AR’s Digital Transformation: How to Leverage KPIs
Accounts Receivable Key Performance Indicators
Digital transformation has become cornerstone of business operations and accounts receivable (AR) is no different. Previously, most performance assessment in AR was done by looking at the total dollar amount of invoices, days outstanding, and customers with credit issues. This style of assessment is no longer effective as the accounts receivable market continues to be disrupted by variety of technology-based solutions.
Order to cash solutions empower organizations to take an intelligent, data-driven approach to their order to cash processes. But, executing digital transformation effectively requires comprehensive understanding of the available order to cash solutions and clear plan for achieving set of key performance indicators (KPIs).
This article is aimed helping executives understand the best way to leverage KPIs in the order to cash market. We will explore the most impactful KPIs, discuss how to execute successful digital transformation plan, and break down the step-by-step details of implementing an order to cash solution.
Establish Strategic Goals and Review Current Status
The first step in successfully transforming the AR department with an order to cash solution is to establish objectives. To do this, review the current status of accounts receivable performance and then define series of achievable goals. When setting these goals, consider the financial, operational, and customerservice objectives of the organization. Ask questions such as: What are the current costs associated with accounts receivable? What processes create the most pain for customers? How can we leverage technology to reduce manual processes and improve payments cycle?
Incorporate Key Performance Indicators
Once the objectives and goals of implementing an order to cash solution are set, the next step is to incorporate key performance indicators (KPIs). These are the metrics that will be used to measure the effectiveness of the order to cash platform. KPIs can vary, but often include measures of payment cycle time, total invoices processed, number of collection cases, cash flow cycle, and customerservice indicators.
A well-thought out set of KPIs gives the organization the ability to monitor performance and quickly adjust processes as needed. Additionally, when developing KPIs, make sure to involve relevant stakeholders from the accounts receivable team. Getting feedback from those working with accounts receivable on daily basis helps ensure the KPIs will eventually result in the intended objectives.
Choose the Right Order to Cash Solution
Once KPIs are established and agreed upon, the next step is to select the best order to cash solution for the organizations needs. There are variety of software options that can be tailored to meet various business requirements. Consider factors such as automation options, integrated payment schemes, flexibility of systems, and cost.
When evaluating potential order to cash solutions, look at user reviews and feature reviews that are available. Conduct deep dive into features by reading through the product documentation, and if possible, request demo of the product. This can help you to better understand if the platform is the right fit for your organization.
Establish Necessary Communications
Once the right order to cash solution is selected, it is important to set up the necessary communication protocols. This step should involve getting the Accounts Receivable and IT departments on the same page and establishing the necessary channels for information exchange.
The accounts receivable team and it ishould work together to decide the best way to transfer data between the AR system and the order to cash software. Additionally, consider how customer-facing processes for payment cycles, invoicing, and collections might change with the new system.
Create User-Friendly Process
After integrating the order to cash solution with existing systems, it is important to take the time to create user-friendly processes for the accounts receivable team. This includes process mapping, understanding the roles of each team member who interacts with the new software, and designing workflow that is efficient and easy to follow.
This step of the process is critical for the successful implementation of the order to cash system. Working with process mapping in the early stages allows teams to understand all the processes affected by the implemented software and to fine-tune them accordingly.
Monitor Performance and Make Adjustments
Once the order to cash solution is fully implemented and processes are well-mapped, it is time to start tracking metrics to measure success. Regularly review metrics to ensure that the KPIs initially established are being met. In cases where metrics fall below the desired levels, make small adjustments in processes and software to improve the performance. Experiment with various processes and procedures to discover the best individual for your business.
Conclusion
Digital transformation of the accounts receivable department is major step for any organization. Utilizing order to cash solutions enables organizations to leverage KPIs to measure performance and more effectively manage the invoicing and payment cycles.
Executing successful digital transformation requires thoughtful goal setting, identification of the most suitable order to cash system, and monitoring performance after implementation. Careful consideration of each step of the process is critical for seeing maximum value out of the order to cash solution. Armed with the right tools and best practices discussed above, executives can embark on the journey to digitally-transformed accounts receivable department.
