Credit and A/R projects are large, complex, expensive and fraught with risks. This e-book demystifies technologies such as Robotic Process Automation and Artificial Intelligence to help finance leaders transform operations.
The latest innovation in credit and accounts receivable technologies have brought in tremendous efficiencies to finance departments worldwide.
HighRadius’ clients such as Nike, Airgas and Cargill have achieved tremendous impact on productivity of operations and significant positive impact on KPIs such as Days Sales Outstanding. All of it resulted in significant improvements in cash flows to the tune of $22 M annually.
While the promise of technology is a given, there is always a chasm between promise of technology and real world results. The idiosyncrasies associated with either a specific firm or a specific process increase the complexity of fitting technology to business process. Such complexities eventually widen the chasm between expectations and reality. Research conducted by Panorama Consulting corroborates these findings, revealing that close to 54% of ERP implementations met less than 50% of their stated objectives.
HighRadius is a niche solution provider with an exclusive focus on Credit Management process, Payments and Accounts Receivable automation solutions. This document is designed to provide organizations with a greater rate of implementation success based on learnings from more than 400 receivables transformation projects worldwide.
This e-book will discuss the best practices to be followed during pre-implementation, implementation and post implementation phases for successful receivables transformation projects.
A credit and A/R process assessment is the first step in the pre-implementation phase. A common pitfall with most firms is that the project leaders straight away get into requirements analysis without understanding the status quo of credit and A/R processes within their organization. To achieve success, it is of utmost importance to determine the current state to set the foundation for future change.
The assessment process provides clarity on the following three items:
The assessment process improves decision-making that will have a direct impact on the scope, the cost and the value capture of the project.
As a first step, set-up a core team comprised of A/R process owners, IT, senior execs and end users. It is also strongly recommended to add 3rd party consultants to challenge the “it is how things have always been done” mentality.
The core team should be chartered to review the current processes and systems to evaluate the value capture of implementing receivables automation. Figure1 highlights the team composition.
At its core, the assessment process provides a detailed view of the activities that that each team member is responsible for and also help track the KPIs of the project’s implementation.
Figure 2 outlines the five stages in the audit process below:
Technologies such as Robotic Process Automation open up new opportunities to gain efficiencies in routine processes. Therefore, it becomes critical for business teams to “unlearn” or at least shed biases WRT the AS- IS process/legacy systems. Any attempt to design a “new‟ system for an “old‟ process might at best bring in marginal improvements in operational performance whereas redesigning the processes and taking advantage of the emerging technologies is imperative to achieving significant performance improvements. To avoid making this common misstep, follow the outline below:
The fit-gap analysis document should ideally have the following fields:
“ROI Priority” is a key column as it is important to track what impacts the KPIs. The below graph (Figure 51) is a good representation of the type of KPIs that could be used to track the performance of credit and A/R teams.
Other important metrics and reports to consider include the following:
Implementing a credit, A/R and invoicing solution directly impacts the costs of a company. Putting together a business case involves a thorough review of the current processes and systems in place and identifies opportunities for improvement via process re-engineering and automation. Some of the KPIs and metrics listed could directly impact the bottom line.
For a more in-depth understanding, please read the eBook on Automating Accounts Receivable- Building a Winning Business Case that outlines the cost-benefit analysis.
Figure 6 analyzes the costs vs benefits to make a business case for receivables transformation projects:
After the assessment, the information needed to address the issues and start filling in the gaps is collected. The next step is to understand the capabilities of various ERPs to achieve TO-BE processes and the deployment options.
Most ERPs provide some out of the box functionality for the following four processes:
The following image details the key requirements of credit and A/R leaders in various processes:
Each process in credit and A/R is heavily customized to suit business needs as per the fit-gap analysis.
Additionally, there are many automation opportunities in the credit and A/R processes beyond the basic ERP capabilities, which are enhanced by 3rd party solutions.
Many organizations already have some form of credit management out of the box in ERP systems.
The presence of more than a few of the following within an organization might be an indicator that the upgraded credit management technology might be worth evaluating:
Credit decisions are complex and involve the manual data aggregation from 3rd party sites including credit agencies (Dunn & Bradstreet, Experian etc.), public financials aggregators and insurance firms. Automating the credit data capture process will save time and improve productivity of credit teams. Figure 8 explains the above pictorially.
Credit processes require collaboration for teams within and outside the organization to arrive at credit decisions.
Empowering credit teams with set workflows and streamlining the processes will greatly improve the productivity of all the stakeholders. It is recommended to create workflows for the following cases:
Many organizations process hundreds of credit applications every month while onboarding new customers. In that process, there is a lot of back and forth between sales, customer support and customer teams to put together a credit application.
Providing a standard online application where customers can fill out all the required details will significantly speed up customer onboarding time. The online credit application will also increase the productivity of sales personnel for they don’t have to get involved in data collection.
EIPP solutions have struggled with low customer adoption because:
Having a phased roll out and a strong incentive plan are critical for ensuring that the implementation of EIPP solutions is a success. Here are some best practices:
Apart from the above, choosing the right payment solution that is compliant with PCI DSS norms is important. To learn more about the differences between payment platforms and the how to risk associated with credit card data theft view the video here.
Cash application is one of the most manual operations in the credit to cash process. There are many reasons for this – various payment modes, non-standard remittance formats, electronic remittance decoupled from payment, many channels of remittance delivery, including email, portal and paper, just to name a few. This inherently inefficient process then becomes a bottleneck for most accounts receivable operations teams because it slows down downstream processes like deductions and collections. Consider the following scenarios:
Figure 9 highlights the manual steps in cash application. In addition to the above, in case of check payments, the issues are with:
In case of electronic payments, the issues are with:
All of the above steps including aggregation of remittances, linking and matching remittance and open A/R could be automated by artificial intelligence and Robotic Process Automation(RPA) powered systems.
A collections analyst’s primary responsibility is correspondence with customers. And yet, according to many findings, an analyst spends only 20% of his/her time on correspondence and rest of the time organizing who to call, collecting backup and engaging in other activities including composing emails.
Some best practices for the collections management are outlined in the following section.
A McKinsey study stated that more than 70% of collections calls are made to customers who would have paid anyway. This statistic seems to indicate a redundancy in the process, and unnecessary work being done, especially considering there is technology available that could analyze and prioritize the collections workflow.
For example, dunning notices (outlined in Figure 9) could be sent through RPA by configuring rules and linking the correspondence technology with accounts receivable module in the ERP.
Prioritized accounts in a worklist is the single most important feature for collections analysts. However, a collections agent usually transacts with many kinds of open A/R items, including those that are disputed, that have promises to pay and so forth and ageing list doesn’t capture all these attributes.
Often such A/R items are deemed “uncollectible” on that particular day and a collector’s worklist should not contain any of these uncollectible items. While configuring the collections worklist, make sure to exclude the following AR items from a collector’s worklist:
For more information on identifying clean receivables and prioritizing accounts for collections, watch the on-demand video here.
Deductions Management is process intensive and requires cross departmental collaboration between Credit, Collections, Accounts Receivables, Customer Service, Logistics, Sales and others. In a recent study conducted by the Credit Research Foundation (CRF) on customer deductions, lack of cross-departmental cooperation and inefficient processes were identified as the top two internal challenges for controlling deductions.
Here are some of the best practices while transforming deductions operations.
RPA is the key technology to implement workflows for deductions management. Configuring rules for routing deductions cases to appropriate roles is done through RPA. Some of the best practices are:
As discussed earlier, cash application has a significant impact on deductions operations as lot of deductions could be identified while applying cash. Review cash application processes for opportunities to improve the postings that significantly enhance the deductions resolution process.
The artificial intelligence technology available today could automate the aggregation, linking and matching remittance information with payments to automatically post cash and open deductions cases if applicable.
Figure 11 shows the cash application process.
The following is a summary of recommendations to consider:
Clearly define the scope of each module and the level of customization required. The common pitfall here is planning a Phase 1 with out-of-the-box features of ERPs with the anticipation of Phase 2 for enhancements and customization.
Even though some companies manage to get budgets for a Phase 2, most FSCM implementations do not have a follow-on Phase 2 and end with what was implemented in Phase 1. A separate, consequent phase for enhancements and customization will cost significantly more compared to including customizations as part of Phase 1.
This chapter captures the best practices once a receivables transformation project is officially budgeted and kicked off. To ensure user acceptance and a successful implementation follow the practices described in this section.
Follow a proven project implementation methodology. Figure 14 is a summary of the HighRadius implementation methodology:
This document does not cover all the details of each phase and sub-phases. It only highlights the key aspects that are important from a receivables technology project implementation stand-point.
Having the commitment and support of a senior executive to the project will set the context for serious engagement from both business and IT teams to the project. The senior executive who is actively involved will stay informed on the project status and will help with clearing roadblocks, allocate resources, etc.
An ideal sponsor for the project would be a senior executive who believes that technology will impact the performance of KPIs. Such executives fall in the sweet spot of having both the interest in the project and also the necessary influence to sponsor it. Figure 15 highlights the ideal champion to pick for executive sponsorship.
Staff the project team to include representation from both IT and Business. The following is a summary of internal resources recommended for allocation to the project.
NOTE: The resource list below does not account for the specialty consultants that might be required from a credit and A/R technology vendor. Tables 2 and 3 outline the IT and business resources needed to implement SAP Receivables Management.
The following is a summary of testing best practices:
Training is key to the success of an implementation and is often overlooked when prioritizing. Implementations tend to be focused on the realization phase due to their technical nature. One of the biggest challenges in software implementation is accurately capturing the right criteria and requirements. What is intuitive to a consultant or an IT employee might not be to an end user. The following is a summary of recommendations to ensure users receive rigorous training and are not “left out” until the very end of the implementation.
Post go-live it is all about evaluating the new processes and applying course corrections as and when required.
Process owners have to revisit KPIs and check whether TO-BE processes that were designed in the audit phase are performing to expectations. Figure 16 shows possible steps needed depending on whether performance of the new system meets expectations or not.
If the implementation performs as expected, set these processes for a continuous improvement program for yearly gains.
If the performance is not up to expectations, do a root cause analysis and fix the problems. It has been found that most failures mainly fall into three buckets:
Once root-cause analysis has been completed, decide on course corrections. Figure 17 – Steps to correct failures related to user adoption, stabilization and ways to monitor performance.
User adoption and adherence to best practices are improved by conducting training programs and disabling access to legacy platforms. Breaking down KPIs to individual teams will also help in a comparative analysis of where each team stands.
Addressing process design failure means credit and A/R teams must “go back to the drawing board” to redesign the process. A system will only be as good as the inherent process that runs on it. Some of the common processes that need reviewing are 1) Credit workflows, 2) Collections strategies and collections segments, 3) Dispute resolution workflows, and 4) Cash Application process.
Automation of manual processes in credit management process and receivables operations is a sure shot way to improve productivity of teams by at least 50%. However, a system is only as good as the underlying processes that run on it and the automation it provides to reduce team workload. Hence it becomes very important for process owners to assess their current processes and incorporate best practices from top performing organizations before embarking on receivables transformation initiatives.
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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.