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Playbook for O2C in the New Economy

How does this ebook help me?
This playbook is designed for A/R leaders to win in the new economy. It contains insights from analyzing more than 150 Fortune-1000 order to cash teams to help O2C process owners beat the changing market trends and establish a best-in-class A/R department.
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Key Takeaways

Key trends in order to cash world and the strategies to encounter them
Analyzing the common roadblocks in the order-to-cash operations and enabling A/R leaders to plan proactively
The steps to leverage the best of humans+machines for effective management of the O2C process
Challenges of legacy ERP systems and how to tackle them with cloud-based platforms

Table of Contents

Major Trends in the World of Order to Cash
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What Has Changed in the New Economy
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Ready, Set, Go: New Playbook For Best-in-Class Order to Cash Process in the New Economy
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Moving Beyond ERP to the Clound and Platform Approach
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Framework For Successful Order to Cash Digital Transformation
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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.

Chapter 01

Major Trends in the World of Order to Cash


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.

32.50% Spike in Collections Dunning

  • 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:
    • It is difficult to scale this activity (correspondence, disputes, payment commitments, communications, etc) across the entire customer portfolio without a collections management system.
    • A continuous aggressive collections strategy ruins the customer experience

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.

There’s no time like the present

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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.