getting paid: 5 steps to improving collections & cash flow
DESCRIPTION
All companies have them -- past due invoices and slow to pay accounts. Between sales, credit, collections, and customers, there can be many cooks in the kitchen in the process of receiving a customer payment. The absence of tight A/R operation that effectively tracks and manages communications with customers increases the likelihood errors will occur and can create sluggish order to cash cycles. Strategies to get customers to pay on time are essential, and often a few key strategies can impact your company’s days-sales-outstanding (DSO). But when it comes to credit and collections -- effective collaboration is key. Join Scott Pezza, Principal Analyst, Blue Hill Research, and Steve Ferranti , FinancialForce.com as they share practical tips and perspectives on how your company can impact DSO by improving credit and collections collaboration in managing Accounts Receivable. Discover why more and more companies are utilizing enterprise social collaboration tools to get cross-functional teams better aligned around the customer, improve decision making, and speed up cash flow. Steve Ferranti will demonstrate exactly how it’s being done at companies of all sizes by leveraging FinancialForce Accounting.TRANSCRIPT
Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals
Getting Paid: 5 Steps to Improving Collections & Cash Flow
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Welcome to Proformative
Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals
Getting Paid: 5 Steps to Improving Collections & Cash Flow Scott Pezza, Principal Analyst, Blue Hill Research
Context: Top Objectives
• Improve Cash Management
• Reduce Days Sales Outstanding (DSO)
• Reduce Time Required to Process Receivables
• Reduce Customer Inquiries
• Increase Usage of Electronic Invoicing
Sources: Blue Hill Research AR Trends Pulse Survey (2014), Institute of Financial Operations AR Automation Studies (2013, 2014))
Context: Top Challenges
• Impact of Customer Default or Missed/Late Payments
• Desire to Reduce or Control Labor Costs
• Customer Reluctance to Use Electronic Invoicing
• Lack of Collaboration Between Functional Areas
• Customer Attempts to Extend Payment Terms
Sources: Blue Hill Research AR Trends Pulse Survey (2014), Institute of Financial Operations AR Automation Studies (2013, 2014))
Credit review Sales order management
Customer billing and invoicing
Collections Dispute resolution Cash application1
2
3
4
5
3.29 3.28
3.6
3.023.22
3.61
O2C Self-Assessment
Sources: Blue Hill Research AR Trends Pulse Survey (2014)
Abili
ty t
o H
and
le (
1 =
Poor,
5 =
Very
Well)
O2C Automation Profile
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
44%59%
48%61% 55% 59%
10%
27% 45%10%
0%
21%
Partially Automated Fully Automated
Customer Interaction: Billing & Payments
41%
59%
Outgoing Invoices
PaperElectronic
43%
57%
Incoming Payments
53%of Customer BaseAccepts eInvoices
54%of Customer BaseUses ePayments
Sources: Blue Hill Research AR Trends Pulse Survey (2014)
Research Wrap-Up
• Sellers want to– Improve process efficiency– Speed up customer payment
• Buyers want to– Improve process efficiency (common ground)– Extend payment terms
• Technology is currently– Addressing the “low hanging fruit” with electronic
invoicing and payment– Helping to automate (at least partially) O2C processes in
many firms
Working Towards Solutions
• Start with the problems: slow payments and high DSO
• Work backwards to understand the reasons:– Inefficient customer AP processes– Inaccurate information from our billing/invoicing– Customer scale and negotiating leverage– Customer financial distress
• Identify strategies to avoid or address those difficulties
When looking for answers, everything is on the table: credit, sales, billing, collections, and dispute resolution
Step 1: Make Informed Sales
• Problem: Customer default or inability to pay can have a large impact on sellers
• Source: Selling to unfit buyers or not using appropriate terms to minimize repayment risk
• Solution:– Enable information exchange between credit, sales, and
collections to ensure future sales are informed by past payment performance
– While you may not want to forego a sale outright, adjust terms to (1) require full or partial payment in advance, (2) reduce the net term, (3) offer discount-based incentives for early payment, or (4) impose penalties for late payments.
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Getting Paid: 5 Steps to Improving Collections & Cash Flow