A View from the Bridge
Martin Kirby, Order to Cash (O2C) industry leader, gives Finance Transformation UK his View from the O2C Bridge on the value in Transforming O2C.
Order to Cash (O2C) is one of the company's most crucial and complex procedures nevertheless, Executives seldom pay real attention to it. It is viewed simply as the set of activities that take you from getting an arrangement through to processing it and becoming paid, links to creating a sale and realising the earnings from it. Whether a single solution could deal with this sophistication, few corporations look to make O2C improvements before a crisis.
A crisis shocks them to realising the Issues and disadvantages of unsuccessful O2C processes. It can be a rude awakening in many Executive leadership teams.
From the continuing COVID-19 pandemic, for example, businesses all around the world awakened. Cash was always king, but now, even more, a priority, and so the boardrooms and Executive teams started to hear from O2C leaders and listen at last of the value this backroom team can deliver. For some, this was late, and they had plenty to do; for others, the journey was well in flight.
The fact is O2C has to make liquidity happen and conserve money for their business's survival; they have to minimise the dangers in and optimise the yields out of the O2C procedure. In the post-pandemic planet, optimisation is crucial.
Even though O2C works deep from the back-office background, the order-to-cash process can enhance nearly every aspect of the client journey. The approach is transversal, cutting across several departments and business areas such as advertising, sales, pricing, bids, and tender to mention only a couple.
In my experience of O2C at a typical manufacturing and service company, there can be up to twenty-seven subprocesses that support the fact this is a complex and essential part of the back office. The function of the business will drive and optimise cash.
The critical areas in a typical manufacturing and service company are:
1. Order Entry and Management
2. Credit Risk Management
3. Fulfilment and Returns
4. Customer Billing
5. Customer Collections
6. Cash Application
7. Dispute Management.
O2C crosses these seven unique functions because O2C often drops between the cracks or is considered too complex to re-engineer.
Though it isn't simple, transforming the O2C procedure by creating a digital system helps businesses boost sales, enhance consumer/customer satisfaction, decrease costs, and make life simpler for workers and, more crucially, for clients.
Indeed, the advantages of altering the procedure and enhancing the process in most organisations with some re-engineering will boost revenues by 1% to 2% per year.
Today, many organisations are working on slim margins, which is a much-needed injection to the bottom line. Therefore, can O2C carry on being out of the spotlight or just be considered too complex anymore!
In my opinion, this must be now. It is time to surface and, in some business, to turn the spotlight on full (no dipped beams) and set about the task of re-shaping to deliver effectiveness and efficiency.
Untangling the Complexity, identify the Shortcomings
O2C procedure is far from perfect in many businesses. Siloed operations, insufficient data, and rigid legacy systems would be the three key issues. The stage and platform approach can help address those pain points. Organisations need to choose wisely the best process to get this underway.
This clarifies that it is impossible to find a readymade software application that can improve and optimise the entire O2C process.
O2C must deliver results simultaneously in two tactical areas.
On the one hand, the process must help deliver client satisfaction, ensuring that orders fulfilled correctly, and the buyers have the best possible experiences.
On the other, the O2C procedure must meet up with the organisation's targets for profit maximisation by maximising earnings and being cost-effective.
Expectations for O2C organisations is now high. A better service demanded. No longer can this be a forgotten back-office function. The stakes are too high.
1. An expectation that O2C must be transparent, with data and performance.
2. Visible in real-time. Visible all of the time 24/7 to avoid doubt.
3. Customers expect and demand real-time data and transparency.
The process cannot be standardised without superhuman capacities, implementing a mix of technology and people and certainly recognised as the case in many companies.
The tangible benefits of unleashing the O2C Process - Show me the money!
As the importance of the customer experience continues to rise, businesses must do everything possible to create their order to cash processes to operate smoothly, making sure that they are paid as fast as possible while giving customers motive enough to stay loyal.
That shouldn't pose a problem if all the links in the chain seamlessly incorporate, and applications can easily exchange data.
Optimising an O2C procedure by deploying a platform involves three quantifiable goals:
1. Reducing the process cost per sequence , as measured by the number of orders each employee or the labour cost per order, as well as the share of automatic transactions.
2. Reduce the number of days' sales outstanding (DSO). A key well-accepted measure. This decreases the processing time and the dispute-resolution cycle and prevents mistakes in pricing, delivery, and billing.
3. Increase customer satisfaction by reducing the deductions on each order or invoice, ensuring payment obligations received on time and in full. Fewer deductions allow the best customer conversation.
Done right, with experienced change teams, O2C transformation may make quite an impact. Deliver real benefit from a back-office function. This value proposition viewed as follows (many studies giving signal on the value derived here):
1. Increase in Sales Revenue by 0.5% to a 3% because the O2C platform helps enhance the availability of merchandise, allows dynamic pricing and promotions, enables increased precision in blocking frauds and boosts the capacity of reps earnings.
2. Savings in Price by 15% to 30%, owing to automatic order creation and the consequent drop in back-office effort of electronic invoicing and cash program, fewer disputes which require resolution, and fewer penalties for late or incomplete fulfilment of orders.
3. DSO - As much as 30% shorter days sales outstanding, thanks to appropriate stock levels, lower process lead times, fewer earnings locked up in collections, and mild, proactive dunning not withstanding improved real time risk management.
4. Major boost in customer satisfaction, thanks to simplified order expertise, Real-time criticism resolution, fewer disputed invoices, and increased process transparency-a catalyst to customer loyalty.
5. Increased worker satisfaction because Job is less repetitive, additional time can be recovered for tactical jobs, sophistication reduced, and a spirit of innovation is more prominent. The latter is the catalyst for further continuous improvement, delivering more efficiency and cost reduction.
In addition to bringing more efficient use of resources, healthier cash flows, improving procedure, this turns an administrative process into a business driver. When end-to-end procedure data Is incorporated, new insights made, and that can induce better service. For instance, data can provide insights into the creditworthiness of new customers and existing clients. Low-risk customers could benefit from different payment arrangements than high-risk customers.
Integrated data also can help businesses increase customer satisfaction. A customer who always pays on time but unexpectedly fails to pay may not need a firmly worded reminder.
It may be preferable to a strategy that the client, through the account supervisor, ascertain if the lapse is due to a misunderstanding and allow the client to pay as soon as they can. The client then feels truly valued at this forbearance approach, strengthening brand loyalty in difficult times when it is most needed.
Enabling empathy will kick off such a virtuous cycle of customer satisfaction that will not happen without a sustainable deployment of an end-to-end O2C platform.
Author: Martin Kirby
Head of Credit Collections and Risk at Scottish Water Business Stream since January 2020. Martin has repeated success in guiding global business strategy by establishing and developing credit, collection and fraud policies and objectives aligned with the company's acceptable risk appetite for commercial, consumer and credit card lending.
Extensive experience in developing risk management framework and scorecard analytics, ensuring compliance with internal and legal regulatory guidelines. Proven history of achievement working with globally recognised brands.