Order-to-Cash transformation: A lot more than just automation

Corcentric

The COVID-19 pandemic has forced companies globally to re-assess every aspect of their business, trying to identify areas for improvement that can preserve liquidity, pay down debt, reduce risk and unleash cash trapped in working capital.

The order-to-cash process, also called O2C, is key to these objectives.

CFOs and treasury executives are finding that simply automating repetitive, manual and paper-based processes in accounts receivable will not get them where they need to be. Order-to-cash automation has indeed enabled companies to reduce costs, increase efficiency, and provide visibility into transactions, but automation alone is not the pathway to achieving key working capital goals. According to The Hackett Group’s 2020 Working Capital Study, businesses’ average Days Sales Outstanding (DSO) is at its highest point in the past 10 years, and an estimated $1.2 trillion is trapped in working capital. This situation begs the question – how can O2C performance be in such bad shape despite widespread investment in digitization and automation?

I recently participated in a webinar, Guaranteed Improved Working Capital: Why Technology Is Just Not Enough, hosted by industry researcher and analyst Mark Brousseau and sponsored by Corcentric.

Along with my colleague Jeff Grosman, Order-to-Cash Practice Lead at Corcentric, we explored an approach called Managed Order-to-Cash, which employs a combination of technology, managed financial services and consulting to achieve guaranteed DSO and working capital results.

 

What is Managed Order-to-Cash?

Although automation, specifically SaaS solutions, contributes greatly to improved accounts receivable (AR) performance, there are major gaps that need to be closed. In each step of the O2C life cycle, these gaps cannot be addressed through SaaS technology alone:

 

Onboarding & Credit Management

Onboarding new customers to billing and payments systems requires human interaction for customer data gathering and training. For these new customers, SaaS technology exists to evaluate and recommend lines of credit for their accounts, but credit decisioning technology cannot extend the actual credit line to the customer – or take on that customer’s risk.

 

PO & Invoicing

Exceptions management must be handled by full-time employees (FTE’s), and incoming payments can be delayed on account of an uncertain exceptions resolution timeframe. When it comes to processing POs and generating invoices, certainly a SaaS solution is an appropriate tool, but that’s how far it goes. Once exceptions occur, you need to have people in position to handle them.

 

Payment Management – Guaranteed, Accelerated Payments

SaaS O2C technology can only offer “aspirational” targets for DSO improvement. No matter how insightful or productive SaaS O2C technology may be, it cannot guarantee that customer payments will come in the door on their due date, nor can it eliminate the risk of customer non-payment. This is perhaps the single greatest merit of the Managed O2C approach – offering sellers the ability to choose the precise amount of time it will take to receive customer payment – and for that to be a guaranteed outcome for every receivable.

 

Dispute & Collections Management

Most invoice dispute management requires FTE attention – especially when resolution requires interacting with other departments outside of AR itself. No piece of SaaS O2C technology can reasonably automate dispute resolution – it requires a thinking mind to learn the issue and solve the problem. With collections, there are numerous technology providers who specialize in orchestrating and guiding collections processes – but a team of FTE’s is still required to undertake human-to-human collections interactions.

 

Customer Support

Whether it is customer training or support after onboarding, automated O2C solutions must leave these tasks to billing and invoicing staff to complete. And, depending on the volume of new customers, and whether seasonality or other issues play a part, you need to be able to scale FTEs accordingly.

With Managed Order-to-Cash, a third-party not only provides the technology solution along with training and implementation, it also provides managed financial services and consulting at each of the steps above. FTEs are liberated to focus on more value-added tasks, and the need to scale depending on seasonality, downturns, etc. is eliminated. With respect to the CFO’s working capital imperative, Managed O2C offers the unique value of guaranteed DSO To deliver a guaranteed DSO outcome for a seller’s accounts, the Managed O2C provider sits in the middle of every transaction – remitting payments to you at your chosen terms and independent of the Managed O2C provider collecting payments from your customers on terms agreed upon between the customer and the Managed O2C provider.

 

Managed Order-to-Cash Benefits Both Sellers and Buyers

Automation-only approaches to O2C transformation often forfeit an opportunity to bring additional value to customers in addition to the seller. Buyer benefits through the Managed O2C approach tend to foster fidelity to the seller’s brand and remove transactional friction that stands in the way of the buyer doing more business with you.

Benefits for Sellers

 

    • Low or no FTE burden
    • No complex, lengthy SaaS system implementation
    • Guaranteed DSO and risk elimination
    • Guaranteed working capital impact
    • Easily scalable with the business

 

Benefits for Buyers

 

    • Minimized billing complexity and friction
    • Fully managed platform training
    • Adaptable to AP’s invoicing requirements
    • Flexible payment terms
    • Efficient dispute resolution

 

Businesses in the middle market and above can see significant savings, an immediate ROI, and guaranteed working capital outcomes when working with a Managed O2C provider. The reality is that once DSO goes down, working capital is released. In the COVID era, an automation-only approach to O2C cannot deliver an ROI or working capital result in sufficient measure or with the speed demanded by the times. By expanding beyond automation alone, Managed O2C is a superior approach to transforming this critical business process.