hackett research summary · best practice: • provide incentives for early payments • enable...

Evaluate Your Order-to-Cash Process:15 recommended metrics to benchmark your O2C operationsHackett Research Summary

Source: Raising the World-class Bar in Finance Through Digital Transformation, The Hackett Group

Executive Summary

The first half of 2020 has seen disruption to normal operations in many businesses. Defending cash has been paramount as finance leaders focus hard on liquidity and optimising working capital. This new “cash culture” is expected to be in play for the foreseeable future - a landscape where A/R departments can have a significant influence and contribute to a quicker business recovery.

“Top-performing companies operate at 57% less cost which, for a $10 billion organisation, equates to approximately $200 million in cost savings from general and administrative (G&A) efficiency alone”.Hackett Group Blog 2020

This paper outlines 15 key metrics recommended by Hackett Group that depict a world-class order-to-cash process.

Considering efficiency and effectiveness, each performance indicator is described through the best practices top performing companies employ along with the outcomes they drive.

To find out how you measure up, create your own Receiveables Management Benchmarking Report which will provide performance gap indicators and will help to determine a starting point for improvement and recovery.

The economic volatility has meant agility is critical which in turn has relied on real time visibility and monitoring of important financial KPI’s, risk metrics and customer information to drive robust decision making, flexibility and productivity in receivables processing.

Whilst it is hard to say yet who has successfully weathered the covid storm, those who have faired better have been those closest to the characteristics of world-class organisations. Strong processes, insight and automation underpin a higher level of accuracy, cost efficiency, speed and operational resilience which also help to maintain and strengthen important customer relationships.

Although being best in class may not be top of the agenda, acknowledging the benchmarks you can strive towards could help to prioritise any remediation needed throughout a recovery phase. Once attained, your business should be in better shape to make the necessary pivots and enable business continuity given similar circumstances in the future.

“Financial normalcy is expected in 9-10 months from now”.Strategic Treasurer: Global Recovery Monitor June 2020.


What is World-class in A/R?

World-class is defined to be the top quartile performance in operational efficiency and effectiveness process metrics. For today’s A/R teams world-class means being more productive, faster and operating the order-to-cash process at less cost. In addition they are

EFFICIENCYWorld-class organisations operate with more efficiency

EFFECTIVENESS World-class organisations are more effective because they

Five Characteristics of a World-class AR Function ▶ They achieve up to 45% more cost savings than their peers

▶ They enjoy a 24% saving in time spent in low-value work.

▶ They are 50% more likely to have advanced reporting and analytics capabilities

▶ They commit 66% less errors

▶ They collect 95% credit sales within payment terms

more effective at delivering services to internal customers, they can unlock latent business opportunities and can deliver a higher level of customer engagement to improve repeat business

Lower total cost Accurate decision making

Fast cycle time

Higher productivty Optimised working capital

Better alignment to business


Credit Management

Average Days It Takes to Complete New Credit Reviews

EFFICIENCY METRIC Best Practice:• Implementation of best-of breed online

credit application• Automated correspondence for missing• information such as bank/trade references,

backups• Providing real-time tracking of application

status

Benefits:• Improve customer experience with greater

visibility• Reduced manual errors

Average days it takes to complete new credit reviews

Automated Versus Manual Credit Modelling Tools

EFFICIENCY METRIC Best Practice:• Automated stakeholder correspondence for

all credit decisions• Integrating with country-specific and

industry• specific credit agencies, public financials

and Insurance bureaus• Automated capture of the fields from the

credit application form

Benefits:• Standardise credit operation across various

platforms• Improved productivity to work on high

value customers

World-class organisations have faster and more accurate credit operations with the help of sophisticated, automated and dynamic credit modelling tools

Automated versus manual credit modelling tools

World-class organisations are 33% faster in onboarding customers.

3 d

ays

2 d

ays

Peer group vs world-class

33%


84%

16%

25%

75%

2

1


Billing and Invoicing

Percent of Invoices Generated & Distributed Electronically

EFFICIENCY METRIC Best Practice:• Adopt automated e-invoicing portal• Deliver invoice according to customer

preferred channel such as portal and e-mail

• Track conversion of customers from paper to e-invoice

Benefits:Self-service customer portal saves print and mail costsEliminate low-value tasks in billing and invoicing such as dealing with paper, doing back-and- forth


World-class organisations reflect lower billing process costs by 8% in comparison to the overall database.

Average Time It Takes to Bill

Percent of customer invoices generated and distributed electronically

EFFICIENCY METRIC

50%

58%

8%

World-class organisations have been able reduce their average time to bill by 33% thus improving their cash inflow.

Average time it takes to bill

Best Practice:• Self-service customer portal for viewing

invoices • Using a single portal which includes all

relevant• backup documents such as PODs, BOls• Streamlined collaboration between internal

teams

Benefits:• Lower payment cycles• Improved customer experience

3 d

ays

2 d

ays


33%

3

4


Billing and Invoicing

3.0

% Percentage of Invoices Corrected for Billing Errors

Percent of Customers Who Access Accounts via Web-based Application

1.2%

1.8%

Percentage of Invoices Corrected for Billing Errors

EFFECTIVENESS METRIC

World-class organizations reduced billing errors by 1.8% by automating their billing and invoicing


Best Practice:• Automated invoice generation from

ERP open invoices• Inbuilt correspondence templates and

packages• with auto-attached documents

Benefits:• Lower deductions• Faster collections• Better customer experience

EFFICIENCY METRIC

Percent of Customers Who Access Accounts via Web-based Application

Automated billing and invoicing helps top performers to reduce billing errors and create an exceptional customer experience

Best Practice:• Invoicing customers electronically via

email, portals• Allowing customers to pay in electronic

payment formats ACH, Credit cards and e-Checks through payment portal

• Offering incentives to customers to bring them onto Web-based portals

Benefits:• Faster payments• Improve E-adoption• Better customer experience


9% 42%

33%

5

6


Cash Application

Process Cost per Customer Remittance

Automatic Remittance Posting Matching Rate


EFFICIENCY METRIC

Best Practice:• Standardised processing for

different e-remittance types• Automated aggregation of

remittances from portals, e-mails and EDI

Benefits:• Easy e-adoption in payments• Lower cost in process

payments

Process Cost per Customer Remittance

Remittance 95%

Bottom Quartile

Median

Top Quartile

Automatic Remittance Posting Matching Rate

$7.8

2

$4.3

4

$3.0

3

$6.8

8

$4.0

0

$2.5

6

$4.9

2

$2.4

3 $1.0

0

$4.0

1

$1.5

3

$0.3

7

Best Practice:• Template-agnostic remittance capture• Aggregating the remittances from

multiple• sources( mails, EDI, web-portals)• AI enabled payment matching &

exception handling

Benefits:• Reallocate users• Reduced costs

World-class organisations have twice the percent of hands-free cash posting with lower process costs


35% 75

%

40%

7

8


Deductions Management

Average Dispute Resolution Cycle Time

Percent of dispute are not resolved by the initial resolver & needs to be escalated within the management team


EFFICIENCY METRIC

Average Dispute Resolution Cycle Time

Percent of Dispute are not Resolved by the Initial Resolver & needs to be Escalated within the Management Team

Top Performers have established a dispute resolution process that requires less escalation and speeds time to dispute closure

Best Practice:• Identifying deductions at Cash

Application • A single repository for all the backup

documents• such as notes, claims across internal and

external teams• Track deductions aging

Benefits:• Improved recovery of invalid deductions• Better adherence to big box retailers

such as Amazon

World-class organisations established a dispute resolution process that reduced escalation by 5% (half).

Best Practice:• Providing visibility into resolution status

and progress of the dispute• Seamless collaboration between internal

teams• Easing the research process by having all

the documents at one single place

Benefits:• Lowers DDO• More bandwidth to work on invalid

deductions

10 d

ays

7 d

ays

30%


10%

5%


5%

9

10


Collections Management

Process Cost per Collection Contact

Collection Contacts per FTE

EFFICIENCY METRIC

EFFICIENCY METRIC

Process Cost per Collection Contact

Collection Contacts per FTE

World-class organisations have established automated collection process that enables lowered process costs by 66%.

Best Practice:• Providing a prioritised worklist for

collectors• Adopting automatic correspondence

approach• versus dial for dollar approach• Having single source of truth across

various platform to access backup documents such as invoices copies, claims documents

Benefits:• Design scalable collections operation• Facilitates reaching out to a broader

customer base

World-class organisations have established proactive and strategic collections process that enables 30% more contacts per FTE

Best Practice:• Inbuilt correspondence templates and

packages with auto-attached back-up documents to save time

• Sending pro-active reminder to customer prior to the payment due date

• Automated correspondence to different• customer buckets

Benefits:• Restricting phone calls to only select

high-risk• customers• Reduce aging/ past duesPeer group vs world-class

5,78

6

19,3

54

30%

$11.0

66%

$4.0


11

12


Collections Management

Average Days Delinquent

Percent of Credit Sales Collected within Terms



Average Days Delinquent

Percent of Credit Sales Collected within Terms

World-Class organisations leverage smart automation and create direct bottom-line impact by improving metrics such as ADD

Best Practice:• Sending automated proactive

reminders before payment due date• Predict when the customer is about to

pay• using Artificial Intelligence• Provide customers with self-service

portal for viewing invoices and making payments

Benefits:• Improve working capital• Reduce dependence on banks for

short-term banking

World-class organisations leverage smart automation to improve process effectiveness by 12%

Best Practice:• Provide incentives for early payments• Enable payment features such as auto-

pay, schedule pay

Benefits:• Improve Days Sales Outstanding• Minimise missed payments


79%

91%

12%

10 d

ay s

4 d

ays

60%


13

14

Order to Cash

Create your own Receivables Management Benchmark Report

You can now see how world-class organisations operate their Accounts Receivable function, the performance standards they are achieving and the resulting business benefits. Now it is your turn to see where you stand.

Why is this important? The global pandemic has re-emphasised the importance of being able to release cash from debtors. Your AR team have been thrust into the spotlight and whilst they have become critical to current business health many organisations have seen inefficiencies in AR process exposed. It’s time to get back on track, to evaluate, and accelerate process improvement initiatives that will strengthen business resilience.

This custom benchmarking report will help you diagnose your receivables operations to identify improvement opportunities and focus on what matters to your business right now.

To be world-class you will have seen that top performing companies rely heavily on automation and insight. We look briefly at technology in the next section, which looks at the power of integrated receivables solutions and AI to optimise the end-to-end order-to-cash process.

Process Cost as Percent of Revenue

EFFICIENCY METRIC

World-class organisations are able to reduce process cost by 56% in total by leveraging automation technologies

Best Practice:• Ensure high employee productivity by

eliminating manual error prone tasks• E-adoption from paper• Keep a track on high-risk customers to

ensure• there is minimal bad-debt and write-off

Benefits:• Improved working capital and cash flow• Easier cash management

Process Cost as Percent of Revenue

56%

0.014%0.017%

0.026%

0.020%

0.013%

0.005%0.009%0.011%

0.005%0.011%

Peer group World-classCreditCustomer billingCollectionsCash Applcation Deductions

15

What Drives World-class A/R Performance?

ConclusionTrue digital transformation can only be achieved when there is a cross company culture embracing digital processes in every department. A scary thought for many organisations but real game changing benefits can be gained through the automation of end-to-end processes in just one department - Accounts Receivable. Strategic investment can play a major role in helping peer-group organisations catch up to their world-class competitors, whilst enhancing stakeholder’s perceptions of how finance adds value to the performance of the enterprise.

• Automation of clerical repetitive tasks across C2C

Core automation means that costs are low and effort is allocated in the right tasks

• Single, integrated platformMore effective in delivering services to internal and external stakeholders

For transforming the receivables function as part of a world-class journey, finance execs should consider primary technology investments in the following areas:

• AI-driven automation technologyLow-error rates in tasks

• Integrated reporting and analyticsBetter decision making and insight

• Using big-data and machine learningImproved outcomes of A/R actions - faster, more effective collections

Achieved a reduction in Days Deductions Outstanding for their complex CPG receivables process.

Unlocked $6M working capital by leveraging artificial

intelligence Reduced bad Debt by 20% and improved Day Sales Outstanding by 5-6 days through automated

collections

About HighRadius

HighRadius provides a cloud-based Integrated Receivable Platform, powered by machine learning and AI. Our Technology empowers enterprise organisations to reduce cycle time in the order-to-cash process and increase working capital availability by automating receivables and payments processes across credit, electronic billing and payment processing, cash application, deductions, and collections.

© 2020 Highradius . All rigths reserved

HighRadius UK Ltd25 Wilton RoadLondon, SW1V 1LW, UK

[email protected]

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