converting blind spots into cash & profit - bcca chicago 2012 - coverting blind spots....pdf ·...

Converting Blind Spots into Cash & Profit

Speaker:John G. Salek, VP Business Services, Genpact USA

© 2012 Copyright Genpact. All Rights Reserved.

Date: July 19, 2012Chicago, Illinois

Converting Blind Spots into Cash and Profit


Table of Contents

1. Introduction and Objectives

2. Metrics

3. Case Study

4. Conclusion


Introduction and Objectives

Good to be back!

Objectives for this meeting:Objectives for this meeting:

Demonstrate that your Order to Cash (OTC) and Accounts Receivable (AR) metrics should be evolving as your business evolves

Explore how an excellent performing company identified “blind spots” in its metrics reporting package


A High Level Look at Metrics

• To measure the performance of the management of the revenue stream:• Effectiveness• Efficiency

• To provide a level of insight into operations and challenges• To minimize the time and cost of reporting

You cannot manage what you don’t measure

Objectives of Metrics/Key Performance Indicators (KPIs)Objectives of Metrics/Key Performance Indicators (KPIs)


Usually tracks actual department cost vs. budget

Fuel process improvement, performed periodically

Enable monitoring of daily activities and INPUTS, not just the OUTPUT (results) at month end

Focused on results/outputs of the process

Major Types of Metrics

Accountability and incentives for the right metrics will drive results

Essential KPIsEssential KPIs

Operational KPIsOperational KPIs

AnalyticsAnalytics

Financial ReportingFinancial Reporting


The Essential KPIs

• Billing Quality Index (BQI): Percentage of error-based credit memos divided by percentage of invoices issued in a period

• Measures accuracy of contract and pricing administration, order processing, and invoicing

• 2% is good performance, 1% is excellent

• Billing quality is the “Holy Grail” of receivables management and has a positive impact on customer satisfaction

• Benchmark: one of our Media clients is at 1 to 2% consistently

Accurate invoices will be paid without intervention most of the time

“Front End” OTC Quality “Front End” OTC Quality


The Essential KPIs

• Actual DSO vs. best possible DSO gap• Benchmark: Media clients range from 39 to 70 depending on mix of direct vs. agency. Credit

Research Foundation shows industry Median of 74.

• Aging percentage, especially the 11-30 (and greater) days past due amounts • Benchmark: Media clients range from 22 to 40%

• Cash collected vs. target

Asset Turnover Asset Turnover

• Risk profile/credit rating of AR portfolio (D&B or bond ratings)• Aging percentage, especially the over 90 days past due amounts • Bad debt charge-offs as percentage of revenue

Asset RiskAsset Risk

• How collectible is the asset? • Prevalence of disputes, billing errors, deductions (AKA dilution/”clutter”)• Beware overstatement of asset value (and overstatement of revenue)

Asset QualityAsset Quality


Operational KPIs

Key attributes to be measured are:

• Throughput volumes

• Backlogs: number, value, and age• Benchmark: Media clients Unapplied Cash is 3-5% of total AR

• Timeliness• Benchmark: Media clients Service Delivery to Invoice cycle time is 7to 9 days, Dispute Resolution cycle

time is 22 to 26 days

• Accuracy • Benchmark: Media clients Cash Application accuracy is over 99%

Operational KPIs enable management to monitor the daily work of a functionOperational KPIs enable management to monitor the daily work of a function

Operations teams often have service standards such as Service Level Agreements (SLAs) they must achieve


Analytics

Analysis of any segment of the OTC process and its volumes, backlogs, transaction types, reason codes, customer type or geography etc. to gain insight into opportunities to improve processes, policies, technology, etc.

Benchmarks: Auto-cash hit rate is 71 to 74% in Media, over 90% in other industries E-invoicing as high as 90% in Media, 98% in another industry E-remits range from 18 to 68% across many industries

Analysis of any segment of the OTC process and its volumes, backlogs, transaction types, reason codes, customer type or geography etc. to gain insight into opportunities to improve processes, policies, technology, etc.

Benchmarks: Auto-cash hit rate is 71 to 74% in Media, over 90% in other industries E-invoicing as high as 90% in Media, 98% in another industry E-remits range from 18 to 68% across many industries

Analytics are performed periodically, not continuallyAnalytics are performed periodically, not continually

Reason codes for disputes and credit memos/adjustments are treasure troves of information to fuel improvementsReason codes for disputes and credit memos/adjustments are treasure troves of information to fuel improvements


Case Study: Introduction

The Client: $5 billion provider of transportation and logistics solutions

Over the past decade, the OTC process improved substantially via Lean and Six Sigma-driven continuous improvement

Cash Application - Timing

Unapplied Cash

Customer Experience:• Fewer calls• Accurate calls

Delinquency 14% 8.0%

Bad Debt - % of Revenue 1.1% 0.5%

• $55M increased cash flow• $16M lower bad debt


Customer Master Setup

How to take performance to the next level?

From where is the future improvement coming?

Case Study: The Challenge

CreditCheck

ContractAdmin

OrderMgmt Billing Collections Cash

AppsExceptions

Mgmt

End-to-End Perspective: Where are the opportunities?End-to-End Perspective: Where are the opportunities?

CURRENT METRICSHow do we really know we’re doing well?


Comprehensive review of current OTC metrics

Benchmark performance

Identify the opportunities

Customer Master Setup

CreditCheck

ContractAdmin

OrderMgmt Billing Collections Cash

AppsExceptions

Mgmt

Case Study: The Approach

1

2

3


Seven metrics that were not previously tracked provided valuable insight into OTC process health:

1. Cost of OTC process as percentage of revenue2. Service delivery to invoice cycle time3. Percentage of electronic invoices dispatched4. Visibility to disputes and deductions combined5. Rollover6. Total unapplied cash visibility7. Percentage of electronic payments received

Case Study: Results

For most OTC benchmarks, the company compared very favorably


Program SEP Business Outcome Impacted Cash Flow Annual Profit

Billing accelerationObjective: To reduce service charges that miss the periodic billing cutoff

Service to Invoice Cycle Time $20–30 million reduction in unbilled revenue ( 40-60% improvement)

$1000–1500 K at 5% interest

Advance collection contact for targeted accountsObjective: To accelerate payment from historically late paying customers

DSOPast Due as % of AR

$8–10 million annually with 25% conversion rate

$400–500 K at 5% interest

Increase electronic commerceObjective: Improve customer satisfaction, reduce transaction and mailing costs

Cost of OTC functionCustomer Satisfaction

$0.2 – 0.5 million annually at 20-50% adoption rates

$200–500 K

Increase auto-cash hit rateObjective: Increase productivity and reduce staff requirements

Cost of OTC function $24 – 96 K at high EIPP adoption rates

$24–96 K

Total $28 to 40.5 million annually

$1.6–2.5 million annually

Case Study: Opportunities


Identify the blind spots in your metrics: Is lack of visibility causing you to overlook opportunities to increase cash flow, cut costs, or reduce revenue dilution?

Identify the blind spots in your metrics: Is lack of visibility causing you to overlook opportunities to increase cash flow, cut costs, or reduce revenue dilution?

Conclusion

Metrics need to change as the business changesMetrics need to change as the business changes


Your Questions


Thank You

John G. [email protected]

converting blind spots into cash & profit - bcca chicago 2012 - coverting blind spots....pdf ·...

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