As a business executive how often do you stay away at night worrying about whether or not your payables have been paid? Probably not nearly as often as you worry about whether you have money coming in on time! While making sure you’re payables are in order is important, many companies put a much larger focus on the money coming into their business, not going out. The specific focus is on optimizing the order-to-cash cycle. According to Aberdeen Research, CFO’s and financial executives are under increasing pressure to improve their overall order-to-cash cycle for the following reasons:
The pressure to reduce overall costs: 67%
From the beginning of the process to the end, the order-to-cash cycle is riddled with inefficiencies that are costing you money. When manual and disconnected processes reign, labor costs increase, the cost per transaction shoots up, and productivity levels bottom out. By increasing your focus on the order-to-cash cycle, eliminating paper processes, and investing in automation, you can eliminate inefficiencies and data silos to reduce overhead, increase order throughput, increase order accuracy, and collect payment faster.
Risk of customer non-payment or default 29%
How much homework are you doing on a customer in the beginning of the cycle before you extend them credit? Many executives are focused on the beginning of the cycle to ensure it’s not slowed down later due to customer non-payment and disputes that will likely result in bad debt. By asking customers to fill out a credit application and customer credit monitoring, you can spot these potential problems and adjust terms accordingly.
Customer demand to improve service levels 29%
A large portion of businesses are focused on their order-to-cash cycle due to customer demand. While these customers may not be calling you up and saying, “you guys need to pull it together, your order to cash cycle stinks!” they may be complaining about how long it takes to get a quote, missed shipping deadlines, incorrect invoices, etc. which are all a part of your order to cash cycle.
For many companies customers do not complain about product or services, because that’s likely where you put most of your efforts; the trouble is usually caused by important, yet neglected areas such as invoicing and accounts receivable, For example:
- Discrepancies between invoiced prices and purchase orders. This is an extremely common complaint usually caused by data entry mistakes in manual systems. Combat this by always double checking invoices before you send them or by investing in the technology to eliminate manual data entry.
- Lengthy dispute resolutions. If you require multiple people or multiple documents to manage an invoice dispute, this can get extremely frustrating and time consuming for you and your customers.
- Slow invoicing processes. If you send paper invoices, it can be very difficult for your customer to pay you within 30-day terms. Electronic invoicing and payment options can help your customers pay you within terms, it will be easier for them, and reduce the costs for both parties.
By focusing on these aspects of the order-to-cash cycle, you will not only be improving customer satisfaction, you’ll be speeding up A/R collection and cash flow too!
Inability to accurately forecast cash flow 21%
A lack of visibility into their financials is another driving factor for organizations to improve their order-to-cash cycle and invest in technology to improve cash forecasting. Balancing and forecasting accounts payable, while it’s not necessarily an easy task, is significantly less of a challenge compared to accounts receivable forecasting. Why? Because you know when your payables are due and you can make a plan as to when you will pay them; you have complete control over that process. A/R on the other hand is really in the hands of your customer. You know when an invoice is due, but for most businesses timely payments are few and far between, so forecasting cash inflows is tough since you really can’t know when you’ll actually get paid. One way to companies are combatting this problem is to build A/R forecasts based on actual customer behavior since their past payment behavior is the best way to predict future actions. Learn more about how to do that here.
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