Companies are searching for a path forward following the pandemic-fueled economic slump. Holding on to as much cash for as long as possible has been a life-saving strategy for many businesses. The propensity for holding on to cash in challenging times has a direct impact on order-to-cash (O2C). Customers request longer payment terms. Clients that previously paid on time are slower to pay. The outcome is heightened financial risk.
While cash management has always been top-of-mind for CFOs, the current environment makes it even more central to their mission. Business is likely down as companies deal with the pandemic. As a result, cash won’t be there to pay bills, fund growth, meet staffing requirements and cover operating expenses.
CFOs need to turn their attention to activities that directly impact working capital and cash flow. In this environment, the downstream implications of inaccurate cash flow projections can be especially disruptive, as noted in a recent Financial Executives International (FEI) blog.
Under normal circumstances, assumptions about accounts receivable and accounts payable balances are certainly more predictable. “Today’s circumstances are far from normal, and ever-changing variables have deemed existing financial assumptions highly inadequate,” the FEI blog stressed.
A winning strategy is not to continue the past approaches but to become even better at cash management. “Companies are looking to emerge from this crisis even stronger, and that means using their cash on hand wisely,” said Phyllis Saavedra is Director of Accounting – Order to Cash Practice Head at Conduent.
The current climate has many companies looking for a partner to elevate their O2C function. Focusing on the lowest-cost workforce will most certainly positively impact the bottom line. However, an effective partner brings technology and subject matter expertise to the table to position the firm for growth in any business environment. A third party’s collective knowledge gained through working with various clients and situations is unmatched.
Why Outsource O2C?
Focusing on O2C is critical for companies of all shapes and sizes, however outsourcing particularly benefits companies that have grown inorganically over the years through mergers and acquisitions. Perhaps they’ve acquired companies with different technology platforms or dissimilar products or services. In addition, combining companies from different regions or industries creates a puzzle that is hard to put together.
When companies merge, the benefits are often achieved through shared services. When there are common accounts among the acquired companies, the advantage of being able to seamlessly service that customer adds value in terms of efficiency and superior customer service.
“In the case of merger or acquisition activity, many accounts receivable and accounts functions are ideal targets for shared services — and with the proper structure — can be streamlined to optimize people, processes and technology,” Saavedra wrote in a recent blog. “This practice gives the businesses a holistic view into customer risk, customer management and daily cash collection activities.”
Bringing disparate systems and processes together is challenging in an M&A situation, but outsourcing can also add value for single entities experiencing organic growth. As organizations look to expand their reach without acquiring additional entities, productivity and efficiency become more central to growth.
Outsourcers can leverage emerging technologies such as artificial intelligence (AI), robotic processing automation (RPA) and wraparound technologies to handle routine tasks, which results in labor savings. That boost in productivity enables the in-house team to turn their attention to more strategic, higher-value tasks.
Labor savings is just one benefit of outsourcing. A third party can provide efficiencies that are not feasible with in-house process. The result is greater productivity due to the third party’s ability to leverage innovative solutions and processes that benefit their entire client base.
Then there is the issue of risk. A partner with laser-focused experience on managing O2C ensures that processes are in place to minimize risk. When an organization is unable to predict which customers will default on their obligations it puts the company in financial jeopardy.
Next-generation solutions partners are ideally positioned to help companies optimize cash, grow revenue, and enhance the customer experience. They have expertise in maintaining audit compliance, identifying customer symmetries, maximizing uptime, speeding up processing times, and providing a 360° view of accounts receivable and customers.
What to Ask a Solutions Partner?
CFOs are conservative by nature and are careful about who they partner with, especially when it has the potential to impact cash flow. Here are a few topics to discuss with potential O2C outsourcing firms:
- What is your experience working with companies of similar size in my industry?
- What steps do you take to ensure a quality labor pool?
- How did you manage the pandemic and the move to remote work?
- What is the ROI?
For more information on outsourcing O2C, download the Proactive Strategies for O2C Transformation ebook.