The coronavirus (COVID-19) pandemic has forced companies globally to reassess every aspect of their business, identifying 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.
According to The Hackett Group’s 2020 Working Capital Study, average days sales outstanding (DSO) is at its highest point in the past 10 years, and an estimated US$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?
CFOs and treasury executives are finding that simply automating repetitive, manual and paper-based O2C processes will not get them where they need to be in the COVID-19 era. Traditional O2C automation technologies have enabled companies to reduce costs, increase efficiency and provide visibility into transactions — but automation alone is not the best way to achieving key credit risk and working capital goals in 2021. To do so, businesses should consider a managed O2C approach that combines automation technology together with human services and guaranteed payments management.
Why Automation Isn’t Enough
Although software-as-a-service (SaaS) automation solutions contribute greatly to improved accounts receivable performance, major gaps need to be closed. In each step of the O2C lifecycle, these gaps cannot be addressed through SaaS technology alone:
Onboarding and 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 remove the risk associated with extending credit to a buyer.
PO and invoicing. Exceptions management must be handled by full-time employees (FTEs) and incoming payments can be delayed on account of an uncertain exceptions resolution time frame. When processing POs and generating invoices, a SaaS solution is an appropriate tool, however, once exceptions occur, people must be in position to handle them. Furthermore, while SaaS solutions may streamline the exceptions resolution workflow, human intervention is required to identify root causes and take action to prevent their reoccurrence.
Payment management — guaranteed, accelerated payments. SaaS O2C technology can offer only “aspirational” targets for DSO improvement. No matter how insightful or productive SaaS O2C technology may be, it cannot guarantee that customer payments will arrive on their due date, nor can it eliminate the risk of customer non-payment.
Managed O2C offers guaranteed DSO, in keeping with the CFO’s working capital imperative. 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 according to terms. This is independent of the managed O2C provider collecting payments from your customers on terms agreed upon between the customer and the managed O2C provider.
Dispute and collections management. Invoice dispute management usually requires human attention, especially when resolution requires interacting with other departments outside of accounts receivable. Today’s SaaS O2C technology cannot reasonably automate dispute resolution; a thinking mind is required to learn the issue, solve the problem, and act on root causes to prevent a reoccurrence. And while numerous technology providers specialize in orchestrating and guiding collections (dunning) processes, human-to-human collections interactions still require a team of employees who can dialogue with customers in a personable manner that respects business relationships.
Customer support. Automated O2C solutions must leave tasks such as customer training and post-onboarding support to billing and invoicing staff. Further, depending on the volume of new customers and issues like seasonality, support teams must be able to scale FTEs accordingly.
With managed O2C, third party provides the technology solution along with training and implementation — as well as managed payments services and human services at each of the steps above. In-house employees can focus on more value-added tasks, and the need to scale depending on such factors as seasonality and downturns is eliminated.
Benefits for Buyers and Sellers
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.
The seller benefits:
- 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
- Readily quantifiable and more certain ROI.
The buyer benefits:
- Minimized billing complexity and friction
- Fully managed platform training
- Adaptable to the accounts payable function’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. Once DSO goes down, working capital is released.
In the COVID-19 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, managed O2C is a superior approach to transforming this critical business process.