CASH IS KING – A WELL RUN ORDER TO CASH PROCESSES IS KEY TO COMPETITIVENESS
“When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.”, says the famous principal research scientist with MIT, George Westerman. Well run enterprises focus on efficient cash flow management, predicting and plugging any revenue leakages and ensure superior receivables management. Growth by delivering revenues has no meaning if customers are slow to pay or if there is a gaping gap between inflows and cash outlays. Effective management of order to cash ensures optimization of working capital and lower cost of funds.
To be competitive, companies should transform their traditionally narrow Order to Cash (O2C) processes through innovative, comprehensive and connected solutions that reduce operating expenses, improve cash flow and increase process agility. Several enterprises have labor-intensive O2C processes that touches several different departments across the enterprise. Enterprises often find themselves having huge opportunity for improvement in this area.
Transformation Possibilities Across Order to Cash Cycle Through Automation
Credit Management
Credit management processes often entails reviewing a variety of parameters including past track record, size of the account and the approved credit period for existing customers. New customers typically are evaluated intensively and need to pass several checks before credit authorizations. The process involves reviews and approvals, apart from getting data from multiple sources and collating them into predefined formats. Automation of this process brings down cycle time to the process, ensures complete accuracy and could have predictive analysis built via algorithms, that predicts the likelihood of a default based on complex analysis. Automated credit management can facilitate easier accounts receivable and guarantee issuance of credit to eligible customers.
Sales Order Processing:
Effective sales order processing has a significant impact on customer experience. In several enterprises, this process is plagued by order complexity due to frequent changes in product offerings, lengthy price lists, sudden increase in sales volume due to product popularity and seasonal demands and manual touch points in the process. Process automation should focus on minimizing manual interventions, automation of validations and workflows and issuance of order acceptance upon posting. However, leading enterprises go one step further to tie this back to the forecast process such that the process could be scaled up or down depending on seasonal volumes or new product launches.
Order Fulfilment:
Inventory counts should be updated in real time in order to avoid accepting orders that cannot be completed. Other challenges in order fulfilment include huge amount of documentation required including paper orders, proof of delivery etc. Digitalization of the process ensures faster cycle time to execute orders and release documentation.
Customer Invoicing:
Inaccuracies and delays in invoicing can lead to cash flow problems which can have a detrimental effect on the entire organization. Several enterprises face challenges in the form of inadvertently releasing multiple billing documents, paper-based processes with manual touchpoints and longer cycle time due to involvement of multiple stakeholders. Data such as order date, costs, credit terms etc. need to be input in the invoicing system so that invoices can be automated with correct information and sent without any delay.
Accounts Receivable:
Cleaning up the AR process requires a deeper understanding of the underlying issues leading to high AR’s. This could be due to multiple issues right from delayed invoicing, incorrect credit management to inefficient follow-ups. Proactive alerts and timely escalations, ensure that the right stakeholders involved from both the enterprise and their customer end are taking timely action to contain outstandings. Automating this process ensures accuracy, timely alerts, proactive monitoring and tighter collaboration to maintain a healthy receivables position. Faster turnaround of necessary action in case of any identified errors (say for example errors in invoicing and sorting discrepancies quickly) could ensure that customers are served well while also protecting oneself from past dues.
Payment Collections:
Enterprises encounter issues when payments remitted by customers are accounted late, leading to their account still reflecting outstanding sums until such time. This can impact customer relationships, when they are reminded for payments that have already been remitted. It can also lead to inaccurate working capital estimation. In certain cases, the accounting system could further place the customer account as locked, thereby impacting additional order bookings especially during month or quarter ends. What’s worse, if this system is designed to send notifications to customers regarding such locked status, customer relationships could get sour. Automation tools that recognize incoming receipts and accelerate the time to post entries as per business rules, will significantly ease such issues and improve visibility while enhancing customer experience.
Reporting:
Monitoring and analysis of data across every stage of the order to cash process can immensely help key business stakeholders to see the overall flow of their O2C process and its impact on other processes in the organization. This includes customer relationship, sales cycle, customer service etc.
Global Manufacturer’s O2C Transformation Journey
A leading goods manufacturer with business in most of the categories of electronics had a large and decentralized O2C function. The employees were capturing and processing orders manually. These orders arrived in multiple formats and channels and had to be inputted manually in the ERP. For just a single retailer, the company averaged 500 orders/month. This generated massive amount of data to be handled by their employees.
Copy-pasting the data from orders took several minutes per order due to several to and fro communications to clarify product details among other reasons. The manufacturing giant also had to wait days, before knowing whether a particular invoice was correct and accepted by the customer.
Eventually, the organization went in for full e-process of O2C where orders arrive electronically directly to the ERP. Sales managers were sent notifications who would then approve order and confirm the order receipt electronically. Once the goods were ready for shipping, the electronic dispatch advice was sent to buyer’s stores for them to prepare the receipt in advance. The manufacturing organization then received the electronic receipt in their ERP and issued the e-invoice. All these documents and status messages were digitized between the manufacturer’s ERP and each buyer’s ERP.
The manufacturer now benefits immensely from:
- Faster sales cycle due to significant decrease in order processing time.
- Lower costs due to paper elimination, reduction in manual tasks and outbound communications like emails and phone calls.
- Faster payment cycle time and accurate cash flow forecasts since orders and invoices were validated against buyer specific rules before reaching the buyers’ management system.
- Improved customer service levels due to timely order and invoice processing.
When enterprises understand the value of leveraging automation technologies for a more integrated Order-to-Cash process, it helps businesses not only to efficiently deliver value to their customers but also streamline the entire supply chain, adding real revenue to the balance sheet by reducing waste, error and cycle time.
