During times of significant economic disruption, organizations are often uncomfortably reminded of one of the longest-standing truths in business — that cash really is king.
Cash keeps our doors open. It helps us seize new opportunities at a moment’s notice. And most importantly, it lets us weather the storm when uncertainty strikes.
Global crises like the one we’re experiencing in 2020 force businesses to refocus on the importance of cash. And a natural place to start is by re-evaluating their Accounts Receivable (A/R) strategies — an exercise sometimes long overdue.
A/R departments face a unique opportunity: the perfect moment to reassess and re-engineer how they collect.
Getting this right means making changes that will keep cash flowing faster long after we’ve weathered this particular storm — and ensure we’re ready for the next one.
Here’s the thing. If you’re focusing only on your past due, you’ve already lost the game. To really win, you need to be executing proactively — taking action long before your invoices are due.
Despite their best intentions, A/R departments end up running as if they expect to be paid — until they’re not. Occasionally that’s because customers actively don’t want to pay, but much more often it’s because something has gone wrong in the process.
Perhaps you’re not set up as a supplier in their system. Maybe you’ve misunderstood how to invoice them — or the PO could be missing entirely. What’s really important to note about all of these common issues is that they can and should have been handled well before crunch time.
Ideally, A/R teams should be planning proactively, looking at the invoices soon to come their way, cross-referencing value and likelihood to pay, and then figuring out a game plan long before the due date.
Spoiler alert: the right technology makes that entirely possible.
Effective collections management is all about intelligent prioritization. Your collectors’ time is a finite resource, and prioritizing the accounts they focus on is key to maximizing the team’s capacity to execute.
Most of the attention naturally gravitates towards aged A/R that is either outstandingly large, or outstandingly overdue – but those accounts don’t always represent the best use of a collector’s time.
Businesses can now estimate a customer’s likelihood to pay — and build their collection strategy accordingly. Sales information about a customer, or historical payment behavior — all data already inside your systems — can reveal important trends, patterns, and warnings that enable collection departments to invest their time as wisely as possible.
By having access to this data in real time, they can then focus their efforts on the accounts most likely to deliver and have the biggest possible impact on the organization’s bottom line.
Your collections team are expert problem solvers – jumping into complex customer scenarios to provide help and ensure you get paid. That takes a huge amount of skill.
But there are two big execution gaps getting in the way — a huge amount of manual work, and the fact that they don’t have the visibility that every other customer-facing function has.
The first is easily solved. With all of the data collation and automation technology available today, many of the routine parts of a collectors’ job should be automated – giving them more time to focus on what they do best.
The second requires a broader change in thinking. To give your collections team the best chance of getting the right results from each customer engagement, they need to be empowered with the same complete customer view as your sales or marketing teams.
Collection conversations can be complex and hard to navigate. With a clear view of a customer’s history, their current situation, and all other information relevant to their outstanding invoice, collectors can ask the right questions the first time.
Every conversation can be as positive, satisfying and successful as any other interaction with your business.
In the long term, one of the most important levers to pull to accelerate the cash conversion cycle is renegotiating contracts and payment terms with customers. Simple in theory, but much harder in practice.
Once again, better managed and more accessible data can really help. Today, you can track if a customer is repeatedly exceeding their payment terms, and go to them with verifiable data about it. Making a strong case for renegotiation becomes much easier.
With complete visibility into real-time customer data, your team can also make better-informed decisions about credit and payment terms, leading to more judicious extension of credit to riskier customers — and much healthier A/R.
And if that visibility extends beyond your own organization and factors in how a customer is paying other suppliers, or their overall financial position, so much the better.
This is all very well — but it’s pointless if you can’t track the impact your changes are having. To really have your finger on the pulse, you may also need to rethink the metrics you’re measuring.
To date, Days Sales Outstanding (DSO) remains one of the most widely-tracked KPIs for Accounts Receivable. But in practice, it’s just a satellite metric. It tells you how long it’s taking you to get paid, but gives you no real indication of the amount of cash you’re bringing in.
More CFOs should be tracking the percentage of current A/R as a primary A/R KPI. That’s a much better reflection of the performance of a modern collections team.
By understanding the relative distribution of current and aged A/R, teams can focus on proactively intervening on the high-dollar, high-likelihood-to-pay invoices that will keep the percent of current high.
A crisis can feel like the worst time to be making changes to your Accounts Receivable strategy. But as the past has shown us, it’s actually the perfect opportunity to drive change — and can be the key to not just surviving, but thriving long-term.
All of the challenges mentioned above are solvable with the right mindset — and the right technology. It’s time to meet the Celonis Execution App for Collections Management: a purpose-built application that helps you accelerate cash flow and reduce costs, all by making every customer interaction more valuable.
The app extracts data from your transactional systems in real time, using Process Mining technology to understand the operational reality of your collections. It then leverages machine learning and automation to identify issues, make intelligent recommendations and take automated action across your ERP, CRM, and email to fix them.
You can finally get a precise, risk-based forecast by using machine learning to analyze the risk of non-payment for each single invoice.
You can benefit from the kind of holistic view of your customer that was previously exclusive to sales and marketing — by pulling data from every system.
You can prioritize work based on likelihood-to-pay — and the KPIs you want to achieve, whether that’s percentage of current (as it should be), DSO, collection effectiveness and so on.
Last but not least, you can increase productivity by automating the things that should already be automated — like certain communications and source system updates — so your collectors can focus on your customers.
In short, it does everything truly modern A/R software should do. It gives AP leaders the power to make better decisions, enables managers to act more proactively, and collectors to work more effectively — so your department can execute at maximum capacity.
During the 2008 financial crisis, multiple major institutions were able to successfully refocus on working capital and make big changes that ultimately kept them operational.
Today, with stronger technology and better data-driven capabilities at our fingertips, we’re in a better position to make and execute on those changes than ever before.
We’ve already gotten smart about payments. Now let’s get smart about collections. Discover the Collections Management Execution App and find out more about how Celonis can help you improve cash conversion cycle times and build a smarter, data-driven Accounts Receivable strategy.
Guido Torrini is the Chief Financial Officer at Celonis, the market leader in enterprise performance acceleration software. Prior to joining Celonis, he served as CFO at Gympass where he helped scale the business beyond the $1B valuation, expanding the operations in Europe and the US. Before that, he led Groupon’s Global Commercial Finance teams through significant hyper growth. Guido began his career with Cisco and Dell, where he covered a variety of Finance and Accounting roles across multiple countries in both developed and emerging markets.
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