The Right Way To Digitally Transform Invoice to Cash (& Fully Utilize Your Data)

With over 150 speakers and four jam-packed days of content, as a presenter it’s difficult to stand out at Shared Services & Outsourcing Week North America. However, BlackLine’s workshop on applying digital transformation in the invoice to cash process, was able to do just that due to its clarity and practicality. In this article, SSON rounds up the top take-aways.

Speakers: Danny Wheeler, Solutions Strategy and Marketing Manager, BlackLine
Tom Bangemann, Head of Data Development & Research, SSON Research & Analytics.

The Data Behind Invoice to Cash Strategy:

As Bangemann shared, we’ve been trying to automate O2C for over ten years but results from SSON’s AR Research Report, showed mixed success at best. To break it down, within the order to cash sub-processes, cash application is the process most shared services have already integrated, followed by collections, customer billing and credit and risk management. 43% of GBS organizations are already using a GPO (Global Process Owner) for their O2C process and O2C stood out surprisingly as the main process being impacted by ESG. This is due to customers growing sustainability expectations plus tight governmental regulations, particularly if you are working in the European Union.

From an automation standpoint 53% of SSCs rate their overall automation maturity as medium. As a process, O2C was only slightly better, but still lags behind Procure-to-Pay which is by far the most mature in terms of automation and data analytics.  Although not unexpected this represents a clear opportunity as O2C as a process has the biggest impact on working capital and cash-flow. Therefore, the question is, how do we fast-forward this?

4 Steps to Get I2C Automation Started

1. Investigate Your Process: As the saying goes: “A bad process will beat a good person every time…….”  So, investigate the process before evaluating the people as all processes can be improved and measured!  Between remote working, unallocated cash, data workflows, delayed invoicing, managing remits, manual workarounds and credit lines; traditional manual AR is chaos on a deadline! Make sense of this chaos and you’ll begin to see how you can reduce time and effort.
2. Measurement is key to progress: Measurement is vital if you are looking to transform and as Wheeler stated: “If you are not continuously improving you are not managing, just supervising.” Always deal in FACTS – frequency of measurements, aims, comparisons (benchmarks), trends (performance over time and understanding where the peaks and troughs are) and segmentation (segment customers, how you want to deal with them and how they want to be dealt with).  Currently organizations are using a variety of different metrics to track their I2C efforts, but the most popular appear to be: DSO, bad debt, best-possible DSO, ADD and overdues.
3. Examine what’s stopped you from automating AR already? Bangemann revealed that the top reason people have not already automated AR is difficulty in integrating new AR software to existing systems (27%).  Other respondents to the survey, cited lack of budget or funding for automation (23%) and competing priorities (18%), plus anecdotally a fear around automating. Forewarned is forearmed, and factoring these potential objections into your planning will ensure motivation isn’t lost when there’s an obstacle in sight. In addition, nearly all ERP’s have been connectivity than ever before, so worries about integrating new software to existing systems, are largely unfounded.
4. Identify Your Vital Stakeholders & Manage Them: Finance is an obvious place to start so ensure your CFO, finance managers and AR team fully understand the problem at hand. If they’ve been head down working on their small piece of the puzzle, they might not fully understand the scale of them problem and the need for change. Ensure they understand the impact automation can have and that you fully understand their concerns. You will also want to meet with IT, to ensure they are aware of the project and the estimated requirement of their time. As well as the CFO, executive management should be made aware of the automation project as it will have an impact on topics close to their heart such as cash-flow and financial reporting. If you can secure their buy-in and have a second executive sponsor (aside from the CFO) this is very beneficial, especially if there is a change at the executive level.

Why Building A Base Is Vital To I2C Success:

The workshop revealed that the majority of organizations (60%) are still using their ERP primarily to manage cash application, just 27% use third-party automation software. Meaning that there is a huge opportunity to improve cash-flow and profit.

Wheeler shared that, when starting to automate, most organizations tend to look at collections and risk solutions first, to help generate quick cash.  However, this often just adds fuel to the fire by pushing more payments into an already struggling process. Rather than increasing productivity, this route often leads to more time on rework, an increase in chasing customers who have already paid and inaccurate, basic data visibility. In short, it’s like trying to build a new house and starting with the roof: there’s no solid foundation to start on.

One thing BlackLine has seen work well is to start the automation journey with cash application, this can be an easier route to digitally transform your I2C. Good cash application helps a team transform from data processors, to one which is interacting with customers, dealing with exceptions and privy to better visibility. The improved customer experience embedded in this method, has a big impact on customer retention, upselling and ultimately on revenue/profit! Once cash application has been transformed, collections can be improved, as you already have the payments process streamlined and ERP is up to date.

Realizing the Potential of Your Data:

Wheeler explained that one of the most transformative results of automating is the impact it has on your data. Most organizations are currently operating with historic data, which will tell you where you’ve been, but not where you are going. By applying AI to your AR process, your data can be real-time and constantly updated to factor in risk-data, customer updates and feed it back into the collections team. In this way, you can reduce the number of billing errors vastly, which is always an excuse for customers to delay payment, or not to pay at all! You can also start to compare peaks and troughs and look at team productivity and time allocation. Once done, you can start to move into predictive and prescriptive analytics which will tell you where you’re going and enable decision intelligence.  Which should please the 98% of CEOs who admitted they could be more confident about the visibility they have over cash-flow.  Crucially you can also compare your forecast to reality and analyze what’s missed

And it doesn’t stop there; with real time data in-depth insights can be provided to sales. This includes understanding what makes a good customer, who should we trade more with, who costs the business to trade with etc.?  This doesn’t necessarily mean they should be black-listed, but rather that shorter or stricter payment terms need to be negotiated.

Wheeler and Bangemann ended the session by answering the following question: “What do you see as the 3 biggest focal points in Invoice to Cash/ AR for the next 18 months?” The results were: customer relationship management, implementing a new AR software to streamline processes and focusing more on increasing revenue and working capital aspects. Do you agree? For a deeper dive into the topic, download a copy of BlackLine’s Research Insight Report in conjunction with SSON Research & Analytics on the topic of Invoice-to-Cash: Navigating the Crossroads.