Customer-to-cash in the era of COVID

In the world of COVID, recognizing revenue in an increasingly remote world has become a challenge for most if not all CFOs.

Recent research from Deloitte’s CFO Signals survey shows that just 37% of respondents reported that they expect to achieve 95% or more of the revenue they originally budgeted for in 2020. Moreover, 25% say they won’t reach or exceed their pre-crisis operating level until Q1 2022 or later. Due to this new reality, several concerns are pushing CFOs to reassess how to achieve their revenue targets as part of the Customer-to-Cash (C2C) process.

For most organizations managing Customer-to-Cash can be separated into upstream and downstream processes. For instance, upstream C2C or “Quote to Order” refers to the processes of taking customer orders via different sales channels like email, internet, salesperson, fax (phone vs. Fax), or by some other means like EDI, and then fulfilling the order, shipping, logistics.

Downstream C2C processes or “Order to Cash”, then refers to generating an invoice, collecting payment for that invoice, and receipt.

Whether it’s improving business processes that involve providing credit, automating invoice, or improving the collection process, managing Customer-to-Cash has a new sense of urgency that requires CFOs to rethink immediate ways for managing these processes. And with sales demand uncertain, improving working capital outcomes are even more critical than ever to recognize revenues sooner than later as part of any C2C process.

While there are a lot of ways to potentially grow revenue, the inevitable need to improve efficiencies and achieve cost reduction often points to the most repeatable operational processes within the “order to cash cycle” and is often a low hanging fruit for C2C improvement. Moreover, looking at key benchmarks makes it clear to see how process improvements can help offset the need to generate more revenue.

Recent research from the Hackett Group looks at the complete C2C process and points to the differences where processes efficiencies and effectiveness differ between “world-class” customers, particularly for processes that may be paper-intensive. In their 2020 Hackett Group Finance Benchmark study, Hackett shows that making improvements in key areas such as billing distribution and collection management can be significant and help overcome the revenue crunch.

The study points out that world class organizations demonstrate a 10% difference in the percent of hands-free customer invoices generated and distributed electronically (80% versus 70%). World-class organizations also have fewer errors and disputes as part of their total number of invoices managed with a 0.5% improvement of customer invoices corrected for billing errors, have 1% fewer invoices that are related to disputes, and can cut process costs over $5 per order as compared to a typical company. For organizations that generate thousands of invoices a month, finding a way to improve billing can translate into millions of dollars that directly hit the bottom line.

To manage these repeatable labor-intensive processes some have turned to Robotic Process Automation (RPA). Seen as a quick way to fix mundane processes that require rekeying, RPA may be a natural choice to “quickly digitize”. However, despite the influx of capital into RPA ($6.7 billion according to Pitchbook) and Gartner reporting that it is the fastest-growing market in enterprise software, RPA should not be considered a silver bullet solution, and real-life implementation has struggled to meet expectations to date given the importance of internal workforce alignment (source: The Machine).

As part of the effort to reduce headcount and to weather the new reality of a larger remote workforce, CFOs may need to look at augmenting existing teams through outsourcing to strike the right balance between outsourcing and automation. In this regard, the Deloitte Q2 2020 CFO Signals survey found that 16% of CFOs are expecting to use more outsourced services. Other research points to the expanding value of outsourcing as a model of choice. Everest Group, a consulting and research firm focused on strategic IT, business services, and sourcing notes that traditionally organizations may have already outsourced transactional AR processes such as billing and collections that provide direct cost reduction.

However, increased maturity of the marketplace shows that new opportunities exist to expand beyond cost reduction alone, by looking at creating favorable business outcomes such as enhanced customer experience, reduced DSO, optimized working capital, effective cash management, and reduced revenue leakage. Furthermore, according to research firm IDC, for those already using outsourced providers during times of economic downturn, more times than not organizations tend to keep BPO providers in place as they provide cost efficiencies during a time where cost management is most critical.

As the impact of the COVID crisis continues to unfold CFOs will still need some guidance to understand what they should be shooting for. Whatever way that they choose to improve revenue recognition will still require essential metrics around days sales outstanding or DSO and working capital management. Especially in the era of COVID-19, effectively benchmarking all processes from credit risk through to collections and cash application will be an essential part of any CFO’s wider strategy as they look to improve their bottom-lines into 2021.

If you are looking to improving efficiency and effectiveness in your C2C processes, join us as we host the Hackett Group’s Bryan DeGraw, Associate Principal, and Program Manager of Customer-to-Cash. During this webinar, Bryan will present data from the 2020 Customer-to-Cash Top Performance and Best Practices research which will include key research findings, layout what differentiates world-class organizations, and discuss C2C best practices that can drive effective working capital management.

Additional Resources

A Day in the Life of an Invoice
Top 5 Habits of Highly Successful AP Departments
Change Management for Implementation Success
The Value of Guaranteed Order-to-Cash Business Outcomes
How to Ease a Cash Crunch with e-Invoicing