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Getting Paid: 5 Steps to Improving Collections & Cash Flow

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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