer or account level based on past payment behavior and current open invoices.

Having this type of data enables collectors to act before invoices and customers go delinquent or past due. This in turn reduces the cost of dunning activities, and allows a 10-15% improvement on DSO, while also increasing available working capital. It additionally improves collector efficiency by letting them focus on difficult customers rather than low-risk ones.

AI-driven Proactive Collections

In reactive dunning models, collectors can expand up to 30% of their work time deciding which delinquent buyers to contact and how to contact them. In reactive AR departments, collectors rely on their intuition, skill, and experience to build worklists (prioritized lists of accounts to contact, how to contact them, and when.

Instead of basing the analysis on the best available real-time data, collectors rely on backward-looking static indicators such as Average Days Delinquent (ADD) to prioritize customers to develop their collections strategies.

Collections teams traditionally look at static indicators, such as Average Days Delinquent (ADD) to estimate payment date for a customer and, consequently, to implement dynamic strategies for dunning, however, reliance on this metric has failed to produce optimal results.

Average Days Delinquent (ADD) and Its Flaws

ADD is the average number of days that invoices are past due – the amount of time between the invoice due date and the date it is paid. The calculation helps a company evaluate the overall performance of the collections department and its ability to convert accounts receivable to cash, but because this metric is dependent on averages, it’s affected
by extreme values.

Often this metric cannot correctly take into consideration the AP cycle schedule when used for assessment and results in grossly inaccurate payment dates compared to actual payment dates. For this reason, it’s not a sufficient indicator to predict payment date and needs customer-specific factors such as AP cycle schedule to predict the payment behavior of numerous unique customers accurately

Average Days Delinquent (ADD) and Its Flaws

Proactive Collections with Artificial Intelligence

Proactive Collections with Artificial Intelligence

Predict Expected Invoice Payment Date

Static data and human intuition are grossly inefficient when matched against the tactics employed by digitally transformed AR departments. Considering that a single collector can be assigned hundreds of thousands of accounts (depending on the size of a company), it’s practically impossible to expect a high level of efficiency from the process without the assistance of digital technology.
Automatically Generate a Prioritized List of Customers Every Day Based on AI-Predicted Payment Dates and Improvise Your Dunning Strategies With AI-Recommended Next Steps

Summary

Change is the Only Constant in Today’s Digital Age

Change is the Only Constant in Today’s Digital Age

The dynamic shift from a reactive to a proactive collections process is the biggest advantage of the AI-powered collections management process. Leveraging ML, the collections team could use accurate predictions to enhance collections output and key KPIs such as DSO and the Collections Effectiveness Index. Predicting payment dates and delays boosts efficiency as the entire approach is a proactive one where collectors no longer have to wait for defaults and then request payments from them. Instead, historical data is fed into the system to proactively derive the payment date and contact only those customers who have a higher risk of default.

3.3 Integrated Receivables for Global, Complex Order-to-Cash Processes

Organizations managing Order-to-Cash across a global setup run into some key challenges as they continue to refine and build their technology stack around their main ERP systems.

  • Siloed Operations: one of the reasons the operations become siloed is when you implement different tech software for different parts of the O2C process – for example, if your credit management software is unable to speak with your collections management system then you will eventually not have a smooth exchange of info/data related to the customer.
  • Inability to Access Data in the Real-time: Inaccessibility of updated customer information across workflows and applications increases the effort needed for manual integration. Errors in manual integration can eventually lead to customer dissatisfaction
  • Inflexible Legacy Systems: Legacy IT systems restrict the identification of root causes of issues and implementation of steps for improvement. Monolithic systems with varied ERP systems customized to cover several contingencies have high complexities and costs. For example, legacy systems cannot automatically ingest customer data from websites and portals into Order-to-Cash processes or use Order-to-Cash data such as customer payment behavior and invoice risk profiling to generate insights for organizational expense management and working capital requirements.

  • Inability to manage global requirements: For companies that are trying to run global O2C operations using a common tech platform, it also becomes difficult to accommodate all the regional nuances in processes while building one common system. For example, different regions might require different credit scoring models that rely on different sources of data, but all still need to be governed by the guidelines of a common credit policy that controls company-wide risk. Another common challenge is being able to offer region-specific payment options to customers based on the regions they do business in.

Customer-Review

Platform Approach

The solution is to choose an “integrated approach” to O2C technology. The key attributes are:

  • Rich functionality to run each of the processes independently — credit, collections, cash app, etc…
  • Built on the same codebase or technology platform that allows all of these modules to be natively linked to each other and exchange data
  • Strong integration with your core ERP landscape — irrespective of the ERP type, or versions or complexity
  • Ability to get started with one or more than one of the modules in the platform — giving you the flexibility to start investing in the processes that need it the most
  • Going beyond basic functionality and towards automation of clerical work. Give the example of a cash app, or in deductions of downloading the claims piece. Also talk about how more of this automation needs to be built on AI/ML so that it doesn’t require the constant repair-work that is so common with RPA.

3.4 Keeping track of tech ROI and peer benchmarking for best-in-class performance

Leverage leading indicators to create an early warning system

Every AR leader is concerned about the final impact that the technology has on the business metrics such as DSO or percentage of receivables that is past-due. However, given that close to 70% digital transformation projects fail it is painful for an AR leader to wait for anywhere between 12-16 months before they even start seeing any of these numbers tick in the right direction.

There are several indicators used by AR leaders to estimate the eventual ROI that their digital transformation projects are delivering

  • Total Order-to-Cash process cost as a percentage of revenue
  • Number of days between shipment or service and billing
  • Order-to-Cash cycle time
  • Average Days Delinquent (ADD)
  • Days Sales Outstanding (DSO)
  • Collections Effectiveness Index (CEI)
  • Accounts Receivable Turnover ratio (ART)

While these are good measures, it takes time for the changes being made at a user and analyst level (through automation and best practices) to start translating into cycle-time reduction or DSO reduction. As such, these are what we refer to as lagging indicators.

AR leaders today need to start looking at ‘leading indicators’ that can give them a sense of whether their digital transformation project is trending in the right direction and give them the required early warning signals to take corrective action and keep transformation projects on course to deliver real ROI.

Here are the key leading indicators AR leaders should be looking at:

Adoption Metrics: Your technology will fail to deliver the results if your users are not using the software. For example, if you just deployed technology to automate collections then you should be tracking whether your collectors are using the automated dunning functionality or recording payment commitments in the software. When your teams fully leverage the technology, you are more likely to get real business results. As an AR leader who is responsible for delivering positive ROI from a transformation project – it is your responsibility to ensure that you are closely tracking technology adoption before proceeding to look at other metrics of success.

Here are the key leading indicators AR leaders should be looking at

Analyst Performance Metrics: Once your team has started using the software to its fullest potential, you should start tracking metrics which will help you assess whether the software is resulting in improved performance at the analyst level. Continuing on the example of the collections software, you should be looking at signs of improvement in number of customers being reached out to per day, number of payment commitments recorded, number of dunning notices sent out. Once you see this data trending positively, you can be more confident of seeing these trends translate into improved lagging indicators such as lower DSO and past-dues.

Integrated benchmarking for best-in-class performance

At the end of the day, as an AR leader, you are interested in technology to enable your teams to get to best-in-class performance. The first step towards getting to best-in-class performance starts with peer benchmarking. Now, peer-benchmarking can be a very complicated process – from building parameters and measures for your study, to identifying and surveying a peer group of companies to analyzing that data.

However, technology combined with the availability of public databases of performance data are making it easier for you as an AR leader to not only benchmark against best-in-class but also translate that data into goals for your teams at a process and sub-process level.

AR leaders need to look for performance tracking systems that can incorporate industry benchmarks into user activity as well as management dashboards. For example, what is the best-in-class rate of capturing payments from payment commitments and how do your collectors perform against that benchmark? Or, what is the best-in-class benchmark for outstanding payment days as a proportion of standard payment days and how does your overall AR process stack up against that?

Having an eye on the best-in-class numbers is essential to drive the right set of process changes.

Benchmarking data that is integrated into the workflow software used by teams and dashboards used by AR leaders should be high on the priority list for any AR leader looking to drive long-term best-in-class performance from their AR function.

Chapter 05

MOVING BEYOND ERP TO THE CLOUD AND THE PLATFORM APPROACH


4.1 The Pitfalls of Disparate ERP and Legacy Applications

As per BCG (analysis in 2020), there are 7 key processes and 27 sub-processes in an O2C process. These processes run in the background of several departments such as marketing, sales, pricing, contracting, collections, finance, and customer service. Businesses expect O2C processes to deliver customer satisfaction and bring about cost-efficiency. However, the current state of the O2C process entails several manual steps on account of information stored across siloed systems. This increases the processing time of the information. Traditionally, businesses solved their process issues by adopting standalone applications. This creates an environment of siloed operations at the department, data, and technology level, with each department relying on an individual legacy system, having individual core responsibilities and functions, and do not focus on collaboration with other systems. Each department ends up having their own datasets, which might differ from others on how they are collected and stored which hinders automation of processes and adoption of technology. Overall siloed operations lead to operational inefficiencies, affecting the customer experience thereby hindering the business growth.

The Pitfalls of Disparate ERP and Legacy Applications

Separate ERPs for different lines of businesses becomes challenging for GPOs to consolidate their reporting. They end up having dedicated teams that extract data separately from each line of business. Furthermore, it becomes difficult to have control over the system. It ends up having a tailor-made control for every system.

Below are some concerns associated with siloed operations:

  • Lack of Up-to-date Information: Restricted data-flow across different processes slows down data up-gradation process. Therefore, finding the correct and updated information takes time and can result in erroneous reporting, especially when there are multiple instances of data transactions across systems. For example, sales data, customer details, or pricing information, when not updated regularly, due to lack of integration can lead to incorrect billing/invoice. This can take a long time for amendment. Also, delay in reconciliation of remittance data from banks against invoices might delay the collection process of contacting customers and getting the dues cleared.
  • Decreased Employee Productivity: O2C processes such as order processing, invoicing, expense approvals, and fulfillment include a lot of manual duplicate effort to avoid errors. Interconnected systems could leverage data from different stages of O2C for automated verification.
  • Lack of Real-time Visibility: Reports highlighting performance across finance, sales, marketing, service and fulfillment departments are needed regularly for making business decisions. In a siloed environment, the workforce manually switches between different systems and applications to migrate all data into one report. Unavailability of real-time information might cause unnecessary dunning calls by collectors, hampering both customer relations and trust.
  • High Cost: Investments in integrating, maintaining, upgrading, and acquiring new versions of existing applications lead to higher costs, with an added challenge of compatibility issues for the IT team. For O2C process, siloed operations add up to the existing costs in terms of deduction write-offs, late payments, compliance fee, and FTE productivity lost, thus reducing the overall profit margin.
  • Dissatisfied Customers: It is difficult to view all customer data in one place and accurately assess the experience and satisfaction level. This can lead to slower customer issue resolution and might result in a negative customer experience. For example, a customer service representative may have extended the payment deadline for a particular customer to support customer satisfaction goals. However, the collections team might not be aware of this modification and contact the customer to clear their dues, thus, leading to a negative customer experience

Tammy from Martin Marietta highlights that earlier they had to involve the IT team for generating reports from a siloed reporting tool. With the implementation of a reporting tool that sits over all of their databases, it has become easier to get data and mine data faster.

Traditional ERP systems are doing an excellent job at digitizing and storing information. According to Linda from Uber, accessing and analyzing information from ERPs require manual effort. To provide monthly or biweekly reports of business performance on parameters such as expected payments or weekly processed payments, information has to be collected from individual systems and then analyzed; several processes need customization, which is a limitation for the ERP systems. Further, customizing existing ERP systems to manage the workflow can lead to further investments. To tackle these issues, current ERP systems should be integrated with cloud solutions that require less funding, seamless connectivity, and accessibility across siloed processes.

Below are some concerns associated with siloed operations

The Pitfalls of Disparate ERP and Legacy Applications

The Pitfalls of Disparate ERP and Legacy Applications

4.2 A Cloud Strategy is Critical to Resolve Issues of Siloed Operations

Over the years, working dynamics have evolved. From physical proximity considered to be essential for running effective processes to achieving the same efficiency while working from home. From running critical processes from highly secure physical brick-and-mortar sites to running them from any geographical location by adopting technology providing the same level of security.

Organizations should focus on building a virtual environment for the future, wherein business can be run from any location or system with no issues of data availability or accessibility and security. Automation should be a part of the core strategy to make processes agile, transparent, and cost-effective. To enable this, running disparate ERP systems will not be an ideal approach. Organizations should integrate ERP systems with the cloud to facilitate global connectivity. Cloud adoption offers the following benefits:

  • Global Access: Cloud offers better accessibility of information by making data available remotely. Also, data can be shared with additional users or accessibility can be revoked for existing users, as required. With data available on the cloud, data reporting also becomes easier as it eliminates the efforts required to source the data from disparate systems. Also, data can be easily integrated with third-party applications, in real-time, to create recurring reports for business performance evaluation
  • Cost-effectiveness: Cloud solutions require little or zero investment for software development or maintenance, and require no specialized IT infrastructure or workforce
  • Better Maintenance, Faster Upgradation: Cloud solutions handle maintenance and up-gradation seamlessly with operational scalability in communications, bandwidth, hardware, etc. Further, installing cloud-based solutions can be eight times faster as compared to traditional on-premises solutions. For example, installing a cloud-based cash application can be accomplished in three months, whereas upgrading ERP from one version to another can take up to two years
  • Global Process Policies: Cloud solutions help to set up global policies for accounts receivable, credit, and collection operations. These solutions can automate manual operations, ease bad debt, improve cash flow by reducing DSO and working capital, lessen deduction and dispute resolution time, and obtain higher recoveries. Moreover, they can incorporate multiple languages and currencies that enable operations globally

Seamless data availability provides real-time information to customers such as real-time updates on shipments and payments. Furthermore, the ability to transfer data automatically in any format to any device or system, to share details on an order, shipping notice, tracking details, payment information, or remittance advice, improves customers’ experience and empowers them with data and insights to optimize order and payment processes. As highlighted above, the cloud allows smooth data integration across a distributed network, where data is verified, validated, transformed, and transmitted according to the receiver’s requirements. Overall, the cloud provides a connected ecosystem where relevant users can share data as and when needed.

However, integrating individual processes into the cloud does not resolve the issue of siloed operations. It just adds another layer of complexity to the overall process. For example, having a cloud-based bolt-on for handling credit management system but the remaining processes are left on on-premise ERPs or legacy systems. In this case, processes will be still running in a siloed environment with limited exchange of information across processes. Further, these setups might have stability and connectivity issues.

A Cloud Strategy is Critical to Resolve Issues of Siloed Operations

MOVING BEYOND ERP TO THE CLOUD AND THE PLATFORM APPROACH

A cloud-based integrated platform is needed to create a layer of the system of engagement for managing end-to-end O2C processes. A unified platform is placed above all the processes which ensure a seamless exchange of information, irrespective of geography, process, or business function. It also eliminates the hurdle of integrating ERP systems with cloud solutions. Furthermore, business leaders are also keen to accept an integrated platform to improve workforce productivity, cost-effectiveness, and efficiency.

4.3 Cloud-based Integrated Platform

An O2C platform unites underlying functions to communicate with each other, which optimizes O2C processes to provide faster processing and turn-around time. Integration and optimization of the O2C process can change the role of the SSC to business drivers as when the end-to-end process data is integrated, new insights are generated which can drive better customer service. For example, insights on the creditworthiness of new customers and changes in that of the existing clients can help the business to identify low-risk and high-risk customers and offer appropriate payment options. Homer from Uber highlights that an integrated platform is an effective solution that acts as a top layer and works across the process to enable data normalization, as compared to migrating data from multiple ERPs to a single ERP.

Cloud-based Integrated Platform

To adopt a platform approach, process integration, customer centricity, and shared responsibility across the process should be at the core of the platform. These must-have imperatives are explained below:

  • Process Integration: It is the key to overcome complexity in the O2C process. An O2C platform must be able to adapt to new technologies as new solutions become available. The platform should be able to synchronize with technological solutions across processes. By integrating systems, data is made sharable and a hybrid platform is created on which the in-house and third-party applications run in sync. This will establish an ecosystem without boundaries that optimize process performance. For example, a leading industrial goods manufacturer used disparate ERP applications across countries. It migrated to a universal O2C platform that connected its CRM and mobile pricing system to its fulfillment, credit limit, and accounts receivable modules. As a result, it was able to minimize the number of orders that go into limbo, improve customer self-service, reduce inbound calls, and lessen cycle time by 40%, and increase the speed at which the company recognizes revenues.
  • Customer Centricity: Customers expect real-time information on the process. A customer service executive who fails to provide order status or share payment receipts leaves a negative impression on customers. Hence, customer expectations should be kept at the core of the platform approach by blending the processes with technology. For example, a global pharmaceuticals manufacturer established a one-click portal to reorder products from the order history. The portal provides self-service ordering, real-time information on order status, delivery schedules, and payment requirements. It helped to increase the manufacturer’s customer satisfaction scores and reduced the need for manual service intervention to fulfill orders.
  • Shared Responsibility: With several processes operating under a single platform, it is important to assign process owners who will be the point of contact for any query, especially in case of a platform breakdown. For example, a global professional service firm appointed O2C process owners to optimize its fragmented O2C process. As a result, the proportion of faulty orders declined to less than 2%, and flow-through of orders increased.

Tangible Benefits of the O2C Platform

A unified platform-based O2C process helps SSCs with efficient resource utilization, healthier cash flows and process transparency. Key benefits of the unified O2C platform are:

  • Increase in Sales Revenue: O2C platform can help to increase sales revenue by 1% to 3% in a year. It helps in reducing block orders by validating orders based on dynamic order and credit policy and automatically adjusting the credit limit for a good paying customer, a customer with a history of payment defaults, and a new customer, instead of following a single threshold credit limit for all the customers.
  • Cost Saving: A 15% to 30% savings in cost, owing to (a) automated order creation, (b) decrease in back-office efforts, (c) digital invoicing and cash application, (d) fewer disputes, and (e) fewer penalties for late or incomplete order fulfillment.
  • Reduced Days Sales Outstanding: Up to 30% shorter days sales outstanding resulting from lower process lead times, less revenue locked up in collections, and gentle, proactive dunning.
  • Increased customer satisfaction resulting from a simplified order experience, real-time complaint resolution, fewer disputed invoices, and greater process transparency. For example, a sudden shift from being a regular paying customer to a defaulter, may not need a strongly worded reminder. Instead, a personal follow-up is required to understand the root cause as this might be due to a misunderstanding.
  • Increased employee satisfaction as work is less repetitive, involvement in strategic tasks and reduced complexity in work.

Cargill’s Strategy in Designing a Single O2C System

Cargill, a global food corporation, with operations in 70 countries, wanted to streamline its O2C process due to existing inefficiencies, including limited DSO opportunities, the variability of bad-debt reserves, and high-cost execution. Cargill lacked a standardized O2C process across its business verticals due to which it was facing the following issues:

  • AR method of operation differed from customer to customer. For every new customer, there were 400+ variations of the processes. As a result, customers had several accounts on the ERP systems
  • Cargill’s technology stack for AR included 50+ different ERPs’ and 90+ proxy CTC applications across its business units
  • The company lacked a standardized business policy. It had separate organizational structure process, technology, and metrics for the different business units spread across the world
  • The company did not have a master customer database. In order to manage all the incoming data, Cargill had to employ 6,500+ finance professionals dedicated to the O2C process

Cargill faced multiple challenges because of this disparate IT landscape including, but not limited to, the lack of visibility across processes, absence of reliable data for reporting, less control over A/R outcomes, and limited data insight on customer payment behavior. Cargill wanted to centralize and integrate its entire O2C system to ensure end-to-end visibility in credit risk. With multiple business units and ERP instances, Cargill struggled to reduce cost as it worked to improve process efficiency and customer satisfaction. The core challenges for the company were limited visibility across the AR process and moving to a single, global integrated platform for managing the receivables across processes. Challenges faced by Cargill in the credit-to-cash process were:

  • Challenges in Credit Management: Followed non-standardized credit policy enforcement and scattered risk mitigation strategies such as:
    • Judgmental credit assessment approach
    • Scattered risk mitigation strategies
    • Highly manual order release process
    • Reactive approach to credit management
  • Challenges in Collections Management: Followed account prioritization and customer outreach approach that was not backed by data
    • Customer prioritization driven by collector’s insight
    • Limited data insight on customer payment behavior

Cargill deployed a solution that integrated receivables from multiple ERPs, maintained a consistent flow of data in the form of a unified dataset, enabled process standardization and data communication across different BUs, and tracked performance on defined parameters. To overcome business challenges, Cargill implemented a series of third-party ERP accelerators, which enhanced the functionality of the existing ERPs through full integration. Some solutions and their advantages are:

  • Accelerator for Credit Decisions:
    • Integration of credit agency and internal customer performance data to drive the predictability of risk
    • Process automation and standardization across the organization and facilitating the credit risk evaluation, and mitigation of tools and strategies
    • Normalized scoring and rating approach meaning that penalization is not done solely based on one score attribute but based on millions of score models available which would be backtracked and regressed continuously through ML
  • Accelerator for Improved Correspondence:
    • Better workflow management improved efficiency of collections teams through worklist prioritization
    • Better control over receivables portfolio and improved visibility across BUs
    • Maintenance of contact history of customer touchpoints for future reference

Post the implementation of ERP accelerators, Cargill modified and reviewed all its business operations through a dedicated master database. At present, it has a one-stop solution that seamlessly converts all its credit into cash.

Chapter 06

FRAMEWORK FOR SUCCESSFUL ORDER-TO-CASH DIGITAL TRANSFORMATION


5.1 Technology Adoption Does Not Guarantee Successful Digital Transformations – It Can Still Fail

Whirlpool’s digital transformation showcases a utopian view of how adoption of digital technologies such as cloud and AI, can help in generating business value through O2C activities. However, the adoption of technology alone does not guarantee a successful digital transformation. Businesses often overlook certain critical aspects of the transformation process, which could lead to considerable losses in terms of effort and investments. In fact, the ratio of failure of digital transformations is as high as ~70%.

O2C transformations can falter because of a number of reasons, some of which are as follows:

  • Lack of Vision and Clarity: O2C reengineering and digitization have different meanings for different businesses. For some businesses, it could mean investing in AI to transform the accounts receivable process, or to optimize billing and invoicing in blockchain, while for others, digitization could simply be the usage of OCR to scan invoices. It is important to have a clear vision about the overall state of the O2C process, before making any investments. As Tony Saldanha (GBS expert and author of ‘Why Digital Transformations Fail’) suggests, lack of vision and clarity is one of the biggest reasons for the failure of digital transformation. To counter this, businesses need to build a complete roadmap of the transformation, which must include:
    • Defining the meaning of digital transformation for each O2C activity, from credit
      management, to invoicing and collection.
    • Setting up the parameters to measure the outcome for each O2C activity, such as reduction in risk in cash conversion cycles, reduced sales outstanding, due percentage trends, disputes/deductions outstanding, reduction in the per order process cost, reduction in the sales outstanding number of days.
    • Analyzing customers’ needs and using those to make improvements in the overall O2C supply chain. For instance, accounts payable digital initiatives of customers should not make the accounts receivable processes of the business more manual.
    • Aligning with the customer experience, because AP teams on the customer side are undergoing rapid digital transformation and the O2C digital initiatives should be able to help AR teams stay abreast. For example, if AP teams are focusing on invoice processing automation portals, then AR teams should ensure that they can seamlessly deliver information to these portals.
  • Executional and Implementation Challenges: Some businesses, despite having a clear vision and understanding of the requirements, fail to execute them because of issues such as:
    • Inappropriate choice of platforms: Businesses often try to implement a fully integrated O2C platform by uniting disjoint existing software within the company (integration of O2C with ERP, integration of predictive tools in customer servicing, etc.). It either results in a lack of integration between the different software packages, which typically need some manual effort, or will need an RPA bot to push files from one package to the other. In some cases, businesses end up with too much technology to manage.
    • Continuous deferring of O2C transformation: Because the integration of transformed O2C processes with legacy ERP systems is considered a challenge, businesses tend to defer the O2C transformation, fearing that they may need to upgrade their entire ERP solution. For this, businesses need to identify a transformation solution that is ERP system agnostic.
  • Organization Readiness for Transformation: Decision makers such as the VP of Finance or Head of GBS need to take up the ownership of making change management easy. This requires:
    • Building front-end multifunctional teams because O2C processes span across many departments, including sales, marketing, contracting, and customer service. Also, it requires O2C staff to be transversal and multifunctional in their skills.
    • Providing opportunities for horizontal upskilling — e-contracts and e-payments training for the AR team, and automation training for sales staff who may choose to perform their tasks independently. O2C transformation has to be taken up as a business strategy initiative, which is why its implementation should go hand in hand with change management at the enterprise level.
  • Lack of Stakeholder Alignment in Organizations: In the corporate finance hierarchy, AR analysts are the ones aware of all of the (100%) of the problems with the finance processes. Managers get to know about three-fourths (74%) of the issues, while the leadership is aware about only 4% of the challenges. This warrants better alignment across the hierarchy by:
    • Rolling out the projects in phases, starting with cash application to eliminate highly clerical, non-strategic work from the front line, followed by invoicing automation for seamless delivery and a digital customer experience, and followed by creating significant working capital impact by transforming strategic O2C processes like credit, collections and disputes and claims management.
    • Tracking the success metrics of the transformation during each phase by considering
      feedback from the relevant stakeholders at each level to refine the strategy of the next phase.
  • Lack of Foresight on Potential Market Disruptions: A competitive overview of the industry is imperative to counter potential disruptions, by keeping an eye on emerging technologies and ventures within, as well as outside the industry. Many upcoming technology startups are redefining O2C processes to make them more future-ready. Some of those are the use of integrated e-signatures for payments and a cloud-based marketplace for invoice factoring, which allows buyers to provide an option of early payments to vendors. In terms of technology, blockchain can enhance O2C processes by providing increased visibility of purchase order attributes, such as shipping terms and late penalties, and payment receipt data, which in turn enhances the overall customer experience. In most cases of failure, it is not the technical inability of businesses but the insufficient planning and unclear vision of transformation that ultimately leads to failure.
  • “The underlying cause of why 70% of digital transformations fail is a lack of sufficient discipline. There’s insufficient rigor in both digital transformation takeoff as well as in staying ahead.” – Why Digital Transformations Fail” by Tony Saldanha
  • To be successful, a guided, disciplined and phased approach is required.

 Technology Adoption Does Not Guarantee Successful Digital Transformations - It Can Still Fail

5.2 Checklist to Drive Success Rate at Every Stage of Digital Transformation

Tony Saldana highlights that “there are very specific reliability drivers (and therefore checklists) to improve the success rate of each of the five stages of digital transformation.” He defined two disciplines or risk factors that are necessary for the successful delivery of each maturity stage.
They are as follows:

Stage 1 – Beginning: Getting the Foundation Right

  • Committed Ownership: To ensure that the organization starts its journey for digital transformation, there is a need for a committed and dedicated AR and collection leadership to support this drive for innovation.
  • Iterative Execution: Exploring multiple ideas and expanding on ideas to generate business value (in terms of a gradual reduction in the number of O2C FTEs, error reduction in invoice scans, or efficiency achieved per order in terms of time and cost) in a phased manner.

Stage 2 – Siloed: Taking Care of Processes in a Siloed Manner

  • Disruptive Empowerment: Empowering individual O2C process owners to innovate and experiment within their scope of work.
  • Leverage Points: Identification of digital technologies that can be leveraged for individual processes (blockchain for invoicing for hassle-free customer payments, RPA for collections, or predictive analytics for credit management). The O2C team should thoroughly analyze the availability of such business models, products, and technologies.

Stage 3 – Partially Synchronized: Empowerment Across the Organization

  • Effective Change Model: An effective change management plan, along with preparedness which will address employees’ apprehensions regarding automation, aid the development of multifunctional front-end teams, and focus on enhancing customers’ experience during the early stages of change.
  • Strategy Sufficiency: Building a cross-departmental integrated strategy – unified focus on sales and order management, or invoicing and payment strategy designed in conjunction with reporting and data management. This also paves the way for the next stage of developing an overall O2C strategy.

Stage 4 – Fully Synchronized: Complete Digital Transformation

  • Digital Re-organization: Digital re-organization and redesign are needed to build horizontal skills across functions, while also keeping in mind the existing capabilities. Other departments need to be trained for complexities around the sub-processes, customer disputes, short payments, lockboxes, payment terms, and AR teams in the data leverage capabilities from other departments.
  • Staying Current: Staying updated with evolving capabilities becomes important for continuous improvement in specific processes.

Stage 5 – Living DNA: Embedding Innovation in Organizations’ DNA

  • Agile Culture: Building a resilient and adaptable culture to adapt to technology changes by becoming system agnostic. For instance, O2C solutions should be ERP agnostic to avoid dependence on legacy systems. This also includes assessing threats, risks, and potential loopholes, and taking active steps to eradicate them.
  • Sensing Risk: Paying close attention to the disruptions that O2C transformation can cause to other functions. For example, O2C directly impacts sales, working capital, as well as the bottom line of a business.

The checklist enables organizations to take care of the risk factors, based on the stage they want to leapfrog to. After assessing the stage of maturity and defining the risk factors, organizations need to work on becoming fully prepared to follow a phased framework for their digital transformation.

Chapter 07

CONCLUSION


Most businesses are looking to adopt digital tools and technologies that ensure timely and accurate flow of comprehensive customer data from all departments, a 360-degree view of existing information for all stakeholders, and automation of routine and repetitive tasks such as invoice entry, payment reminders, and inventory database, with an additional layer of AI / ML to generate actionable insights or assist in intelligent decisions. Technology has the potential to offer customized solutions for specific processes or sub-processes, e.g., it can be used to run a real-time cash application process and bring the process at par with any other process in an organization. It creates an interconnected environment, optimizing all Order-to-Cash operations and allowing these processes to feed into core business decisions. With a single intelligent platform, businesses can overcome all of the concerns associated with traditional systems. This single platform is capable of providing seamless integration across processes while enabling cross-functional collaboration; serving as the top layer of all the processes and systems, overcoming the hurdle of data integration and improving process efficiency and customer satisfaction. For long-term success, businesses need to continuously keep benchmarking their processes and technologies and keep upgrading their systems to be future-ready.

Chapter 01

EXECUTIVE SUMMARY


The Order-to-Cash department has long played a crucial role in helping organizations maintain seamless business flow, avoid unnecessary risks, recover cash tied up in receivables quickly, and much more.

However, in the current economy, as corporations face increasing pressure to reduce costs, improve working capital, and critical metrics like DSO and bad debt, the Order-to-Cash department, like every aspect of the business, is under pressure to demonstrate increased value to the company’s bottom line. Order-to-Cash teams can no longer afford to only focus on preventing bad credit decisions or increasing collection efforts; finance executives also expect the Order-to-Cash department to strategize and contribute towards their company’s profitable growth.

Teams that realize the shift in the executive perception towards the Order-to-Cash function have the opportunity to command tremendous leadership respect by enabling the cautious and profitable growth of their organizations, even in a volatile economy.
To approach the Order-to-Cash process holistically in the new economy, businesses are now looking to implement various technology solutions in the market that can help overcome the process gaps, increase their teams” productivity, and improve key metrics like working capital DSO, and bad debt.

One emerging pattern in leading enterprise companies is connecting and bringing all their different Order-to-Cash processes – credit, collection, cash application, billing, and invoicing, on a single platform driven by robotic process automation and artificial intelligence.

In this whitepaper, we highlight the popular trends reshaping the world of Order-to-Cash in the new economy. We also discuss the renewed perception towards the Order-to-Cash department in the eyes of Finance executives and a new playbook that can help one beat market trends and establish a best-in-class order-to-cash management process.

EXECUTIVE SUMMARY

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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.